Coronavirus shutdowns will cost pro teams mumblety-something, say sports finance experts

Forbes is starting to focus on the all-important question of whether the coronavirus, in addition to killing tens of thousands of people, will harm the bank balances of some of your favorite multibillion-dollar sports franchises. Let’s give them a read and see if they make any damn sense and/or are affronts against humanity!

First up, because it beat the other one by a few hours, is “senior contributor” Patrick Murray’s essay on the Golden State Warriors, who had the misfortune to open their new San Francisco arena the same year as sports came to a grinding halt (and before that, the same year as its vaunted starting lineup suffered a sudden and gratuitous total existence failure). Take it away, Patrick:

The Athletic’s Anthony Slater has reported that cancelling the remaining seven home games would cost the Warriors in the region of $25m. That’s on top of the money they might have expected back in the fall from a potential playoff run, before Stephen Curry got injured. They might not have been hotly tipped to make a deep run with Klay Thompson out, but most people were expecting a team led by Curry to at least make the postseason. And that would have meant more revenue flowing in. Tim Kawakami previously reported that at Oracle Arena in recent years the Warriors received $4-5m gross per home game in the early playoff rounds. At Chase Center that figure would have been even higher.

Oh noes, the Warriors are missing out on all the playoff money they would have earned … if they’d been in the playoffs, which they weren’t going to be? So maybe it’s just that $25 million for seven home games that is at risk — Forbes has the Warriors’ gate receipts at $178 million per year, so the per-game figure pencils out.

And, of course, the Chase Center isn’t just about basketball, it’s about concerts and other arena events, so how will that work out?

It’s unknown just how much that will cost the Warriors, but in Forbes’ latest franchise valuations just under a quarter of their $4.3bn valuation was attributed to their arena.

Thanks for the math, Mr. Senior Contributor! You’re totally worth every penny of that $250 a month you’re being paid!

The second article is by Mike Ozanian, who is an actual Forbes staffer and the magazine’s longtime sports valuation guru, even if he’s had his own occasional problems with basic math. Ozanian takes on the finances of the Atlanta Braves, and discovers (according to “John Tinker of G.research LLC,” which is apparently a thing that a financial analysis firm has actually decided to call and punctuate itself) that playing only half a season of baseball will, amazingly, cause fewer people to go to baseball games:

Tinker reckons the Braves’ revenue would drop to $174 million, from $438 million in 2019, with attendance dropping to 630,000, from last year’s 2.65 million. The drop in attendance would cut revenue from the gate and concessions to about $55 million in 2020, from $202 million the prior year, and halve the broadcast and sponsor revenue to $118 million, from $236 million.

Player expenses, meanwhile, were lowered by only 50%, to $86 million, and operating expenses and SG&A costs by 40%, to $146 million. Bottom line: Tinker estimates the team will post an operating loss of $59 million, versus an operating profit of $24 million in 2019.

There’s some weirdness here: Why would attendance drop by three-quarters if the number of games is cut in half? (Not that playing games in front of fans is even that likely, but if it does happen wouldn’t you expect there to be some pent-up demand? Especially since games would be played in the summer, when ticket sales are normally the highest? Unless the G.research study assumes that by summer fans will be too afraid to leave the house, which is certainly possible.) And how would broadcast and sponsor revenue fall by $118 million when the Braves’ TV deals with Fox Sports South and Fox Sports Southeast only gets them $83 million a year in the first place? And does Ozanian know for sure that the Braves’ TV and sponsorship contracts would be canceled (or scaled down) if a full schedule isn’t played? Who can say!

If there’s a takeaway here, it’s that while the sports stoppage will almost certainly cost sports team owners big time, the actual bottom-line numbers are going to depend on myriad picayune contractual details that probably can’t be figured out just by looking at profit and loss summaries. And also, in case anyone might think otherwise, that whether a team is paying for their own building (the Warriors are, the Braves mostly aren’t) shouldn’t play at all into financial impact assessments, because stadium and arena expenses are sunk costs that don’t change the calculus of how much added red ink teams will see.

(This is true for local governments that are paying for sports venues, too, incidentally: If your state was counting on hotel-tax revenues to pay off a stadium and hotel-tax revenues are in the toilet because no one is leaving their houses anytime soon, that’s bad, but no worse than if hotel-tax revenues were being counted on to pay for other public expenses. Maybe if you were counting on hotel-tax revenues to soar as the result of people coming to see your new team, but that probably wasn’t a safe bet anyway.)

