Don't Buy Into the Complaints of Small-Market Owners

Share the wealth!

That's the battle cry of the NBA's small market owners this week, as eight of them teamed up to write a letter to commissioner David Stern about sharing broadcast revenues equally among all the league's 30 teams.

The letter, first uncovered by the Seattle Times, was authored by Milwaukee owner, Senator Kohl; Memphis owner Michael Heisley; Minnesota owner Glen Taylor; Portland owner Paul Allen; New Orleans/Oklahoma City owner George Shinn; Utah owner Larry Miller; Charlotte owner Bob Johnson, and Indiana owner Herb Simon.

It states, "We are asking you to embrace this issue because the hard truth is that our current economic system works only for larger-market teams and a few teams that have extraordinary success on the court and for the latter group of teams, only when they experience extraordinary success. The rest of us are looking at significant and unacceptable annual financial losses."

"If appropriately managed teams can't break even, let alone make a profit, we have an economic system that requires correction. The needed correction is serious revenue sharing not just modest revenue assistance and we urge you to address this issue on an urgent basis this year."

As things stand now, individual teams are able to keep the money they earn from local broadcast and cable TV. The amount large markets like New York, Los Angeles, and Chicago reap can as much as triple that of the smallest markets, giving the big market clubs easy access to tens of millions of dollars in additional revenue.

This gives those owners a leg up on the competition, and indeed several small-market teams are in tough financial straits at the moment. The Blazers, Jazz, Timberwolves, and Sonics (whose new owners didn't sign the letter) all claim to have lost in the tens of millions of dollars in recent seasons, and most believe the Grizzlies are losing substantial amounts of money too. Obviously, the small-market owners see accessing a bigger piece of the TV pie as a key to maintaining their financial competitiveness.

Reading their letter, it sounds like an open and shut case. The big-market owners should help out the small-market guys for the good of the group as a whole, and prevent the NBA from turning into Major League Baseball.

Wrong.

There are some key differences here between the NBA and baseball that make the owners' arguments ring hollow. For starters, there's the salary cap. Small market teams have already been shielded from excessive competition in the form of player salaries, which explains why the league's two best records belong to teams in Salt Lake City and San Antonio. If a team wants to go out and build a $120 million payroll, they can, but it usually ends up being more destructive than positive — much as the Knicks have found out. So the NBA doesn't have the Yankees v. Royals situations that exist in baseball.

For a second point, where are the other small-market owners? A few names that are glaring by their absence from this letter are San Antonio owner Peter Holt, Orlando owner Rich DeVos, and Sacramento owners Joe and Gavin Maloof. Also missing are the owners of Seattle, Miami, Atlanta, New Jersey, and the Clippers, who operate in larger markets but to an extent operate as small-market teams because of tepid fan interest. If the small-market teams are really getting shafted, it's fair to ask why those owners haven't joined in the chorus.

Moreover, look at the guys who did sign the list, and try to find the source of their financial pain. In most cases, the small market is the least of their problems. Portland's Allen tried to buy a championship with the league's highest payroll and then bungled a new arena project so badly it ended up going bankrupt. Minnesota's Taylor has joined him in going over the luxury tax threshold, and has overseen a bumbling front office that can't win despite hitting the lotto jackpot and landing one of the five best players of this decade. Johnson is only his third season and he's barely spent a cent in Charlotte, so it's not surprising his TV revenues are disappointing.

Then there are the two refugees. Shinn essentially nuked one of the league's strongest markets in Charlotte before choosing, of his own volition, to move to the league's smallest market in New Orleans. Heisley is another relocator, ditching Vancouver and choosing not Anaheim, nor St. Louis, but rather tiny Memphis. In each case, they made the move because local government handouts offset the tiny TV revenues, so it's a bit rich for them to feel entitled to the Knicks' and Lakers' payouts after the fact.

Seen that way, only three of the owners — Miller, Kohl, and Simon — really have a leg to stand on when it comes to complaining about financial pain. The others' wounds have been self-inflicted.

Plus, there's the question of whether the big-market teams' advantages offset their disadvantages. Yes, the Bulls have a monopoly on the Chicago pro basketball TV market, and they earn more money than the Blazers because of it. But that doesn't guarantee them anything in terms of ticket revenue or advertising — not when they also compete with the Cubs, White Sox, Bears, Black Hawks, Illini, and Blue Demons, not to mention the theatres, museums, restaurants, and countless other entertainment options. Meanwhile, Portland residents have the Blazers … and the Blazers.

But the biggest reason not to buy into the small-market owners' complaints is one of simple economics. If these owners truly are operating loss-making businesses, it defies logic that they continue to sell their teams for ever-greater dollar amounts.

The sale of the Sonics for $350 million earlier this year was all the confirmation we need. Seattle was widely thought of as one of the league's worst-performing teams financially, and yet went from a reported purchase price of $200 million in 2001 to nearly double that in just five years. It doesn't take a rocket scientist to figure out that the Sonics, whose books weren't open to the public, were doing better financially than they claimed.

So color me skeptical. I'm sure it's a harder to make money in Indiana than it is in New York. I'm equally sure this was factored into the purchase price when Miller, Simon, and Kohl made their investments in pro basketball. The NBA already has a practical system set up for ensuring competitive balance on the court. It can't also get into the business of coddling owners who choose to buy teams in poor TV markets or move them there.