Sonics bleating falls on deaf ears

I’m a guy who has been really interested in the economics of baseball teams and their relationships with their communities, I found the cries of the Sonics ownership group familiar and tiring, and I’ve pretty much tuned them out. It’s the same story every city hears about every franchise, but the short version is “waaah, we’re not making money, we need further taxpayer subsidies in the form of crazy-low leases/civic improvements/tax concessions/etc”.

I didn’t believe the Sonics were any different than any other pro franchise that cries poor while making money hand over fist one way or another. A revenue-sharing lease? How horrible for them. Someone find me a suitable hankie at once, so that I may dab at my eyes. I didn’t follow it closely enough to really comment, though, so I let it go.

But I won’t get particularly fancy here. Take, just for a second, the claim that the Sonics are a horrible, money-losing louse of a team, bound for bankruptcy.

Why would such a team sell for $350m?

The now-former ownership group paid ~$250m for it in 2000, right? So that’s 100m in profit for holding the team for five years, a 40% return on their original investment in six years, and that doesn’t count any payouts they extracted from the franchise directly, or tax write-offs they enjoyed.

I sometimes think about this like it’s owning a classic car you don’t drive. You keep it in the garage, you take it out for a spin every once in a while, keep it tuned and maintained, so every year it costs, say, $1,000 to keep in pristine condition. Each year it’s in pristine condition, the value of the car goes up 10%. So this year it’s worth $50k, next year it’s $55k… but every year, you can claim, with a straight face, that you’re losing money owning that beautiful Mustang.

Dog bites man. Sports franchise claims to be in horrible financial shape, makes owners huge amount of money on sale.

1 thought on “Sonics bleating falls on deaf ears

  1. theberle

    That profit also doesn’t consider that part of the purchase price may have been financed (the part of the equation I also always forget to include).

    As many home-flippers know, if you finance 90% of a $500k house ($50k down), and it goes up 10% in value ($50k), and you sell, you get $100k out of the deal, meaning you actually made a 100% profit, not a 10% profit.

    How much of the Sonics’ purchase price was financed?

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