Gladwell: Owning an NBA team like owning a Van Gogh

From a fascinating new longform site devoted mostly to sports, Grantland, the famous analyst and writer Malcolm Gladwell argues

Pro sports teams are a lot like works of art. Forbes magazine annually estimates the value of every professional franchise, based on standard financial metrics like operating expenses, ticket sales, revenue, and physical assets like stadiums. When sports teams change hands, however, the actual sales price is invariably higher. Forbes valued the Detroit Pistons at $360 million. They just sold for $420 million. Forbes valued the Wizards at $322 million. They just sold for $551 million. Forbes said that the Warriors were worth $363 million. They just sold for $450 million. There are a number of reasons why the Forbes number is consistently too low. The simplest is that Forbes is evaluating franchises strictly as businesses. But they are being bought by people who care passionately about sports — and the $90 million premium that the Warriors' new owners were willing to pay represents the psychic benefit of owning a sports team. If that seems like a lot, it shouldn't. There aren't many NBA franchises out there, and they are very beautiful.

The best illustration of psychic benefits is the art market. Art collectors buy paintings for two reasons. They are interested in the painting as an investment — the same way they would view buying stock in General Motors. And they are interested in the painting as a painting — as a beautiful object. In a recent paper in Economics Bulletin, the economists Erdal Atukeren and Aylin Seçkin used a variety of clever ways to figure out just how large the second psychic benefit is, and they put it at 28 percent.7 In other words, if you pay $100 million for a Van Gogh, $28 million of that is for the joy of looking at it every morning. If that seems like a lot, it shouldn't. There aren't many Van Goghs out there, and they are very beautiful.

Gladwell goes on to argue that NBA owners should be happy with the psychic benefits of their teams, and not expect them to make money on a day in and day out basis, but a San Antonio sportswriter doesn't buy it, and knows the NBA owners won't either.    

Gladwell concludes that an NBA owner is losing money “only if he values the psychic benefits of owning an NBA franchise at zero — and if you value psychic benefits at zero, then you shouldn’t own an NBA franchise in the first place. You should sell your ‘business’— at what is sure to be a healthy premium — to someone who actually likes basketball.”

But Gladwell makes no allowance for the economic upheaval of 2008 disrupting the dynamics of psychic benefit theory. Some NBA owners who love basketball just as much as Cuban have been badly buffeted by the recession. The owners of some of the 22 teams reported to have lost money last season no longer can easily afford the psychic benefits they once were willing to absorb.

Trouble is, there’s no reason to expect those owners will soon sell their teams to basketball-loving billionaires willing to treat teams like Van Goghs or Picassos just so NBA training camps will open on time. They would rather crush the players union to get new terms that guarantee profit.

In Las Vegas, they're eager to take bets on the season, but not on whether the season will be played, period. Probably for reason. NBA union chief Billy Hunter is willing to bet the season will be cancelled, and Madison Square Garden's stock was just downgraded due to that likely possibility. 

Could be a very long off-season. 

Published by Kit Stolz

I'm a freelance reporter and writer based in Ventura County.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: