Which teams are borrowing money from the NBA in the current economic situation? It's not just who you think it is.
Depending on the source, 12 or even15 franchises have tapped into a $200 million credit facility provided by the league in February (the lenders behind it are JPMorgan and Bank of America, first reported by Sports Business Journal). This credit line is in addition to another pool of $1.7 billion that already exists since 2003 and uses the NBA's media contracts as collateral, however "the league had already utilized the major portion of that" according to the COO of the Orlando Magic. Each team can borrow up to $13 million (a number upped to $20 million in later reports) of the money depending on previous borrowing according to NBA spokesperson Mike Bass. The league considers this credit line "bridge money" to help a team reach a time when e.g. the general economy has picked up, a new arena is in place, a team has been able to right its finances by reducing operation and payroll cost, and so on. They were quick to assure reporters this was not a bailout for teams in trouble.
As far as I am aware, the league has never made the full list public, just some tidbits came out from league and team statements. I searched around, and below is a summary of quotes and other information on what I could find out. First some general information.
Financials: Portland, New Jersey, Miami, Memphis, Charlotte, Minnesota, Indiana, Oklahoma, Dallas and Denver all have had a negative operating income in the 2007-08 season according to a study by Forbes, with two other teams (Sacramento and Philadelphia) also losing value. The individual team profiles (e.g. here for Portland) provide information on historical developments, key sponsors, and a number of other important facts. In the list you can also see the ratio of debt (incl. for the arena) to estimated team value, which is especially troublesome for New Jersey but not good for a number of teams. The overall economy turning sour likely has not helped teams at the bottom back then to improve much in the last year.
Attendance: Some of those teams also have continuously bad attendance figures, with Philadelphia, Indiana, Charlotte, New Jersey, Minnesota, Sacramento and lastly Memphis at the bottom. And in addition you have to consider that a number of those seats were already heavily discounted via promotions, as columnists like Bill Simmons liked to point out ("Welcome to the No Benjamins Association").
The league would love for you to believe that attendance hasn't been affected, but the NBA's official tally counts only total "customers," counted as paid tickets, comps (seats given to celebrities, sponsors, friends of the team or whomever, a number that can be fudged any way you want), discounted tickets and no-shows. The numbers don't reflect any falloffs with parking money, concessions, merchandise and restaurant/bar revenue around arenas. [...] They definitely don't reflect aggressive giveaways like Chicago's recent buy-one-get-one-free promotion or Memphis' Pepsi Family Plan Pack (four tickets, four Pepsis and four hot dogs for $48). When you hear the Grizzlies are averaging 12,600 a game, that's like Amazon.com bragging, "We sold 12,600 books this week" and glossing over the fact that 65 percent of them were bargain books for $3.99 or less.
Suites: A premium revenue source for sports teams, much more important than a few empty seats. Again Bill Simmons:
Here's a little game to play during your next NBA outing: Look around for how many suites are dark. (You'll notice them specifically in the corners or behind the baskets.) A dark suite means either that nobody bought it or that somebody did buy it for the season, then made the decision, "Screw it, let's save the $1,200 [or whatever the number is] on food and drink and not give tonight's suite tickets to anyone." (Note: Only a handful of NBA teams control the concessions in their arenas.) That makes the less desirable suites somewhat of a sunk cost -- those companies can't get the money back for the season, but at the very least, they won't lose more money on that purchase. What will happen next season? They just won't buy the suite.
After the jump, a look at all the individual franchises especially regarding this new credit line offered by the NBA. I grouped them into three categories depending on a source that said they took the money, or not, or not known/nothing found. The order within the groups is alphabetical by city name (well, "Golden State"...), nothing else. I also added my rating of the financial health from 1 $ sign to 4 $ signs - I would have given a five rating but in the current situation it didn't seem like any team deserved this - and a ($) symbol for a "half point". While this is based on some publicly available information it is still only my opinion and entirely speculative, since I don't have access to team or league financial records or actual credit ratings for the franchises (the NBA loan package was rated as BBB-plus). I also thought about a thumbs up or down symbol to indicate if they took the money or not but scratched that and just gave an opinion in text form. Enjoy, I think I dug up a few interesting things.
