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Will The Hard Line Owners Keep Stern Hostage?

While the players association has been willing to compromise in negotiations to end the lockout, offering sizable reductions in the percentage of BRI (basketball-related income) they receive, a new group of hard-line owners is pushing for no compromise whatsoever.

As Billy Hunter said in a public talk last week, David Stern’s hard-line negotiating tactics don’t necessarily reflect the interests of all 29 ownership groups: “In the last six or seven years, there is a new group of owners to come in who paid a premium for their franchises, and what they’re doing is kind of holding his feet to the fire.”

At the forefront of that new breed is Robert Sarver, the majority owner of the Phoenix Suns. In 2004, he purchased the Suns for the then-record amount of $401 million. But as soon as he acquired the Suns, his checkbook closed.

For years, Sarver has infuriated Phoenix fans by operating the franchise on the cheap. The draft, instead of replenishing the team’s talent level, was used to replenish his finances. Since 2004, the Suns have sold the rights to Luol Deng, Nate Robinson, Rajon Rondo, Rudy Fernandez, Sergio Rodriguez, Serge Ibaka and Craig Brackins for cash and a few aging veterans.

Instead of building a championship core around Steve Nash, they let Joe Johnson and Amar'e Stoudemire walk in the prime of their careers. As a result of those moves, Phoenix is an aging, capped-out team desperately in need of a youth movement, but they’ve steadfastly refused to pull the trigger on dealing Nash. Many suspect it’s because Sarver won’t accept the loss in revenue dealing Nash would entail. Under Sarver, the Suns have been a franchise incapable of thinking long-term.

And while the finances of the super-rich are extremely opaque, the obvious explanation for Sarver’s spend-thrift ways is that he can’t afford to do anything else. A banker whose the son of a prominent Tucson businessman, he doesn’t have nearly the money of the NBA’s billionaire set. As of 2005, he was worth only $400 million, and it is likely that a large part of his net worth is tied up in the Suns.

The reason the new breed of owners is so insistent on ensuring “cost certainty” is because owning an NBA franchise is their primary means of income. What they fear is a scenario that played out several times over the last decade, after the collapse of the housing bubble and the tightening of credit throughout the global economy. The fate of Tom Hicks, the former owner of the Texas Rangers (MLB) and Dallas Stars (NHL), has to be weighing heavily on the mind of owners like Sarver and the Maloof brothers, and it explains why they are so willing to jettison an entire season if the players union doesn’t completely fold.

Hicks is a Dallas real-estate magnet who made a fortune on leveraged buyouts, taking out loans on his existing assets to buy up larger corporations, under the assumption that he could flip them for a higher price. In Dallas, he quickly gained a reputation as a free-spender, winning a Stanley Cup with one of the highest payrolls in the NHL and then stunningly giving Alex Rodridguez a 10-year $252 million deal in 2001, all in an effort to quickly raise the value of the teams he purchased.

A consummate deal-maker, he wasn’t content, and in 2007, he completed an audacious takeover of FC Liverpool, purchasing one of the English Premier League’s biggest teams for $440 million. But Hicks didn’t have the paper wealth of a lot of the EPL’s foreign owners, and most of that purchase was backed on loans off the value of the Rangers and the Stars.

English soccer fans, already distrustful of American ownership, quickly soured on the penny-pinching ways of Hicks and his partner George Gillett. And when the economic collapse took a dent out of Hicks’ assets, he didn’t have the money to recover. The interest rates on his loans skyrocketed and all three of his teams began furiously cutting costs, to the point where the Rangers had to receive a loan from MLB just to make payroll.

Hicks was forced into bankruptcy, selling all three franchises and losing hundreds of millions of dollars in the process. That’s a scenario the NBA’s smaller owners are desperate to avoid, and if it means canceling a season in the process, so be it.

What makes the situation so frustrating is they could easily find buyers for their teams and walk away inordinately wealthy. They just don’t want to give up the prestige of ownership. In essence, players are being asked to subsidize the poor business decisions of a handful of over-leveraged owners.

Stern is confident the NBAPA will fold like they did in 1999, when the first missing paychecks were all the leverage owners needed. If they don’t, the great “known unknown” of these negotiations is how united the owners actually are. If push comes to shove and the season is on the line, will big-market owners worth billions of dollars be willing to sacrifice their bottom lines to help out their poorer brethren?

 

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