Tag Archives: NBA markets

The win exchange rate

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All wins are not created equal. When we say Kevin Love is worth $45 million and Kobe Bryant is “only” worth $20 million, we leave out the fact that wins are worth more in Los Angeles than Minnesota. This didn’t sit well with Arturo, our Director of Analytics. He decided to break down the difference in the value of a win for each market. It turns out that not all markets are created equal. For example here’s LeBron James’ value across markets.



What’s the value of a win?

Arturo did an estimate of each team’s net operating income. This is basically how much money the team brings in (from ticket sales, TV deals and main revenue streams) minus the cost of the players salaries. Using this number as a baseline Arturo estimated how much a win was in each market and there were some pretty big differences.


Summing up

The most interesting thing to me is that the large market teams are getting a huge discount. Even up against the hard cap, the Lakers are essentially paying half price for their wins. At the same time various small market teams (sorry New Orleans, Charlotte and Indiana) are in major trouble unless they are a contender every year. The big market teams have a major advantage against the small market teams. It’s not that they can buy more wins; in fact, the numbers show spending is a very poor predictor of winning. No, the major advantage that the big market teams have is that they can afford to lose. Small market teams don’t have the same luxury.

If we ask who the salary cap helps it turns out it is the big market teams. The fact that any big market can only spend around $90 million means that as long as they produce pedestrian basketball (see New York) they’ll be fine. The “competitive balance” myth we keep hearing about and the “need for salary control” might just be rhetoric by big market teams that want to get an even bigger discount. This will come at the cost of the small market teams and the players, who may very well go along with it, believing that it’s for the best.

-Dre

Could Your City Give a Sports Team a Good Home?

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Arturo Galletti is the Co-editor and Director of Analytics for the Wages of Wins Network. He is an Electrical Engineer with General Electric in the lovely isle of Puerto Rico, where he keeps his production lines running by day and night (and weekends) and works on sport analysis with his free time.

“In the middle of difficulty lies opportunity.”

-Albert Einstein

Can your city Support a new Professional Sports Team?

Let’s start with the graphical answer.

What inspired this particular graph? A few posts back, fellow WOW writer Devin Dignam identified 6 cities that  are very difficult markets for their NBA teams. I liked this post a great deal. So much so, that I decided to extend it and flip it around. Rather than ask who shouldn’t have a team, I decided to ask who should.

In my previous post on the state of the lockout, I pointed out that  NBA bemoans its economic situation and shrinking profits but their approach at solving the problem is fairly narrow.

The profit equation for any business is simple : Profit = Revenue-Costs. The NBA is focusing largely on cost-cutting (and mostly on the player side) and are leaving a humongous opportunity on the table to increase revenues.

It all comes back to a simple question: Which cities can best support an NBA team? Or for that matter, any professional (MLB,NFL,NBA or MLS) sports team ?

If the NBA can properly answer this question, they can go from worrying about shrinking profits and contraction to talking about record revenues and expansion.

Let’s see if we can help them out (while answering the broader question).

Before we get to the good stuff, I need to get some explanations of terms and links out of the way:

  • The work done in this piece draws a lot from the fantastic work by The Business Journals site in their OnNumbers section. Particularly their pieces on Sports Capacity , Overextended Sports Markets, Viable NFL, MLB and NBA markets  as well as the link to Metropolitan Areas Total Personal Income for 2010.
  • The data for this piece is a drawn from the US Department of Commerce (for US markets), OnNumbers estimates for Canadian Markets, and the Goverment of Puerto Rico.
  • “Pro teams”: the number of NFL, MLB, NBA, NHL, and MLS teams in a city. The cost of adequately supporting a franchise was estimated by OnNumbers  to be:
    • $85.4 billion for MLB
    • $37.6 billion for the NHL
    • $36.7 billion for the NFL
    • $34.2 billion for the NBA
    • $15.4 billion for MLS.
  • “Total personal income(TPI)”: the sum of all money earned by all residents of an area in a given year. Using team revenue data and average ticket prices one can calculate amount of TPI needed to adequately support a team in each north american professional sports league.
  • “Available personal income(API)”: simply TPI less the cost it takes to support the city’s pro teams. If API is positive, it means that you are good to go for a franchise. If API is negative, then you really need to figure out where you are going to move your team. Only teams in the NFL, MLB, NHL, NBA and MLS are counted for this calculation.