And, of course, that owning a major pro sports team is so fabulously lucrative that even skipping most or all of a season isn’t likely to bring anyone to their knees. The Warriors turned an estimate $109 million profit in 2019, according to Forbes figures, while the Braves’ Liberty Media ownership group made $54 million. So while losing a season could wipe out an entire year’s worth of profits — that’s not good! — the other way of looking at this is that teams could regain their losses in just the first season of resumed play, whenever that might be. Starting to get why sports leagues are so willing to shut down over labor contract disputes? If you’re a team owner doing this right, you’re playing the long game, or at least the medium-term game, and if COVID-19 is still affecting things like sports attendance in the medium term, we’re going to have way bigger things to worry about than the Braves’ bottom line.


9 comments on “Coronavirus shutdowns will cost pro teams mumblety-something, say sports finance experts

  1. Side non sports note:

    CARES ACT. If you will receive, whenever that is, a federal stimulus check, be aware of the following.

    For those filing single, you will receive $1,200 stimulus for adjusted gross income (AGI) of $75,000 or less. Between $75,000 and $99,000 AGI, stimulus is modified accordingly (see link below) and is phased out with AGI over $99,000.

    For those filing married filing joint, you will receive $2,400 stimulus for adjusted gross income (AGI) of $150,000 or less. Between $150,000 and $198,000 AGI, stimulus is modified accordingly (see link below) and is phased out with AGI over $198,000.

    Further, you will receive an additional $500 for every dependent claimed, regardless of filing status.

    https://www.forbes.com/advisor/personal-finance/stimulus-check-calculator/

    Grandparents in my head: If it sounds to good to be true, it is.

    On your 2020 federal tax return, if your federal refund is “GREATER THAN THE FULL STIMULUS, $1,200 OR $2,400, YOUR FEDERAL REFUND WILL BE REDUCED BY THAT AMOUNT.” If no federal refund or your federal refund is less than your stimulus, there is no offset.

    Note: Still researching if this is also applicable to the $500 for each dependent claimed. However, “I believe” it is true here as well. $1,200 + $500 = $1,700. Federal refund of $1,800 would be reduced by $1,700.

    Reason for the point out. For those familiar with taxation, you understand your federal refund is not only attributable to your total tax liability, but to your “federal withholding” as well.

    There are some of us who claim substantially more exemptions to increase our federal withholding. There is a method to this madness.

    It forces you to live on a reduced income (be gone thou foul credit cards and institutions).
    It results in a greater federal refund, placed into savings to create a 3 – 6 month emergency cushion (Tim, you’re losing interest earned if you had the discipline to do this monthly. Yes, know. Heard this many times before. However, this keeps these funds out of arms reach, enforcing the above).

    • The instructions are pretty confusing, but I’m pretty sure the feds won’t be recouping people from their regular tax refund next year. See:

      https://www.forbes.com/sites/advisor/2020/04/06/dont-worry-the-1200-stimulus-payment-wont-cut-into-your-tax-refund-next-april/#596585485ea8

    • April 6, 2020

      https://www.khou.com/mobile/video/news/health/coronavirus/verify-stimulus-check-and-your-2020-taxes/285-83421484-7a4d-43ae-8e3b-87a225cd2117

      April 7, 2020

      https://www.abc10.com/mobile/video/news/verify/verify-do-you-have-to-pay-back-the-2020-stimulus-checks-video-updated/507-12592d3a-5d1e-453e-8643-c452409944dc

      I stand corrected. My first response upon hearing this story was whaaaat. You understand federal refunds are a result of your total tax liability and withholding credits. Okay. No problem. Will modify my withholding credits to ensure I retain my full stimulus.

  2. I have a feeling the writer from the second article might be under stating the attendance drop in baseball as most of those fans are older like and are scared and won’t be going to any crowded events anytime soon. NFL might
    also be in a similar situation. Sports that attract younger fans who don’t seem too worried like NBA or MLS might fare better.

  3. It truly says something about the state of our civilization when a magazine – even a business magazine – chooses to do a story on how your local (or maybe non local) billionaires will be cruelly affected by the economic effects of a pandemic that is:

    a) Killing plenty of people – heavily skewed to the poor naturally, as well as aged or sick.

    and

    b) Is going to leave many, many people who aren’t significantly affected physically as financial basketcases.

    But sure. Tell me again how much Bezos or Trump “lost” last week as a result of a global pandemic that will likely kill millions (if not tens of millions) before it is done.

  4. FWIW Mickey Arison, the owner of the heat, might have the most difficult financial situation. But not because of the heat…he’s also chairman of carnival cruise line. I would assume the heat just makes his financial situation a little harder. Not that I’m taking pity on the guy, just an observation.

    • According to Forbes, Arison has lost $3 billion in net worth in the last six months. Of course, he’s still got $5 billion left:

      https://www.forbes.com/profile/micky-arison/#311c897c7e62

    • Don’t forget this billionaire. Once the 275th wealthiest person on the planet.

      https://www.forbes.com/sites/danalexander/2020/04/02/trumps-net-worth-drops-1-billion-as-coronavirus-infects-the-presidents-business/#1b0c3c38727d

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