Economic impacts of coronavirus could cause huge success gap in NBA and MLB

Sacramento Kings v Phoenix Suns

We’ll never know the true net worth of guys like Robert Sarver, Michael Bidwill, Alex Meruelo or Ken Kendrick, but we can get a rough estimate for most professional sports owners with a simple Google search. Compared to most of us, Arizona’s sports owners are upper crust, but compared to owners in cities like Los Angeles, New York and Dallas, they’re just middle class.

That wealth gap has put Suns and Diamondbacks fans at a disadvantage for years, and it’s about to get even more pronounced for two reasons: First, in leagues with a soft salary cap or no cap at all, owners who are cash rich, not just asset rich, will have a more freedom and willingness to spend in coming seasons. Second, Robert Sarver and the Diamondbacks leading investors are asset rich, but may not be cash rich in comparison to some other owners in their respective leagues.

When you search for someone’s “net worth,” you’re searching for their assets subtracted by their debts. Simple enough. But, the assets that make up net worth fluctuate in value. Take Tillman Fertitta for example, the Houston Rockets owner who draws his net worth from his stake in his restaurant and casino businesses. His net worth has reportedly dropped by 8%, which seems like a modest estimate considering he’s furloughed an estimated 40,000 workers from his businesses. Fertitta has a philosophy of outright ownership, meaning he personally bears all of the risk during financial disasters like the one being caused by the pandemic. Surely, Fertitta has cash saved, but how much?

That’s the big question for owners in soft cap and no cap leagues over the next several years, as leagues try to recover from the lost revenue. ESPN estimates that the short-term loss of sports will cost at least $12 billion in revenue. Many owners incur large amounts of debt when they purchase a team, and end up relying on shared television revenue and game-day event sales to break even. Some pro teams are not nearly as financially solvent as you would think. Brian Windhorst reported that in 2016 the Detroit Pistons lost $45 million after they received their due from league revenue sharing.

Losing money is one thing when the economy is booming, but it’s the bane of an owner’s existence during a market forecast like the one we’re likely to see over the coming months or years.

It’s not entirely clear how well-positioned, or not, the Diamondbacks or Suns are financially - and the net worths of Rober Sarver and the combined ownership group of the Diamondbacks is murky - but the previous actions of both parties paints a clearer picture. For years the Diamondbacks have stood in the bottom-half of the MLB in team payroll, and Robert Sarver has been widely criticized as one of the cheapest owners in the NBA.

So, even when business is booming, the Diamondbacks and Suns leave something to be desired. What about now, during what could be the greatest financial crisis of the 21st century?

They say recessions are yard sales for the rich. That saying could materialize rapidly in the NBA, which allows teams to surpass the salary cap in exchange for a luxury tax. That tax is to be paid straight from an owner’s account to the league’s account. During a time when only a select number of owners will have the means to pay that tax, the success gap in the NBA could become enormous between the haves and the have-nots. In this era of super teams, which owners have the stomach to house three max contracts plus quality role players? Certainly Steve Ballmer, who is by far the richest NBA owner, boasting a $51 billion dollar net worth. Perhaps Nets owner Joe Tsai, with a net worth of $9.7 billion? Of course, those owners already house two superstars on their rosters, and they seem to have the ambition to add another. Ballmer, for his part, completed the $400 million dollar purchase of The Forum on Monday. What recession?

Maybe the NBA mitigates the impending success gap with a short-term hard salary cap. Maybe the MLB imposes some kind of limit on large-market team spending. So far, the NFL doesn’t have to worry about revenue loss, and even still, its problems are mitigated by a hard cap.

Whatever happens, Phoenix sports fans better hope Ken Kendricks shorted Shell Oil stocks, or Robert Sarver made a last-minute investment in Proctor and Gamble.

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