"Show me the money" - teams confirmed by a credible source: 7
Surprised? In this context it might be important to note that the Celtics, while being profitable at least in the 2007-08 season according to the study by Forbes Magazine mentioned in the introduction and usually selling out, have a smaller arena than some other teams. And they don't own it, the T.D. Banknorth Garden belongs to the Boston Bruins.
Meanwhile, Celtics CEO Wyc Grousbeck saved $1.5M in taxes by dealing end-of-the-benchers Patrick O'Bryant and Sam Cassell. It's harder to blame him, though, because he was one of the 15 owners who took loans of up to $11.7M from the league to meet their budgets. But how chilling is it that the defending champs are borrowing cash and selling hubcaps? - Ric Bucher, ESPN The Mag
The Memphis Grizzlies have been forced to keep payroll well below the salary cap in recent years as attendance has fallen to less than 13,000 a game, battling Sacramento for last place in the NBA. Securing deals with sponsors and suite owners also can't be that easy in a local economy mostly carried by auto suppliers, finance, real estate. The team was valued at $294 million by Forbes (still up significantly from when owner Heisley bought them in 2000), putting them in 27th place and losing money in 2007-08. Reportedly only a long-term arena lease is keeping the owner in Memphis.
"You have the opportunity to borrow at a very affordable rate, and we will exercise our right to get that money," [Grizzlies owner] Heisley said [...]."It isn't like we definitely have to have the money. It's because it's available. Anyone who has a chance to get low-interest financing (in this environment) and doesn't take it needs to have his head examined." - Jim Masilak, Memphis Commercial Appeal
As far as I can see this wasn't reported in a newspaper regarding the Nets, I got it from a press release of their holding company. It even states that the Nets have borrowed the maximum possible amount, likely in connection with their relocation plans to Brooklyn which seem to stall. I'm quite proud to have found that one :)
New Jersey ranks in the bottom five in terms of attendance with a little over 15,000 visitors on average (ca. 75% of capacity). As stated above New Jersey was also ranked by Forbes in the bottom five for 2007-08 in terms of team value, and while about breaking even and knowing that taking on debt per se is not necessarily a terrible sign, the debt/value ratio of 71% put them by far in last place in that category. In comparison the Magic that are also in the process of getting a new home and not valued much better only had a ratio of 29%. The new arena - potentially combined with acquiring an attractive free agent in 2010 - would be light at the end of the tunnel, not getting it would likely be a very bad development for the team.
Forest City Enterprises, Inc. (NYSE: FCEA and FCEB) announced today that Brooklyn Basketball, LLC, in which the Company has an equity interest, has secured an extension of a $65 million credit facility related to the National Basketball Association (NBA) Nets professional basketball team. At closing, Brooklyn Basketball reduced the principal of the facility to $45 million through a $20 million add-on facility funded by a routine borrowing by the team under the NBA's League-wide Financing Facility. The credit facility, through JPMorgan Chase Bank, N.A., has been extended to September 9, 2010, with a second extension available to June 9, 2011. The $20 million add-on is a combination of five-year and seven-year fixed-rate notes.
