The Diss and the NBA’s Stadium Problem

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The Diss breaks it down

Kevin Draper over at the Diss has written a fantastic piece about the NBA’s stadium problem. We often hear issues about small market teams can’t compete with big market teams. Tangent: the only two teams to make it consecutively to the last ten playoffs are small market teams! Kevin points out that this argument only makes sense if we ignore how teams got to their market. Did the Thunder magically appear in Oklahoma? Did the league have a rule that forced them to be there? How about the Grizzlies, Bobcats, or Pelicans? (that name is still stupid!)

The reason teams end up in these places is quite simple, they get public funding. Kevin made an astute observation. The three oldest arenas are in Sacramento, Milwaukee, and Detroit. These teams have had their stadiums for about 25 years. And of course, these three teams are starting to ask for new stadiums. Alright, at 25 years, an owner would only need an extra $10 million a year to justify a bigger market and lower stadium cost. Except, owners don’t hold teams 25-30 years! Kevin points out that nine teams have been sold in the last five years. The owners logic is clear, get a team, get the city to put up the major costs, sell the team for a ton!

A second look at the Sonics/Thunder

Let’s examine the Sonics’ move. In order to get the stadium ready for an NBA team the city raised over $100 million in taxpayer money. When the Thunder first moved in, they agreed to pay around $2 million a year ($1.6 million for rent purposes, and around $400,000 for naming rights.) This contract ended in 2010, with the Thunder unable to make a deal with the Ford company over naming rights. The current Thunder contract is roughly $3 million a year in rent, with a 3% escalation. Alright, so the city raised a hundred million, which it will make up in rent in longer than it will take for the Thunder to want a new stadium!

Let’s look at Seattle citizens, who were “robbed”. They received $45 million for losing their team. Additionally, they’re set to receive $30 million in 2013, if they don’t get a new team — they should be thanking Sacramento! It’s interesting that the Thunder ownership needed public money to build a stadium, but had money to pay a city that didn’t build a stadium.

Summing up

Examining who “won” in the Seattle/Oklahoma City deal isn’t hard. It’s Seattle. It’s worth noting that economists don’t think public funding should go to stadiums. Of course, basic economics is often ignored by public officials. Kevin’s last point is somber. As a whole, the NBA is hurting itself with this model. If the NBA wants to be successful in 20-30 years, it should be trying to increase revenue. The disparity in how much a television contract in Los Angeles vs. Oklahoma City is staggering. The revenue  difference from attendance in New York vs. San Antonio is staggering. Yet, the NBA isn’t being run by people that will be around in 30 years. Only seven ownership groups have been around that long. No, the NBA is being run by a group that wants to take the money and run, and thus far, they’ve been very successful at it.

-Dre

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