NBA Ownership And ‘Psychic Benefits’

Everyone has a theory on the lockout. Even Malcolm Gladwell.

Gladwell tried to get to the root of the problem with the owners and why some or most of their demands are a little unrealistic, in his opinion. His theory is that owners do not actually gain much financial benefit from owning an NBA team. It is more of a status symbol. They go into the prospect pretty sure they are not going to make a ton of money on a year-to-year basis. Rather the real money is made in the appreciating value of the franchise.

“Pro sports teams are a lot like works of art,” Gladwell writes. “Forbes magazine annually estimates the value of every professional franchise, based on standard financial metrics like operating expenses, ticket sales, revenue, and physical assets like stadiums. When sports teams change hands, however, the actual sales price is invariably higher.

“There are a number of reasons why the Forbes number is consistently too low. The simplest is that Forbes is evaluating franchises strictly as businesses. But they are being bought by people who care passionately about sports — and the $90 million premium that the Warriors’ new owners were willing to pay represents the psychic benefit of owning a sports team. If that seems like a lot, it shouldn’t. There aren’t many NBA franchises out there, and they are very beautiful.”

NBA franchises, and sports teams in general, may look like business, but in actuality they are not, Gladwell says. The rationale of an NBA owner is more akin to a 14-year-old playing with a new toy. It can be about instant gratification and short-term solutions to gain success. Those are the kinds of thinking that led into the current problem of overpaying role players in a guaranteed salary system.

Yes, there are reasonable owners. But for every Jerry Buss there is a James Dolan. For every Mark Cuban or Peter Holt, a Donald Sterling.

The psychic benefits of owning an NBA team far outweigh their business value in a lot of cases. Besides, NBA teams, because of the overall health and popularity of the league, seem to always appreciate in value. The old owners almost inevitably sell for more than what they bought it for, Gladwell claims.

Like a good wine (another item that has a large psychic benefit), NBA franchises age well.

Except that is not really true, as Tom Ziller of SB Nation points out.

While it is true that the Hawks, Warriors, Pistons and Wizards all sold above the Forbes valuation of the teams and well above the value the previous owners originally purchased the teams, it is also true that several recent teams sold for less than the original buying price. Ziller notes the Nets, Bobcats, 76ers and Hawks all sold below their original sale price. These team’s former owners all ultimately lost money on the NBA enterprise.

Maybe that is a sign that the NBA is in some of the trouble the owners claim they are in. Their franchise’s values are still relatively increasing, but there is no guarantee anymore. Certainly in the current economic climate, making a dollar is a lot more difficult with mediocre players expecting higher salaries at guaranteed rates. Some change is needed — and the players recognize it with some of the concessions they have been willing to make.

“If team values aren’t rising like they used to, owners need to shore up the books and ensure they can turn a profit year-to-year,” Ziller concludes. “Team values clearly aren’t guaranteed to go up unabated, which leaves only operating margin as a vehicle for return on investment. And while psychic benefits will no doubt continue to play a role in team ownership, there’s no reason that economic benefits can’t also play a role going forward.

“There’s no reason the 30 divisions of a company with $4 billion in annual revenue can’t be profitable, even if they get the biggest kick out of watching their beautiful teams play basketball. It’s in the best interest of the players, the fans and the owners that teams make money. To ask for sustainability isn’t a high crime; the way the owners have gone about it is what deserves our ridicule.”

Ultimately, the psychic benefits of owning an NBA team play a small role in this matter. You do not buy an NBA team without recognizing you are joining something of an elite club and gaining a lot of notoriety and prestige because of it. But with many of these same owners now losing money in their “day jobs” because of the down economy, it is not surprising to see a whole bunch of them suddenly perk up and think, “Why isn’t this wing of my business making money and sustaining itself?”

The economy possibly could be causing some business sense to creep into this otherwise luxury item. And if that is really what is happening, then the NBA’s business model begins to look much worse.

Ultimately, it may take some of these same owners coming to grips with why they own an NBA team and what those psychic benefits are. They likely will have to determine if the intangible costs added from Gladwell’s psychic benefit offset some of the losses a team otherwise accrues. Until that point, the NBA is going to remained locked out at the whims of the owners.

Photos via

About Philip Rossman-Reich

Philip Rossman-Reich is the managing editor for Crossover Chronicles and Orlando Magic Daily. You can follow him on twitter @OMagicDaily