All that nice data is here as a google doc .

Let’s start with the negatives first. Which markets cannot support the teams they have?


There are 19 cities that qualify as overextended. The table ranks each city in terms of the gap in income to support the franchise as a percent of the Total income for the metro Area. To me, this is an important distinction because it allows to identifies markets like Indianapolis, Charlotte, San Francisco, Detroit and Salt Lake (15 thru 19) that could very well be able to support the current franchise load if they achieve some measure of economic growth in the next few years.

Milwaukee comes out on top of my rankings because I am assigning them a 70% share in supporting the Green Bay Packers.  The cities in the top three (Milwaukee, Cleveland and Denver) reveal an interesting problem: as it decreases in popularity, Major League Baseball is going to find it increasingly difficult  to support the current franchise load. Eight of the ten teams in the top ten field MLB franchises and would clear their gap by losing those teams.

For the non MLB cities on the list:

  • Buffalo is already in an NFL timeshare with Toronto.
  • New Orleans had the NBA repossess their team.
  • Winnepeg gets the benefit of the doubt in hockey-mad Canada.
  • Nashville is a victim of NHL overexpansion and can be addresed by a quick relocation

The NBA has 11 teams on that list. They break out as follows:

  • Victims of a bad economy: Pacers, Bobcats,Warriors,Pistons, Jazz.
  • Cities with a johnny-come-lately MLB expansion problem: Denver, Phoenix.
  • Candidates for relocation: Bucks, Cavs, Hornets and Timberwolves.

The NBA needs to be thinking about finding markets for these four teams. Let’s identify the candidates.

There are 37 markets in the US and Canada that could support a new or an additional NBA Team. New York and LA lead the list but already carry two franchises each, so let’s leave them as backup options. Of all the candidates with an NBA team already, I am only going to consider Chicago. That gives us:


That’s 23 markets available for expansion (including Puerto Rico yay!) plus a second Chicago team as number 24. The most logical candidates to me would be: Chicago, Riverside-San Bernardino-Ontario (the Inland Empire), Bridgeport-Stamford-Norwalk or a general Connecticut team, Vegas, and Montreal as fallback option. So one option could be for the NBA could “encourage” their owners to say:

  • Move the Bucks to Chicago
  • Move the Cavs to Conneticut
  • Move the Hornets to Vegas
  • Move the T-Wolves to the Inland Empire

Every single one of those owners would see their franchise value significantly accrue  from such a move. Each one would be a trade up in terms of market size and income available. An additional plus is that 3 of those markets would be NBA only and new markets for the league.

Plus I can see the jerseys now for the Empire team:

Those are not the balls you're looking for

Sometimes, these things just write themselves.

-Arturo

6 cities that could support NBA teams

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The other day I wrote a short post about six NBA cities that shouldn’t have NBA teams. Reader greyv knew exactly where I was headed with this, because now I’m going to look at six non-NBA cities that could support an NBA team.

A quick explanation of terms is at the bottom, because we know that everyone would rather get to the good stuff first!

6.  Austin, Texas

  • Metro Population: 1 716 289
  • 10 year Population change: +37.3%
  • Pro teams: 0
  • Total Personal Income: $66.9 Billion

Texas already has NBA teams in Dallas, Houston, and San Antonio. But Austin is growing very quickly, currently has no pro teams, and can pull people from surrounding areas like Houston, which is the 5th largest market in the US (in terms of total personal income). Like all of these cities, Austin also has the facilities to host NBA games.

Dre’s relocation recommendation – Let’s move the Bucks from Milwaukee here. Texas needs another talented injury prone international center!

5. Las Vegas

  • Metro Population: 1 951 269
  • 10 year Population change: +41.8%
  • Pro teams: 0
  • Total Personal Income: $69.3 Billion

It should be no surprise that the host of the 2007 NBA All-Star weekend is on this list. Like many cities, the area has suffered a bit during the recession, but still boasts an impressive 10 year growth rate and has no other pro teams. If the NBA can get over the gambling issue, Vegas is exactly the kind market the NBA should enter.

