Slowly But Surely, The Sports Bubble Is Popping

Suppose you’ve got a product that exists in a relatively finite market. Its value is directly related to the amount of money it can generate, whether by its own sale or by the sales it can generate while in your possession. Suppose that you, as an owner, enter into obligations based on that projected value or the projected sale. Then, this being America in 2009, the bottom completely drops out of that market, and you’re left in a financially untenable situation with an “asset” that suddenly isn’t worth nearly what you expected. So, are we talking about home owners, banks, and mortgages… or the professional sports landscape?

Empty Arena
(Look behind Derrick Rose. You see a fellow Bull, three Charlotte Bobcats, and about six of their fans.)

Bill Simmons recently released an impressive column detailing the woeful state of affairs in the NBA from a balance sheet perspective (seriously, it’s a must-read). Obviously, nobody’s going to give him hard numbers; if even 20% of Simmons’ anecdotes and predictions are true, it would be an open call for investors and partners of franchises to flee in terror. But Simmons has enough to forecast a coming dark era for the league, and probably the rest of American sports as well. The, ahem, money quote* is after the jump.

Amazing but true fact confirmed to me by multiple people: Memphis makes about $300,000 per home game. That’s gross, not net. Even more amazing, four or five other teams are within $100,000 of that number.

To put the Memphis figure into perspective, that’s about $12.3 million for the season, depending on how much wiggle room Simmons has with that figure. Meanwhile, there are three Cleveland Cavaliers who are each paid more than that on the year (Lebron, Ben Wallace**, and Wally Szczerbiak***). And again, that’s Memphis’ gross income! And if there really are four or five teams that barely get much more (we’ve got a few guesses), then what we’ve got is a wholly untenable situation, one begging for the C-word: c*cksucker. Err, I mean contraction. Which, ahem, we called about three months ago.

In order to avoid that, the owners will probably try to radically amend the collective bargaining agreement; there was probably never really the kind of money to justify spending $3-5 million a year on crappy players to begin with, but there really, really isn’t now, and that’s a situation that’ll probably not amend itself any time soon. And when the players’ union realizes this? Protracted lockout! Say goodbye to the NBA as you know it!

Even further muddying the waters is the ticket situation. Ticketmaster, whom we all know and just adore, is planning to merge with Live Nation, something that only raised the attention of federal anti-trust regulators. The principal whistleblower in the affair is AEG, the world’s second-largest music promoter… and owner of about a dozen stadiums over here, including the Staples Center. If the merger goes through, AEG is threatening a boycott. If that happens? Yet another front upon which all hell breaks loose.

The NHL, too, is in miserably dire straits. Recall that Phoenix is probably donezo very very soon. Simmons says he heard reports that about half the league is in serious financial trouble (like “poof go boom in two years” bad), and, amazingly, we’re inclined to see that as reasonable. This is the Sports Bubble Kyle Whelliston warned us about. It is real. It is happening. And the days of insane ticket prices and athlete contracts are probably much closer to an end than you ever imagined.