Stern said the Hornets have been profitable. Last month, the Hornets announced 80 percent of their 10,700 season-ticket holders from this past season have renewed. "New Orleans is profitable, and they tapped in," Stern said. "I can understand you tap (into the league's line of credit) -- some teams do it to cover operating losses so owners don't dip into their own pockets. Some do it because it's a good idea. The money is inexpensive and the credit line is a good." - David Stern, as reported by John Reid, The Times-Picayune
"We accepted the loan that the NBA made available to all its teams to keep our options open in case these funds are needed in the future," Hornets President Hugh Weber said in a statement sent by e-mail Thursday to The Associated Press. [...] "We are experiencing unprecedented success in ticket sales and sponsorships and by no means was this loan acquired to subsidize our daily operating expenses," Weber said. - ESPN/AP: "Hornets take advantage of loan program"
Besides lifting his team on his shoulders, Paul has done more than anyone to save pro basketball in New Orleans. The last two seasons the Hornets have made the playoffs. There's been a boost in season-ticket holders (11,000, from 6,000 last year) and sponsors, translating into bigger revenues ($95 million for the 2007--08 season, up 5% from the season before) and a rise in the Forbes estimate of the team's value (up 5% to $285 million). The jump in fan interest kept the Hornets in New Orleans, voiding a clause in the team's lease with its stadium that would have let it move to another city. - Monte Burke, Forbes Magazine
The Magic posted a profit in the 2007-08 season, with Forbes placing them at #17 in terms of both current valuation and operating income. The team and local authorities (the City of Orlando will be the owner) are in the process of building a new arena next to the old one tentatively called the Orlando Events Center, with completion planned for the beginning of the 2010-11 season. Seating capacity will increase by about 1000 from the "old" Amway Arena for NBA games. Maybe they should have planned a little bigger for a future when the team around Dwight Howard might attract more people? Though a big difference is that the Events Center is planned to have 56 suites, as opposed to 26 available now.
The Magic confirmed Tuesday that they plan on borrowing $10 million from the NBA, according to Alex Martins, the club's Chief Operating Officer. [...] "In general, the NBA has a leaguewide credit facility, just like the other leagues do. The league had already utilized the major portion of that," Martins said. "The league went out to the 30 teams and asked if they were able to get another line of credit, would we be interested? We said yes. Because of our operational deficits, which will be about a $15 million loss this season, that is not gonna change until we get in the new building." - Reported in blogs of the Orlando Sentinel and the New York Times as among the first teams to take the offer.
No grave apparent financial problems although the owner reportedly ordered the GM to shed payroll at the deadline (which didn't happen) and infamously has sold off a number of draft picks in the past. And they do have some debt. Among the most profitable teams in the 2007-08 season at close to $30 million and around the league average in attendance.
The Suns did not add debt. They replaced debt at a cheaper rate that the NBA had the borrowing power to negotiate when credit was hard to acquire. "It's like refinancing your house," Suns President and Chief Operating Officer Rick Welts said. "It was really good news". - Paul Coro, Arizona Republic
The Kings had the worst total/average attendance in the league last season down a few spots from 2007-08. Still posting a significant profit in 2007-08 according to the Forbes study, there has been speculation Sacramento sustained losses in the double-digit millions last season. Plans for a massive new arena are in the works (Cal Expo) with approval by the NBA, and the team could use the money to bridge the time until then. Rumors about a potential relocation to Vegas where most of the other ventures of the owners reside or to San Jose/Anaheim/Kansas if those plans fail come up repeatedly but have been denied and would likely disappear if the arena plans materialized. A reported "deadline" for this could be March 2010 (just when a team would have to indicate if it plans relocation for the following season).
The NBA will not release the names of the 12 teams, but Mitch Germann, vice president of business communications, confirmed Thursday the Kings will participate. The team did not detail the amount it will borrow or how it plans to use the cash. Team owners Joe and Gavin Maloof and team President John Thomas were not available for comment. - Melody Gutierrez, The Sacramento Bee
"We don't need your money" - teams that have said they are NOT among the borrowers: 4
Which doesn't rule out that they could be borrowing from earlier credit lines or other sources.
An unnamed source, but lets put them into the "not borrowing money" group for now. Attendance was slightly above league average, while team valuation put them on #18 in 2007-08. They did make a nice profit of ca. $14 million back then, and many sponsors and wealthy individuals in the Bay Area are still doing okay.
The most intriguing news from the Warriors lately came the other day in batteries-not-included type size when an unnamed front office figure said that the team was not one of the 12 teams that would be applying for financial help from the NBA's $200 million disaster fund. - Ray Ratto, San Francisco Chronicle
A bit surprising since their valuation is in the bottom 10 and they are losing money according Forbes and other sources, the owners are in the real estate business, and there have been repeated discussions about how to finance the Conseco Fieldhouse Arena and other stadiums owned by an investment group. Apparently they have better credit lines (or ones they can't get out of).
