In addition to the New Orleans Hornets' obvious candidacy for contraction, what other NBA teams should be on the chopping block as the league seeks relief from hundreds of millions in annual losses?
The NBA uses a formula developed by consulting group McKinsey & Co. that handicaps how teams are performing on and off the court given the size of their markets and available resources. This would be the place to start, though the NBA does not divulge the results of the annual study -- which it uses to dole out a portion of luxury tax and revenue-sharing funds.
The criteria, therefore, must be fairly straightforward, though the order of importance might vary depending on the team:
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1) Total local revenues: If a team cannot avoid deep losses, even with substantial revenue assistance from healthier teams, it should be considered for contraction.
2) Annual losses: The teams that are losing the most money undoubtedly are being squeezed by a combination of inadequate local revenues and mismanagement. Both should count.
3) Market size, as defined by number of TV households, since that measurement has a direct correlation to the local broadcast revenues a team can earn.
4) Arena lease terms: As deserving as a team may be for contraction, if the penalty for breaking the lease with its arena is cost-prohibitive, it has to be scratched off the list.
The Hornets, now owned by the NBA, pass the test with flying colors -- with the lone possible exception of ticket revenues, an area in which the team has done better in recent years. According to league gate receipts data from the 2008-09 season obtained by CBSSports.com, the Hornets were 20th in the league, with $28.3 million in net gate receipts. Not bad for the smallest TV market in the NBA, No. 52 in the nation, according to Nielsen. For reference, the next biggest market in terms of TV households, Memphis, netted a league-low $12.9 million in gate receipts during the '08-09 season, the most recent season for which figures have been obtained. The Hornets reported $45 million in net ticket revenue for the fiscal year 2009.
But the Hornets' $9 million in local broadcast revenues in the fiscal year 2009 was a full $3 million less than the Trail Blazers commanded in the nation's 22nd-largest TV market -- and 1/16th of the Lakers' newly inked $150 million-a-year deal with Time Warner Cable in the No. 2 market. Add the crushing debt obligations the team was saddled with, a $16.6 million operational loss in 2008, and an arena lease agreement with a mere $10 million penalty -- which, according to the amended lease, would be reduced by millions in unpaid relocation fees if exercised in 2012 or '13 -- and the Hornets meet enough criteria to warrant a close look.
Plus, the fact that the NBA owns the team removes potential complications that would arise from compensating an outgoing owner. NBA spokesman Mike Bass declined to divulge any procedures for contraction that exist in the NBA Constitution, nor would he address what would happen to the lease penalty or unpaid relocation fee if the Hornets were contracted. Other sports, like Major League Baseball, require 75 percent approval by the Board of Governors to relocate or contract a team.
Memphis, the second smallest TV market in the league after New Orleans, would be second or third on my list if not for a lease agreement with FedEx Forum that reportedly is almost impossible to break. Ditto for Charlotte; as the New Orleans experience has taught us, the NBA never should have expanded there in the first place. But the new franchise is owned by, you know, Michael Jordan, and besides the fact that nobody contracts Michael Jordan, the lease with Time Warner Cable Arena empowers the city to seek an injunction forcing the team to honors its commitment or pay $150 million in liquidated damages. So the Bobcats are safe.
With that in mind, which other teams should be considered legitimate candidates to join New Orleans in my two-team contraction plan, if only owners would seriously consider it?
|New Wolves guard Ricky Rubio would join Derrick Williams and Kevin Love as prize catches in a contraction draft. (Getty Images)|
2) Milwaukee Bucks: Like the Kings, the Bucks have a year-to-year lease at the antiquated Bradley Center, which generated a paltry $5 million in basketball revenues for the team during fiscal 2010. Wisconsin Gov. Scott Walker has opposed state funding for renovations needed on the arena, and lawmakers have rejected extending a sales tax hike used to fund the Brewers' Miller Park to help fund a new arena for the Bucks. In 2008-09, the Bucks netted only $17 million in gate receipts, 28th in the NBA. Despite shrewd personnel moves by general manager John Hammond, it is difficult to imagine the team becoming financially or competitively viable without revenue streams that simply aren't available in the fifth-smallest TV market in the NBA. While longtime owner, U.S. Sen. Herb Kohl, is retiring from Congress, he has recently reaffirmed his commitment to the Bucks and to keeping them in Milwaukee.
3) Minnesota Timberwolves: The problems with the Wolves go much deeper than employing a quirky general manager who is fond of unorthodox personnel moves. They haven't had a winning season in six years, totaled 32 wins the past two seasons combined, and only the Grizzlies were a worse draw at the gate for the 2008-09 season. Minnesota netted only $14.3 million in ticket revenues that season, or a minuscule $350,118 per game. Though Minneapolis-St. Paul is the 15th largest TV market in the nation, the city of Minneapolis itself has borne the burden of financing and maintaining the 20-year-old Target Center -- such a crippling obligation that it makes you wonder if the city would be better off walking away from it and telling Ricky Rubio to go play for the Heat.
According to Matt Lindstrom of the city communications department, the Timberwolves' current penalty for breaking the lease is $42 million, which would be paid to the city as liquidated damages. Given that the city still owes $78.2 million from its assumption of Target Center debt in 1995, pays $12 million a year in debt service, operating costs and other services on the building, is setting aside $50 million in property taxes over 10 years for capital improvements, and has been asked by the team to fund a $155 million renovation of the building, $42 million looks pretty good. It would take a chunk out of the debt still owed and save the city at least $168 million in expenses ($12 million a year for the next 14 years on the lease), plus stop draining the city budget of resources that could be used to, you know, pick up the garbage and catch criminals. From a basketball standpoint, some very desirable players (Rubio, Kevin Love, Derrick Williams, Wesley Johnson) would be among the prizes of a contraction draft. Plus, successful teams in viable markets wouldn't have to continue doing what Minneapolis has done for years: subsidize the Timberwolves.
4) Indiana Pacers: In seeking city funding for operational costs of Conseco Fieldhouse, the Pacers unleashed a scare campaign in which they revealed they have lost money in 25 of the past 27 years and nine of the past 10, including $30 million in both the 2008-09 and '09-10 seasons. So what are they doing there? The Pacers have great fans, great history, a sparkling arena -- and no chance to be a viable business in the NBA, despite millions in public funding for a building in which they reportedly pay an annual rent of $1 and keep all the basketball revenues. Now, with a $33.5 million commitment from the city of Indianapolis, operational and capital improvement costs will be taken care of, too. According to published reports, however, the team must be sold in order for the arena lease to be broken -- and even then, complicated terms tied to the sale price could require the team to pay at least $50 million and perhaps more than $150 million if the lease were broken before 2019. For that reason, the team could be counted along with the Grizzlies and Bobcats as untouchable in contraction talks, but the Pacers have been so unsuccessful for so long, they warrant a spot on the list.