New arena has Nets’ value soaring, Nets’ profits in the toilet

The new Forbes NBA franchise value figures are out, and the Brooklyn Nets jumped almost 50% in value for the second straight year, thanks to their new arena in the borough of artisanal mayonnaise. Which must mean they’re making money hand over fist, right?

The Nets are on track to lose at least $50 million this season even with an extended playoff run, thanks to a $101 million payroll and luxury tax bill of at least $80 million.

Um, okay, then. There are three possible takeaways from this. One, which is Atlantic Yards Report’s view, is that it doesn’t matter how much money you lose on a pro sports team, since you’ll make it up when it’s time to sell. Two would be that Forbes’ team valuation figures are on crack. (It’s worth noting that the magazine’s annual profit and loss figures have been pretty much on target when compared to data later publicly released, but their team valuations haven’t matched up that well with sale prices.) Or three, people who buy sports teams will pay crazy money to sit in the owner’s box, even if it’s to own a team that has no hope of ever turning a profit. I wouldn’t have picked owner stupidity at one time, but recent evidence has me less certain.


8 comments on “New arena has Nets’ value soaring, Nets’ profits in the toilet

  1. The profit margin is a result of the Nets ridiculous player payroll. They are paying an insane luxury tax this year and it was pretty high last year as well. The current Forbes numbers are based on last year’s finances. If this team gets below the lux tax level, they will have a very high profit margin.

  2. The key is cash flow. If someone were to buy the Nets they’d have a profitable (not counting construction debt) arena, local TV money from the New York market and a fan base that seems willing to pay high prices for NBA tickets.

    On a more important note, what do you think of the Garza signing, Neil? Article you linked to above seems to question those signings. I (a Brewers fan) love it.

  3. That being said, I have to think that the losses will exceed the $50 million in the above article. I’m thinking more like $65 or $70. They’re waiting for Garnett, Pierce and Terry’s contracts to expire.

  4. On Garza: Meh. He’s a consistently above-average pitcher with an injury history. I guess that’s what $13m/year buys you these days, but it’s not like he’s going to make up that 20-game gap between the Brewers and the Cardinals single-handedly. Seems like a “prove to fans that we’re still trying” move more than something that actually makes sense in terms of winning pennants.

  5. Fifty million is nothing for their Russian billionaire owner Prokhorov (worth at least 13 billion). The guy just gave millions of dollars to the Russian biathlon federation. He hired the best coaches in the world and even gave the biathlon team three of his private jets. Money is no issue for him, besides, he controls 45% interest in the Barclays Center so he probably gets some of it back from concerts etc…

  6. I lean toward the view that Forbes valuations are highly suspect. In one year their valuation of the Maple Leafs franchise jumped from $450m to $1bn despite no significant year over year revenue changes.

    What happened? Two media companies desperate for content bought the parent company of the Leafs (apparently Forbes didn’t notice that the purchase price included 3 other teams and a couple of stadiums as well) for $1.5bn give or take.

    Sale price is not always indicative of actual market value. When there is just one example of the asset being sold, sale price almost always is far in excess of the actual value of the asset (see Batmobile, Toronto Maple Leafs, and a bunch of alleged Van Gogh paintings that might be fakes).

    IF Forbes actually did it’s homework, insane auction transactions would not be used to establish a value for franchises. Balance sheets (or reasonable estimates thereof) are required… not cheap and lazy research completed by interns (or less).

  7. Teddy: Actually, the Barclays Center is barely breaking even, thanks to having to discount concert rates in order to lure acts away from Madison Square Garden:

    http://www.fieldofschemes.com/2013/12/12/6420/barclays-center-barely-breaking-even-despite-1-arena-ranking/

  8. With all the subsidies and tax breaks these guys get even if they don’t break even they’ll still find a way to come out on top. Either way it doesn’t really matter because like I said the guy sleeps on piles of money. Just look at Roman Abramovich and the amount of money he has spent on Chelsea in the English soccer league. For these guys losing $50 million is no big deal… its like losing $5 for me and you.