The Pacers aren't one of the 12 teams taking the additional line of credit, which is surprising since the team said it's lost money in nine of the past 10 seasons. A Pacers spokesperson said the team has never borrowed from the NBA's credit facility because the team uses other banking means. - Liza Danver, WishTV8.com
Another team that has lost money in the previous season and is struggling with attendance figures that put them in the bottom five in all categories.
Wolves owner Glen Taylor, who also serves as chairman of the NBA's board of governors, said he is "very concerned" about what the future holds for the league if this current economic climate continues. - TSN.ca
The Timberwolves has slightly more than 5,000 season ticket holders this year, and a total of about 6,000 full-season equivalents. The team has an average attendance of 14,165, ranking 26th among the NBA’s 30 teams. [...] Taylor also said the Timberwolves do not plan to borrow money from the NBA. [...] "I’ve never done that," Taylor said. "We deal with the local banks. … If I need borrowing, I’d just as soon go downtown and talk face-to-face to the people I know." - John Vomhof Jr. Minneapolis St. Paul Business Journal
Another unnamed source, I couldn't find something more concrete. The team was profitable in 2007-08 at about $15 million operating income. The roster is definitely too expensive for the performance of the last year and attendance was among the bottom 10, but they are hoping the "big 3" can turn it around next season.
While the NBA has not disclosed which 15 teams will receive the funds (the Wizards said they are not one of them), it's clear there are a number of teams in need of help. - Tim Lemke, The Washington Times
Teams that wouldn't say yes or no on taking the loan: 19
So since it is unknown if these other teams took the offer or not, from here on out I have to rely on general reports and my pure speculation about additional candidates that took the offer!
Tending to somewhat likely. Convoluted ownership situation seems to make it attractive to always keep looking for additional income sources. Didn't make a competitive offer to Josh Childress last off-season. #20 among all teams in attendance. But made the playoffs the last two seasons (which they couldn't know in February), posted a small profit, and team value has increased by $100 million in the last five years since the buy according to the Forbes study.
We don't disclose our financial information," Bobcats spokesman Michael Thompson said Thursday. "But the fact that NBA teams get opportunities like this really speaks to the strength of our business." - ESPN/AP
Tending to likely. What we do know: #26 in the league in attendance. The team arguably played to its full ability and almost made the playoffs. Charlotte is the second banking capital of the US after NY (e.g. Wachovia), and thus hit especially hard by the current issues in this sector which impacts sponsorship and suite sales. They fired a lot of non-basketball personnel before the season even started after having a consultancy compare their head count to that of NBA teams in similar markets. Bobcats owner Bob Johnson (founder of BET) has acknowledged himself losing money since paying $300 million for the expansion franchise, which began play in 2004-05. In 2007-08 it was operating at a minus of $4.9 million according to the Forbes list, which also placed the value of the team at $284 million second to last only to the Bucks. The owner has hired a company named Galatioto Sports Partners to investigate selling opportunities. One speculation is that minority owner Michael Jordan could increase his stake (at least a bit), and he has expressed interest to do so.
Rather unlikely. Highest operating income in the 2007-08 season, when the team played bad and missed the playoffs. Number 2 in total/average attendance last season despite not always selling out.
Tending to unlikely. Recently plans were unveiled to sell a ca. 15% stake in the team and arena to Chinese investors, but those are primarily ones another partner wanted to sell. Team valuation and attendance is strong thanks to LeBron, putting the team at #5 in the league. Which is especially impressive if you consider that they are coming from dead last in attendance in 2002-03. Team was operating at a profit the previous season.
Tending to unlikely. Owner Mark Cuban has long insisted on keeping a number of tickets highly affordable, and it pays off with the Mavericks leading the league in attendance percentage. The team is steadily increasing in value and ranks in the top 10, yet has operated at a loss in all but two years since he took over (second-worst in 2007-08), but he has stated repeatedly that doesn't really phase him.
"I'd rather win than make more money. I've got money. I'd just rather win. - Interview with Dallas Morning News
Unknown. The team had the highest operating losses in 2007-08, at an estimated $26 million according to Forbes. Getting rid of Marcus Camby's contract and especially going deep in the playoffs could have improved their situation somewhat the last month, but they couldn't know that back in February. Attendance was slightly below league average.
