NBA

While We’re Young (Ideas) | At Columbia’s Sports Mgmt Conference

By TERRY LYONS, Editor-in-Chief of Digital Sports Desk

MORNINGSIDE HEIGHTS – Columbia University in New York City was established in 1897 upon completion of the historic Low Memorial Library and 14 other buildings which would make up the campus. The area of Manhattan – the Upper West Side, Riverside – were the Academic Acropolis of New York as Barnard College, Teacher’s College and later the Union Theological Seminary were all established as the 20th Century began and Manhattan expanded to the north.

In 1999, the Alfred Lerner Hall Student Center opened at Columbia. Within the structure is the Roone Arledge Auditorium, dedicated on April 25, 2000 to the Forest Hills born, Columbia Journalism School educated modern day father of sports television production. Among many pioneering accomplishments, Arledge personally produced 10 Olympic Games for ABC Sports, created the game-changing primetime sports property of Monday Night Football and is believed to be the man behind the iconic Wide World of Sports phrase, “the thrill of victory and the agony of defeat.”

The Arledge Center was the fitting venue for the 2024 Columbia University Sports Management Conference, a full-day seminar held earlier this week, and created, hosted by the administrators, faculty and students of Columbia’s School of Professional Studies’ Sports Management Program, a magnificent graduate degree level academic offering by one of America’s finest institutions.

Digital Sports Desk was invited to attend the seminar.

Among the highlights was a 30-minute discussion with former CBS Sports president Neal Pilson which was led by BIG EAST Commissioner Val Ackerman. Pilsen and Ackerman co-taught a course in “Leadership” in the two or three years between Ackerman’s service as the President of the WNBA and her role with the BIG EAST. Pilson led CBS Sports to the heights of sports television during the “Brent Musburger years,” a time when CBS Sports supplanted ABC Sports as the home of the NBA and before CBS gave way to Arledge protégé Dick Ebersol took NBC Sports to the mountaintop of sports with their coverage of every Olympic Games and the MichaelJordan years of the NBA on NBC.

Although the full agenda deserves your look-see, the highlight of the day was a Q&A conducted with NBA Commissioner Adam Silver, hosted by the program’s leader, Scott Rosner who came off the bench to relieve his sports law Professor Joel Litvin who was President of the NBA’s League Operations before he stepped down in 2015. (Get Well Soon to my School of Rock colleague, Joel).

Here’s a good chunk of the Q&A and its presented word for word so you can decide your own conclusions on the various issues surfaced by Rosner. (Some editing has been done for brevity).

Rosner first asked Silver about the NBA’s Collective Bargaining Agreement, the limitations to teams above the salary cap, paying luxury tax and on the “second apron” and the possibility the system will stop dynasties – “We’ve had six different champions over the last six seasons, so I would say that in terms of parity and competitive balance, that’s positive. Putting aside the details of the so-called ‘second apron’ system, the goal is for all teams to have ‘an equal number of chips’ so that every team, regardless of the market size, regardless of how deep the (team) owner’s pockets are, is in a position to compete (and to run a sustainable business).

“The theory is – and its not a perfect correlation in any sport between spending and success on the field/on the court. For instance, in Baseball, the system is not as ‘hard’ but for teams here in New York (spending) does not promise you’ll be successful but it definitely correlates, there’s no question about that. So, the goal of the so-called (NBA) apron is to push down high end spending, that’s no secret. To go to the second part (of Rosner’s question), yes, you can spend more and that will correlate with more success on the court, and I guess the implication is that it could potentially reduce the number of dynasties you have. But, on the other side of the coin, flip to another sport – the NFL which has the ‘hardest’ system, the hardest of any sport, and it hasn’t stopped any dynasties (editorial comment: think New England and the KC Chiefs). In the NBA, I look to a team like the San Antonio Spurs, I think they won four championships in 10 years, spending within reason. Ultimately, for the best General Managers, the best managed teams in our league, they would say, ‘as long as there’s a level playing field, we believe in ourselves. We believe that we’ll be able to compete for a championship. For fans, the goal is not to stop dynasties, but a dynasty that’s created by drafting well, potentially trading well, is very different than a dynasty that’s created by virtue of a team having an unlimited amount of spending power. In that case, what we’ve seen from our fans, even fans who don’t care about ‘that’ team (the club spending), there’s more respect for the competition when the team is built through hard work as opposed to excessive spending.