Dre’s relocation recommendation – How about we move the Denver Nuggets here. If Devin is going to move my team I’d like to keep it within road trip distance of Colorado.

4. Bridgeport-Stamford-Norwalk, Connecticut

  • Metro Population: 916 829
  • 10 year Population change: +3.9%
  • Pro teams: 0
  • Total Personal Income: $69.9 Billion

While the area doesn’t have as large of a population as current NBA cities, it’s very wealthy and doesn’t have any pro teams. It would be Connecticut’s first NBA team, and relatively close to New York City. Perhaps they could name the team after P.T. Barnum in some way? That’s all the Bridgeport knowledge this Canadian has.

Dre’s relocation recommendation – How about the Utah Jazz? The Jazz should be required to be in a city that has nothing to do with their name.

3. Montréal, Québec

  • Metro Population (2006): 3 635 571
  • 10 year Population change: +9.3%
  • Pro teams: 2 (and one CFL team :))
  • Available Personal Income: $83.0 Billion

Montréal is certainly a world-class city, and it has produced several relatively high-profile basketball players (Bill Wennington, Samuel Dalembert, Joël Anthony, and Juan Mendez come to mind). But everyone knows that Montéal is a hockey-town. Could the city that abandoned the Expos harbour an NBA team? The only way to know for sure would be to give it a shot.

Dre’s relocation recommendation  – How about the Minnesota Timberwolves?Canada needs some Love and the move isn’t that far.

2. Riverside-San Bernardino-Ontario, California

  • Metro Population: 4 224 851
  • 10 year Population change: +29.8%
  • Pro teams: 0
  • Total Personal Income: $125.8 Billion

Like Texas, California can support another NBA team, and the region around the impostor Ontario would be perfect. The Inland Empire has a very large income base and no pro teams. Bonus to (most) NBA fans and 28 of the NBA’s owners: the area is very close to LA, and would likely reduce the income bases of the Lakers and the Clippers, who have been exploiting their large income bases in very different ways.

Dre’s relocation recommendation – The Cleveland Cavaliers. With the Clippers improving thanks to Griffin’s amazing play we need another terrible team in California to take its place.

1. New York City

  • Metro Population: 18 897 109
  • 10 year Population change: +3.13%
  • Pro teams: 10
  • Available Personal Income: $587.3 Billion

I know what you’re saying: “New York? But it already has two teams!” Very true. But NYC is the biggest market in the US, and it’s not even close — its total personal income is nearly double that of LA, which is the second largest market. Look at that available personal income! New York could probably support several additional NBA teams, and it would help to make the NBA more balanced. In the past, the Knicks have been able to spend and spend with little consequence to their bottom lines. A couple more NBA teams in the city would bring the Knicks back towards the rest of the league.

Dre’ relocation recommendation – The New Orleans Hornets. Chris Paul wants to go to New York and he could do so without having to play with Melo!

Explanation:

  • “Metro Population”: the population of the Metropolitan Statistical Area.
  • “Pro teams”: the number of NFL, MLB, NBA, NHL, and MLS teams in a city.
  • “Total personal income(TPI)”: the sum of all money earned by all residents of an area in a given year. Using team revenue data and average ticket prices one can calculate amount of TPI needed to adequately support a team in each north american professional sports league.
  • “Available personal income(API)”: simply TPI less the cost it takes to support the city’s pro teams. Minimum income bases were estimated (see linked article) to be $85.4 billion for MLB, $37.6 billion for the NHL, $36.7 billion for the NFL, $34.2 billion for the NBA, and $15.4 billion for MLS. If API is positive, it means that you are good to go for a franchise. If API is negative, then you really need to figure out where you are going to move your team. Only teams in the NFL, MLB, NHL, NBA and MLS are counted for this calculation.
  • “Win/Loss Record”: win-loss record, which includes winning percentage
  • “Playoff Appearances”: the number playoff appearances divided by the number of years in the NBA

- Devin

Coming tomorrow – Arturo batting clean up provides the ultimate article on NBA teams and the cities that deserve them.