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Financial crisis:The crisis and the NBA
The worldwide economic crisis has also hit the NBA. Sponsors are collapsing and league employees are losing their jobs. But not all clubs have been impacted the same.
Sometimes getting NBA commissioner David Stern to make a concrete statement about a problem in his league is like trying to nail jelly to a tree. Stern is an absolute expert when it comes to public relations – knowing how to use a lot of words to say nothing.
That made it all the more astounding for reporters when the commish offered the following answer to the question about what consequences the financial crisis would have on the NBA’s billion dollar business. “The honest answer is: I don’t know. I could be catastrophic. We don’t know and the only thing that worries me is the fact that no one knows.”
Even those not interested in economics have been confronted in the last few weeks and months with new horror stories in the media. Numerous U.S. banks are collapsing. In Philadelphia, the 76ers nervously watched as the Wachovia bank fought for its survival. The financial institution is not just a sponsor for the Philadelphia team. It also owns the naming rights for the 76ers’ arena, the Wachovia Center. The bank posted a loss of nearly 9 billion dollars and only a takeover by a rivaling bank saved the institution.
Philadelphia is not the only NBA club wondering if their sports sponsoring contracts will live through the financial crisis. Wachovia also sponsored the New Jersey Nets and the struggling Charlotte Bobcats, where the management around Michael Jordan is trying to finally stop losses and losing. Wachovia also supports eight college basketball programs, the biggest name of them being the North Carolina Tar Heels. But the bad news in club offices would not end. The crisis also hit Washington Mutual, the fourth largest bank in the U.S. which also has contracts with the Orlando Magic and the San Antonio Spurs.
The crisis is just beginning
Economists assume that the collapse of the banking system has the world facing the largest worldwide economic crash since the beginning of the Great Depression in 1929. And David Stern knows his league cannot avoid being affected. “Sports cannot exist separate from reality,” said the commissioner. The NBA began its growth in an economically stable time. The oil crisis of 1973 was long past when Stern was named commissioner in 1984. The lawyer built the ailing traveling circus into a profitable sports corporation.
Incomes grew through the roof – and almost without even slowly down. The economic magazine Forbes reported that the 30 NBA franchises made a record 3.8 billion dollar turnover in the 2007-08 season, making the NBA financially the third largest sports league in the world behind the NFL and MLB. Since 1994, the average value of an NBA franchise increased by nearly 400 percent from 99 million dollars to 379 million dollars.
So are the good times over with? “The crisis will probably cause an end to the NBA’s growth,” said U.S. sports economist Raymund “Skip” Sauer – an economist blogger for www.sportseconomist.com. “We will see if the business models of the league and the franchises are robust enough for this challenge.”
A couple of small waves have not yet brought the heavyweight NBA into trouble. “But the current downturn is much more serious than previous crises and will last longer,” Andrew Zimbalist, one of the most well-known sports economists, told the New York Times.
That is reason enough to look around and see which teams are most in danger. What consequences could the crisis have on the clubs and their competitiveness? Who are the potential losers? Could the rich and poor franchises drift even further apart? And what does this mean for the highly-anticipated free agent summer in 2010 and the hunt for LeBron James?
Text: Jens Möller