“In terms of our economic system, ‘we’ve set-out to convince the players – through collective bargaining – that a more competitive system will drive more fan interest and drive more revenue for the entire league.’

“We’re at a point this season, that the average NBA players salary is $11 million. So, if I were representing the players, on one hand you don’t want to see the restrictions, but if you look at the aggregate benefit of a system like this, it’s clearly working by not just generating the $50 million highest level salaries but in a league of 450 players, two-way contracts and all, but an average salary of $11 million is quite spectacular.”

(On team/franchise value) – Rosner noted, media estimates have the average NBA team worth $4 billion – assets don’t increase forever, is it possible we’re seeing a bubble in team value?

Silver: “I have to be careful (to predict future valuations), so my personal view is, if you look at where Forbes or Sportico rates the value of our teams, compared to how they trade, I would say – believe it or not – $4 billion by average under-estimates/under-states the value of our teams.

“There’s probably a lot of economists or people studying economics here, I’m not sure what the precise definition of a bubble is, but when I look, for example, the last 10 years when we’ve experienced avaerage growth of 15-20% a year, it doesn’t seem as though there’s any indicia of a bubble. I also look at the fundamentals of our league, the recent television/media deal we just entered into which is 11 years of guaranteed income. Now, something could always happen to those companies but they’re the most – Disney, Amazon, Comcast – they’re essentially the most blue chip companies – longterm, with collective bargaining. It doesn’t mean there aren’t black swans out there, with things happening in the world. To me, on a spectrum on what could look ‘bubble-like’ and, on the other end of the spectrum, what would look fairly conservative, it would seem to be very solid growth and a solid investment to me.

“One of the private investment (team) owners recently said in a meeting, this is becoming its own asset class, something my predecessor – David Stern – would be pleased to hear because he used to bemoan, in the old days, the major banks really didn;t even have a sports desk, so to say. They didn’t cover us as an industry sector. He viewed sports as a $2-to-$3 trillion dollar asset class.

“Historically, what drove investments in sports teams were the fundamentals, but if you think of them as a rarity, there was an aspect – compared to art – a scarcity value and also a desire for someone to get all the benefits that come from notoriety – the psychic premium of being a sports team owner.

“What you’re now seeing – institutions are now investing in sports teams, in many cases in a very passive way with no rights whatsoever, it would be difficult to assign those same psychic benefits for those investments. So, when you start looking at it as an investment class, they’re looking at the same fundamentals we talked about, as a stand-alone investment, especially one where you might look at a portfolio, looking at things that may trade contrary to the public markets, it (franchise ownership) becomes an important diversifier.”

“I think part of the reason that these assets are so valuable is because of how conservative we are in terms – for example, the amount of debt we allow on our teams – a small percentage based on the franchise value. And, how we insist the teams be governed. Part of what makes these teams so valuable is the trust someone has in investing hundreds of millions, if not billions, of dollars in them. If you allow institutional ownership and maybe those institutions weren’t attached to the franchise as much as (individual) owners or families are, didn’t bring the same passion for it. In general, people are generally fans of the teams and the players and they appreciate what the league is doing, but ultimately, they’re deep support comes on the local level for a specific team. It may be that using institutions over time, may not bring the same result.

We’ve made changes along the way. Some of it got accelerated during the pandemic. For example, we opened up our equity investment opportunities to fund in the middle of the pandemic, as much out of the need. There was concern, at that point it was 2020 and the league was shut down and nobody knows if it’s going to be a year, two years, five years, and (there were) cash needs for the teams. We then opened it up to sovereign wealth funds, as well. It seems to be working right now in terms of minority/passive ownership. It’s a high class problem, because if you have these assets and they’re growing at the rate they are, at some point, we’re going to run out of individuals – wealthy individuals who can cut those types of checks. To compound the issue, there’s all these other benefits you get by being the principal owner, the main, governing owner of the team.