Paul Andrews, executive vice president of Kroenke Sports Enterprises, was unsure whether the Denver Nuggets will take advantage of the available money. "We're still researching the situation and don't have enough knowledge today to give an educated opinion," Andrews said. - ESPN/AP
Tending to somewhat likely. The overall economy in the region is bleak according to a feature story on NBA.com, wich might lead to problems with sponsors. A sellout streak ended after 259 games, but attendance figures continue to lead the league in totals at almost 900,000 thanks to the large arena. And the franchise owns it and was reportedly free of debt before the last season. The article mentions the new loans, but doesn't say if the Pistons are one of the teams that took them.
Dan Hauser, the Pistons' executive vice president of corporate sales, said that the team has tried to be flexible with its corporate pricing options. Rather than maintain a strict price point and sever a long-standing relationship with a corporation because it can no longer pay the price, the Pistons have in some cases reduced the cost or length of the contract to keep its sponsors onboard. [...] "The good news is, we're keeping the majority [of the corporate sponsorships]. The bad news is, we feel it just like the next person." - Dave McMenamin, NBA.com
Tending to unlikely. League average in attendance that has slightly improved in recent years. The team is among the five most profitable in 2007-08 at around $30 million. Success in the playoffs should help to retain sponsorship deals, and as a bonus sponsors are interested to be associated with Yao Ming for the Chinese market (noticeable are e.g. banners in Chinese alongside the sidelines, his presence in T-Mobile ads, etc.).
Los Angeles Clippers
Tending to somewhat likely. Owner Donald Sterling has made and invested most of his money in real estate, a great piece on him and his very questionable business practices that is absolutely worth a read recently ran in ESPN The Mag. He was notoriously stingy in the past (especially before the relocation to LA and then the move to the Staples Center) e.g. refusing to replace injured players, but has become more willing to (over)spend on some players in the last years. By holding on to the team for a long time it has become not only a nice toy for the owner, but also a very good investment massively increasing its value from $13 million back in 1981 to about $300 million now. The team reportedly is free of debt. The large market and comparatively low rent in the Staples Center is highly attractive to the franchise, and continually puts it into profitability year on year despite not really being an attractive team to many fans. In attendance the Clippers rank just above teams like the Wolves and Nets in the bottom 10.
Los Angeles Lakers
Tending to unlikely. The Lakers are - maybe surprisingly low - 8th in average attendance, but on the other hand those ticket prices are high. The team has the second-highest valuation among all franchises, and is operating at a significant profit close to $50 million in 2007-08.
Unknown. They did try to shed Shaq's salary but took on the other worse O'Neal at the last deadline for another year instead of letting Shawn Marion expire to save some more money. Average attendance has declined from #4 in 2004 through 2006 to #8 in 2007-08 and #15 in 2008-09. Since they already lost some money in 2007-08 I would expect that trend to have continued despite reaching the playoffs last season.
Tending to likely. Attendance (see below) is down just a bit from last season, averaging 15,389 this year compared to 15,595 last season. Those numbers put them at 24th out of the 30 NBA teams in 2009 (lost 2 spots). While operating at a small profit in 2007-08, Forbes put the Bucks at the bottom in current team value. The arena is comparatively old (21 years) and doesn't have a lot of modern suites and other revenue sources, and a replacement is long away with not a lot of help to be expected from public funds.
Since the Milwaukee Bucks borrowed money from the NBA before, I asked Bucks' officials if they were taking advantage of the new loan terms. Those officials declined to confirm if the Bucks were one of those teams. The NBA also declined to comment. [...] In 2003, U.S. Sen. Herb Kohl (D-Wis.), the owner of the Bucks, borrowed at least $55 million from an NBA credit facility. - Don Walker, Journal Sentinel
A Wisconsin commission recommended Wednesday giving Milwaukee's aging professional basketball arena $5 million over the next 10 years for maintenance projects. The Building Commission voted 7-1 to provide the tax support for the Bradley center, home of the Milwaukee Bucks. The plan still needs approval from the Legislature - Ryan J Foley, Chicago Tribune
Tending to unlikely. Still the highest-valued franchise and #5 in operating income despite wasting a ton of money on crappy players, coaches, legal scandals, etc. Every Knicks fan knows it won't get better before 2010-11 at the earliest, but that doesn't keep them from buying merchandise like jerseys (Nate Robinson is one of the top 10 best sold jerseys at the NBA Store, as are Knicks jerseys in general) and attending games. The market is just huge.
