According to Mayor Kevin Johnson, it is becoming increasingly likely that the Sacramento Kings will depart Northern California for Anaheim. The final decision, though, has not been made. So while we wait, it might be a good idea to look at how we have come so close to seeing the Sacramento Kings cease to exist.
The story taking place in Sacramento is quite familiar to those who study sports and economics. As Marc Stein reported at ESPN.com:
The Kings have been trying for nearly a decade to replace outdated Arco Arena (soon to be renamed Power Balance Pavilion) with a new revenue-generating building that would ensure they stay in a market that was once known as the home of one of the NBA's most fervent fan bases.
Why is building a new arena in Sacramento so difficult? The sticking point is who is going to pay for it. When non-sports businesses move into a new market, it is considered reasonable that the business actually build their place of business. But in sports, teams typically expect the public to build their place of business.
As Rob Baade and Victor Matheson (two economists who have written extensively on this subject) recently reported in an academic article, it is not uncommon for the public to pick up much of the cost of stadiums and arenas. To illustrate, these authors report that seven arenas have been built for NBA teams since 2000 at a cost of $1.925 billion. Of this sum, the public contributed 83%, or $1.524 billion (and as Baade and Matheson note, there is very little return on these public investments).
So what the Kings are asking for is not unusual for NBA teams. And the Kings would seem to "need" a new arena. After all, according to ESPN.com, the team currently ranks second to last in home attendance. And when we look at team revenue - as reported by Forbes.com - the Kings in 2009-10 ranked 22nd in the league. If this team is going to compete - so the story goes - the Kings are going to need to find a way to increase team revenue.
Of course, not so long ago the Kings were competitive. The Sacramento Kings reached the NBA playoffs in each season from 1998-99 to 2005-06. In 2001-02, the Kings had the best regular season record in the NBA and took the Los Angeles Lakers to seven games in the 2002 Western Conference Finals.
Not only were the Kings competitive on the court, the team also did quite well at the gate. From 2001-02 to 2005-06, the Kings sold out every single home game at Arco Arena. And when we look at total revenue - again as reported by Forbes.com (via the website of sports economist Rod Fort) - we see that the Kings ranked 9th in the NBA in 2005-06.
Since 2005-06, though, the team's fortunes have declined. The Kings will not be in the playoffs this season, and that will mark the 5th consecutive season Sacramento has not seen playoff basketball.
A few years ago, Stacey Brook, Martin Schmidt, and I published a study of gate revenue in the NBA. This study revealed that gate revenue is primarily driven by wins (as opposed to the number of "stars" a team employs). The role wins play in gate revenue is not surprising. And we can see this story when we look at the recent history of the Kings.
As the following table indicates, the Kings earned $126 million in total revenue in 2005-06. Of this total, $50 million came at the gate. Again, the team's fortunes have declined since that season. And as the team got worse, attendance and gate revenue declined. Non-gate revenue, though, didn't really change. Nor did spending on players change very much. But because gate revenue is not what it was, the profitability of the Kings has declined.
Now there are two solutions to this problem. The Kings could field a better team. Again, just five years ago the Kings were successful on the court and at the gate. And the team's revenue picture - relative to what we see today and the rest of the NBA - looked much better. To illustrate, if the 2009-10 team had the same gate revenue as the Kings saw in 2005-06, the Kings would have earned $130 million in total revenue. And that mark would have ranked 12th in the NBA in 2009-10.
Of course, getting a better team requires making better decisions. And making better decisions can be difficult (although as our research has demonstrated, player evaluation in the NBA is not -- relative to what we see in football and baseball -- that difficult). So the Kings have offered another solution. With a different arena, more revenue can be generated by the fans that still show up to see an unsuccessful team. To implement this second solution the Kings don't need to make better decisions. All they need is a taxpayer subsidy.
Given the choice between these two solutions, the Kings clearly favor the second choice. And this illustrates what we often see from professional sports owners. North American sports leagues often argue that some teams are losing money. Consequently they propose solutions - like taxpayer subsidies from fans and caps on salaries from players - to turn these losers into winners.
All of this suggests, though, that owners of professional sports misunderstand how capitalism is supposed to work. A free market simply gives an organization an opportunity to earn a profit. It does not guarantee that a profit will be made.
More specifically, capitalism rewards winners and punishes losers. And that means society gets more of what we want from the winners and we eliminate the firms that are not providing society what we want. Sports owners, though, want to win even if they make bad decisions.
And fans in Sacramento are doing their best to make this happen. In Sacramento there is an organization called Here We Stay. In an effort to convince the local NBA team to stay, this group is not just lobbying the city council and Mayor to do whatever they can to appease the Kings. This group is also engaging in "a mad dash to sell out the Kings/Thunder game on April 11, 2011."
Again, the Kings are a bad team. There is a reason this team is not selling out. But rather than force the Kings to make better decisions, the Here We Stay group is trying to raise money for the Maloof brothers (the team's owner).
If Here We Stay is successful, the Maloofs will have more money and the city of Sacramento will get to continue to watch bad basketball. If Here We Stay fails, the Maloofs will move to Anaheim; where the residents of that city will get to watch bad basketball.
