Consider today the indomitable Jeff Clark of CelticsBlog's post, which tackles the issue of what exactly happend to the Celtics' finances in the past season, and what it means for the franchise's future.
Jeff delves into the financials as reported by Forbes, who applies their own methodology of calculating a team's net worth and income. Are their calculations wrong? Most likely; however, in the absence of actual audited financial statements, they're as good as anything else. More-so, Forbes has been doing these types of franchise calculations for years, and I've never seen the NBA publicly contest them or force a correction. Should we take those numbers at face value? Unless the NBA is going to put forth its own numbers that have been certified by an accounting firm, there is no reason not to.
What does Forbes uncover?
It is difficult to draw too many blanket conclusions, but Jeff hits on an important one - operating expenses in the last two years have cause many of the teams' finances to yo-yo. If you consider the Celtics, which is what Jeff is focusing on, you can see that in the years 2009 and 2010, there are drastic dips in operating income. While 2009 makes a bit of sense, since you would expect income and revenue to move together, 2010 makes less sense. Expenses continued to rise at a steady rate and revenue reached its highest in team history, but for some reason operating income shrank. Why?
If we piece together some of the information we have gleaned from the league, Stern & Co. have argued that it has to do with the rising cost of non-player expenses, and I think this makes sense. Salaries, which comprise the most of a team's expenses, are directly tied to league revenue. In other words, if revenue goes up, the salaries go up with it. So that can't be the sole reason in the Celtics' drop; it has to be in some of these other operating expenses that remain undisclosed. What could those other expenses be? If I had to speculate using real world examples, it would include rising costs in things like:
- Team security (air travel)
- Energy prices (airplanes, private cars, office buildings)
- Consumable goods (food vendors)
- There are only seven teams here, which comprises less than 25% of the league. This sample set is in no way predictive; many other teams' calculations did make intuitive sense.
- The reason for comparing the net change with the change in net income is to see what we would expect to see if all other operating expenses were removed from the equation. So if a team had no other expenses other than player salary, how much money would they make?
- By parsing it out this way, we can see which teams have greater unknown operating expenses that may tie into my speculations above. So for example, looking at the Lakers' numbers, you would expect the change in their operating income to decrease, given their change in both revenues and expenses. However, we can see that their operating income decreased by $18 million, substantially more than the $3 million drop calculated from revenues and player expense. So while the Lakers still made a lot of money in 2010, something in their operational make-up drove their income down disproportionately.
- Could any of my speculations contribute so drastically to a decrease in income? Certainly, gas prices could have influenced the bottom line, as five of the teams above reside on the coasts. We know that gas prices rose about 14% during 2010, and that could have influenced the final outcome. The question though is not whether it did, but to what degree.
"Precisely to avoid this issue [of bad calculations], the NBA and its teams shared their complete league and team audited financials as well as our state and federal tax returns with the players union,'' Bass said. "Those financials demonstrate the substantial and indisputable losses the league has incurred over the past several years.'' - NBA Spokesman Mike Bass
Consider as a comparison the sordid tale of NY Congressman Anthony Weiner and his downfall. Without delving too much into the morass, I'll sum it up by writing that his undoing was largely the result of dogged pursuit by the secondary media and their refusal to take anything he said at face value. In the end, Weiner confessed to his lies, resigned, and the news consumer received closure to be able to move on to the next thing worth uncovering. Although the lockout and Weiner are only tangentially related by this tenuous thread, I think it reveals the interest we have as a disinterested party - the desire to solve the puzzle and to help it reach its conclusion. To be honest, it doesn't take much to hook us,either. Whether it is a hokey hunt for a fictitious hamburger hater or the latest Dan Brown novel-to-movie, we like to solve puzzles in the public realm. Whether it is for benefit, bragging, or boredom, very few of us can resist the invitation to solve the riddle. Now, we have a grand riddle before us all, and humble pie be damned; if one of us can crack the code, weaken the player, resolve the strife, save millions, and get David Stern to bow his head in submission, well then...
So hunt we shall.