Tending to somewhat likely. Just broke even in 2007-08, and around the league average in current team valuation. Getting the arena only full to about 80% with attendance figures putting them in the bottom 10 in the league.
Peter Luukko, president and chief operating officer of Comcast-Spectacor (the company that owns the Sixers and Flyers): In an e-mail response Thursday evening, Luukko said, "Any internal dealings within our company or the NBA are strictly confidential." In an earlier phone conversation, Stefanski said, "I don’t get involved in that kind of stuff. I’m a basketball guy." - Tom Moore, PhillyBurbs.com
Tending to somewhat likely. Clay Bennett and his partners just had to pay for the move from Seattle, including $45 million to terminate the lease at KeyArena. Small market, fairly high ticket prices, debt. Rescinded the Tyson Chandler trade around the time when the conditions of the credit facility became public. But the arena is sold out, not unusual in a brand new market. How long will that remain the case?
Tending to somewhat unlikely. While there is no real need I wouldn't put it past the Blazers to have borrowed money, too. Ben explained in an article on Paul Allen's finances back then why they could be among the teams. The team was second in the league in attendance percentage in the last season and #3 in total (up from #7 in 2007-08, #22 in 2006-07 and rock bottom in 2005-06). But it was still operating at a small financial loss the previous season, and as said in the past Paul Allen's resources do not equal the money the Blazers have.
Portland is not mentioned as one of the teams requesting money but despite having some of the deepest pockets in the world, let alone the NBA, Paul Allen's Blazers are far from a cash cow and still lose money each year. - Sean Meagher, OregonLive.com
Tending to unlikely. Attendance is in line with league average, they continually made the playoffs in the last decade, and the team is operating at a profit. I didn't find information on the NBA deal, but they seem to have other sources to get money and a very long term commitment to/from the county.
The Spurs are seeking $10 million in Bexar County bond money for improvements at the county-owned AT&T Center in addition to the $75 million in bonds that voters approved last year. Last week, county commissioners put off approving a contract that would keep the Spurs in San Antonio until 2032, five years past the date in the original deal [...]. - Guillermo Garcia, Express News/MySA.com
Unknown. Average attendance figures, operating income, and team valuation all in the upper half of the league. I assume the league made sure that the Raptors could have access to the same credit facilities like the other US franchises, and is highly interested to keep a presence in Canada. There was not much information to be found about the financial state of the team, but e.g. absolutely no reports about a potential move even if star Chris Bosh would leave them.
Unknown. The Rocky Mountain News just copied the AP story with no further research. One of the smallest markets, but financially prudent in the past and virtually debt free. Team valuation around the league average, and made a small profit the previous season. The owner who was highly respected by the league and his peers died during the current season, yet it is impossible to say if and when that could have an impact on the franchise. It doesn't seem to change anything immediately.
Is there another big name or two among the borrowers that one wouldn't necessarily expect?
As David Stern said and the list above with some illustrious teams indicates, it's not necessarily a franchise that is playing bad and really in desperate need of money that is taking advantage of these new resources, it could be one that is replacing worse credit lines with a better one. Or a team could have other credit sources available but not borrow new money from the NBA (I would suspect e.g. the Pacers and Timberwolves). However it looks like a number of teams are in for some tough times.
If you can confirm other teams that took the money or that didn't and ideally have a source that goes beyond a message board rumor, that would be nice. Which teams would you rate differently? Which teams that apparently took the money are surprising to you?
Other than that, discuss what else you found interesting or speculate in the comments which teams might really be in need to get their salary structure in order. But remember that teams will still need their major stars to attract fans, sponsors, or even new buyers. They will rather try to shed a long contract for a good player who doesn't have that much pull.