Of course, people in Anaheim can already see bad basketball. The Los Angeles Clippers have been in LA since 1984. In that time, the Clippers have only made four appearances in the post-season. Despite this poor record, the Clippers - according to Forbes.com - routinely earn a profit. Yes, the Clippers - who have made bad decisions for decades - are actually profitable. And it is those profits the Maloofs are hoping to see, whether or not they ever figure out how to assemble a winning basketball team again.
On top of building their own arenas, they have to pay taxes in Canada. American teams don't even pay a nickle. As a result American cities can't roup the money they spent for the stadium's construction, and the stadium becomes a money pit. Just because you build an arena, doesn't mena the team will stay or the team will make money. Just ask the Phoenix Coyotes.
The one thing that made the Kings successful during the times they were successful was the fact that they excelled at playing team ball. In the years since, the Kings have been changing their line up so much that it's hard to imagine that any core group of seven to twelve players could manage the cohesion that is necessary to play good team ball.
There's probably a good book or at least a lengthy essay that could be written about the case study that is the Kings and how the super rich often fail to manage "irrational attitudes of submission to authority" along the lines I've stated and how the super stardom of individual players that draws crowds, undermines the success of the team.
I still have something to cheer though. The Kings' failure as a business when they try to take a position in an already filled market of basketball enthusiasts that is the Los Angeles metropolitan area.
Go the failure of the Maloofs clueless uber-market sophistication!
BTW- love your avatar. RIP RG.
Vegas would also be e huge draw in attracting talented Free-agents.
It's not cold, which is always a big issue for NBA players.
It has a nightlife and an entertainment culture.
Did I mention SIN CITY???
And once again, there would be no competition from an NFL franchise or MLB or NHL team; they will practically be the only game in town.
In fact it will be a bigger draw than if they move to Anaheim, since that will only make them the Clippers version 2.0 in terms of attracting Free agents. Why go to the junior laughable team in LA when you can play for the Lakers instead? Just watch in a few years time when the Clips lose Blake Griffin to the Lakers to replace Kobe.
In Vegas they'll face no such issues and they'll still have all the advantages of playing in a warmer climate and big Television market/draw city.
Wouldn't it make more sense for them to move to Las Vegas?
After all the Maloofs have business interests there (their Casinos and Hotels) and with a lack of an NFL, NHL or any other NBA team, they will be the only game in town and the biggest draw in the NBA calendar schedule for other teams to visit (for obvious reasons).
n Anaheim they'll just be competing with the much more popular Lakers, who practically own the Southern California sports market, as well as, to a lesser degree, the Clippers.
Plus, the NFL, the NHL and the NBA have all been trying to get a team into Vegas for years - it's like the Holy grail for sports franchises - a city where people go to practically throw away their money and their kids college funds.
I'm guessing they probably still want to be in the larger Los Angeles TV market, but being in Vegas, although not as large a TV market, would still make them a focal point of attention as the league falls all over itself to award them the next available All-Star game.
I guess the other sticking point would be whether Vegas would be wiling to cough up the dough to build a modern Arena - but I think given the local business interests in Vegas (Sin city, Casinos, Entertainment) it should be a no-brainer for them.
I guess I am confused by your last paragraph...if I am not mistaken, the premise of your discussion is that bad teams, fare badly financially...that is the capitalistic way. Get a winning team and you will be profitable. But as your last paragraph mentions...the LA Clippers have been dynastically bad, and yet are fairly profitable...?? So the owners of the Clippers are being rewarded for their bad decisions? It is all about markets..and the ability to support these teams. This is essentially driven by population in my opinion....and Sacramento just does not have the #s of folks willing to shell out the exhorbitant ticket prices charged in professional sports today.
Skindoggy
1.) The Kings will be locating in the same general area. That makes that point germane to the topic.
2.) Whenever possible it is a good idea to point out "exceptions to the rules"
3.) Given points 1 and 2 it is just logical and good style to conclude with a summary of these points.
I think what is confusing to you is why the Maloofs would want to try to locate the Kings there. That's the Maloofs' style.
The citizens of the US and other states are led to believe that their tax revenues are used for their own benefit. The shell game assuages their outrage whenever they happen to notice how much of this revenue trickles straight to the top. "It paves the roads." represents common logic. People have no idea the extent to which they are funding their own burglary when they utter the oxymoronic "Support the troops!"
Sports is no different. It's more opium for the masses and those masses aren't in the arena to see athletic achievement. They pay to see "the home team" beat the crap out of somebody else. And if they can't see that, they quit paying.
And Capitalism has always meant there will be losers. By socializing Capitalism, its wealthiest practitioners have a built-in hedge on their bets. Go team!
Otherwise, fewer and fewer teams would be around, as they slowly succumb, because the losers can't make money.
Finally you would have only one team left: a slow elimination tournament!
So, yes, the fat cat owners have chosen to set aside capitalism and embrace socialism. For themselves. Paid for by you.
Or Cincinnati?