In the – not-so-old days – when you wanted to fill your cap table, so you could borrow a certain amount of money – before we had private equity or sovereign wealth – you could go out to other individuals and say, ‘I’m not in a position to run the team or I can’t because of the time commitment’ and a fairly wealthy individual could put in $20 million or even $50 million. Well, it becomes much harder as the teams go up in value. Think about it, if a team is worth $4 billion or $6 billion, and you can make a $1 billion investment, there’s still $5 billion you have to fill to buy that team. So, you have the institutional investments, but it’s that middle tier that becomes much harder to fill. It will cause us to keep looking at it.”

Rosner: (On international efforts in UAE, but you haven’t played a game in China since 2019, and that inlcudes the time during the pandemic), what’s the strategy? Is it about revenue? Is it about exposure, fan development, talent development? Is it all of those things)?

Silver: The short answer is ‘all of those things, and I’ll expand on it.’

“I’ll start with Africa. This number is mind boggling. We’re at a point where 10% of the players in the NBA, were either born in Africa or one of their parents was born in Africa. We’re seeing enormous growth in terms of player development. Before me, David Stern began programs there, like Basketball Without Borders and we’ve increased it fairly substantially, creating academies, clinics, bringing players over when we play exhibitions in the summer. So, there’s the basketball development but there’s also a business there. We created the BAL, (Basketball Africa League), really a league of existing clubs. It’s an investment right now, but we see an opportunity in the rest of the world just like the United States. Many of the countries are realizing that arena infrastructure can lead to enormous economic development. That’s the arena business not the stadium. If you think of Madison Square Garden in New York, you have the Knicks and the Rangers (NHL) but there are other nights for concerts and other activities. The arenas are these ‘Palaces of Entertainment.’ Many of the leaders of the African countries see the same opportunity.

“Also, as a media matter, as smart phone availability continues to grow. In Africa, roughly 1.2 billion people in 55 countries, and the last I read there’s 500 million smart phones have been delivered in those countries. Ultimately, it’s a media business. and as we travel to these cities it’s a media opportunity, as well.

“China – I think we will bring games back to China at some point. We had a well known incident there, pre-pandemic, with a tweet. China’s government took us off the air for a period of time. We accepted that and we stood by our values. We said ‘this is who we are.’ In that case, it was a general manager (Daryl Morey), or a player or anyone in our league has a right to speak out on matters. That was our red line and we continue to do that. We ended up back on. the air over a year later and we’re continuing to develop the game there.

“I would say the same for the Gulf region. We’ve played games in Abu Dhabi for the last three years. Basketball is the No. 2 sport after soccer. They have a State of the Art arena. It’s where our Olympic team played two games there before they went on to Paris. By the way, another New York school – NYU – has a beautiful campus there. There’s a branch of The Louvre, the Guggenheim. There’s a Cleveland Clinic. There’s a Warner Bros Studio. So many of the main, blue chip US brands are operating there. Institutions, as I said, NYU, great museums, but also commercial brands. I recognize, it doesn’t come without criticism. I certainly think, for us, we begin by following guidance of the US Government, the State Department specifically, regardless of who is in office. We look to what other institutions are there with us, and lastly and most importantly for us, we make a decision on whether we’re making a positive contribution to those societies.

“In the week leading up to our games in Abu Dhabi, we had two clinics, involving 7,000 kids – equally boys and girls. We bring our JrNBA and JrWNBA programs there and I think it’s very additive. People have an opportunity to experience American culture, see this diverse group of players playing over there. But. we’re happy to deal directly with the issues – something that’s not – nothing, these days, is completely clean. You may say, it’s not fair for people to have contrary points of view, but we’ve made the decision collectively as a league, in expanding our league internationally it’s positive. It’s part of our mission to create health and wellness around the game of basketball.”

HERE NOW, THE NOTES: Because of the length of the interview with Adam Silver,this week’s notebook will be cut short. It’ll be back at full strength next weekend.

A few take-aways from the Scott Rosner-Adam Silver interview:

1. NBA Players make an average of $11 million a year
2. The NBA hopes to return to China to play games
3. The Gulf region remains fertile ground for NBA development