NBA AM: Division Among NBA Owners?
As the NBA reached day 38 of it’s Player Lockout, here are some of the noteworthy news and notes for the day, in today’s NBA AM report:
Division Among The Owners?: John Canzano of The Oregonian hinted at fracturing among the NBA ownership group over the ongoing NBA Lockout. Suggesting that there was a segment that just wanted to reach a labor deal, while others are willing to scrap most of the season in order to extract a harder more lucrative deal for themselves.
This is not a reach.
There is some truth to this idea and that’s something the NBA Players Association is banking on.
Much of the public focus in the ongoing NBA lockout has been how long NBA Players can go without paychecks and support. Their limited savings and poor financial planning is something the NBA Owners are said to be counting on as a barging chip.
However there is a strong belief among the Players that several owners cannot afford to miss a season either and that missing an entire season would push some franchises to the brink of bankruptcy. Which in some ways supports the NBA claim, but is also something the Players are hoping can swing a more favorable deal their way.
This past week’s economic news and abrupt stock market collapse certainly doesn’t help the Players’ case that all is well in the world, and if this week is as volatile as last week as the global markets react to the changes, the next round of talks should be interesting.
When you hear that not every owner is in lock step with the NBA’s labor plan there is truth to it, however at this point no one is ready to break ranks with the David Stern.
There are voices in the room urging for a compromise deal and it’s those voices the NBA Players Association hope have a larger role going forward and it may be those voices that ultimately bridge the gaps to a deal.
IN RELATED: There is a key point in all of this labor talk to keep in mind and that is the role of the NBA Commissioner.
David Stern is an employee of the NBA Board of Governors. He always has been.
While like most CEO’s of mega companies, he has a strong and demanding personality and is very entrenched, which makes him powerful, but he answers to the board none the less.
While Stern does wield tremendous influence over a large number of NBA Owners; the old guard as some call them. This go around on labor talks there is a larger segment of true business guys, the new guard, that bought into the NBA at ultra-high sale prices and almost all of them have been pressuring David Stern to fix the economic problem.
Deputy Commissioner Adam Silver has been running the labor talks, with Stern acting as an overseer. Peter Holt, who is the majority owner of the San Antonio Spurs is the head of the NBA Owners’ Labor Relations Committee and has been charged with reaching a new deal. Holt and his committee have crafted the current labor proposal with Silver and Stern’s input, but to classify this as David Stern versus the NBA Players is a bit misplaced, because that’s not really the dynamic.
However from the very beginning of this process there have been some that have hinted that if David Stern cannot return an owner-favorable labor deal, if he cannot fix the economic morass the NBA finds itself in, there are enough owners in opposition to Stern that he could be replaced or forced out.
There are others that say Stern is not in jeopardy, but that this labor deal will be David’s last and that he views this as his Legacy deal… the deal he will be remembered for.
Add those two scenarios together, and that’s why we find ourselves at day 38 of the NBA Lockout.
In part because there are enough owners pushing for massive change that Stern may not have the support for a compromise deal, even if he wanted it, and whatever deal is reached will likely be what Stern is judged by going forward.
Stern doesn’t call the shots completely, and in this case that may be more true than any other subject.
Don’t put this situation squarely at the feet of David Stern… he’ll be tasked with fixing the mess, but he may not have the total autonomy to reach a deal that some suggest he has.
In this case there are enough owners hurting and pushing that David may have no choice but to fight this to the end and it may mean his legacy is he lost an entire season of NBA basketball.
Hawks Are Sold: The Atlanta Hawks will officially announce that they have reached terms of a franchise sale today, although the news reports have been confirmed by enough people involved to say the deal was done over the weekend.
Alex Meruelo has reached a deal with Atlanta Spirit LLC, in which he will take over majority control of the team with current owners Bruce Levenson, Ed Peskowitz and Michael Gearon Jr remaining on as non-voting minority investors.
Meruelo told Tim Tucker of The Atlanta Journal-Constitution that he has absolutely no plans to relocate the Hawks out of Atlanta and pledged that owning a NBA team has been a long time dream and that he wants to bring a championship to Atlanta.
Meruelo’s deal, which still must be approved by the NBA’s Board of Governors, would make him the first Latino owner in the NBA.
Meruelo and his The Meruelo Group is extremely diversified and said to be worth almost $14 billion. His holdings include a casino in Reno, a TV station in LA and a chain of pizza restaurants geared towards the Hispanic community in California. The Meruelo Group is also heavily involved in commercial real estate and construction as well as equity and venture investing in medium sized companies.
The terms of the deal have not yet been released, but sources close to the situation say the price will be in the neighborhood of $300 million which will include cash and assumption of outstanding debt.
The Hawks still have seven years remaining on the lease agreement with the city which expires in 2018-2019. There is said to be a $75 million early termination penalty that was part of the lease and bond agreement that funded the construction of Phillips Arena.
It’s been reported that there still remains some $123 million in bond debt related to Phillips Arenas so any talk of a relocation of the Hawks would also include some $200 million in penalties to the city and county on top of any fees assessed by the NBA, making a move of the Hawks nearly impossible.
The Hawks have scheduled a 2pm Press Conference to announce the deal, although an e-mail went out to season ticket holders announcing the deal over the weekend when news of the transaction broke.
Buying And Selling: There continues to be some that point to recent NBA franchise sales as proof that owning a NBA team is not a bad business and that maybe the NBA Owners’ claims of poverty are being overstated.
They absolutely are, but don’t rule the recent transactions as proof that the NBA is in good shape, because if you look at the transactions that have closed most of them have either been sold at market value or below when you factor in debt assumed by the new buyer.
Michael Jordan became the majority owner of the Charlotte Bobcats in February of 2010, mainly because he was willing to assume some $170 million in debt. Bob Johnson got some cash out of the deal but by and large the team was liquidated to Jordan.
The Detroit Pistons are said to have been sold for $325 million to Tom Gores, after outgoing ownership tried and failed to extract $400 million for the team on the open market. Forbes valued the Pistons at $360 million in its most recent projection.
The 76ers are believed to have been sold for $297 million, which accounts for a 90% stake in the team on a Forbes valuation of $330 million.
NBA teams are being sold, not because there is great value in owning the NBA right now, it’s because existing owners are dumping their teams and getting out while values are still reasonably good.
The new incoming owners if you are paying attention are mostly high dollar equity investors. People sitting on mountains of cash and see the NBA as a stable place to park cash in such a volatile investing world.
The vanity of owning sports team plays into it too, but unlike a lot of the outgoing owners that had aggressive and unreasonable financing; most of these new deals are based on more reasonable interest payments and smarter ownership groups.
NBA teams are selling because they are selling on the cheap side. The incoming owners are getting depressed assets and are betting on a better labor environment built around profitability which should swing a number of teams from bleeding dollars to steady profits which is why investment guys are looking at the NBA, but only if they can get a good deal and so far the transactions that have gotten done have actually been on the cheap.
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