Forbes has released their valuations of NBA teams for the year 2008. Do the teams at the top really deserve to bet there?
Let's take a closer look at the top 5:
1) New York Knickes.
Valuation: $613 Million
Current Record: 8-10
2) Los Angeles Lakers
Valuation: $584 million
Current Record: 15-2
3) Chicago Bulls
Valuation: $504 million
Current Record: 8-11
4) Detroit Pistons
Valuation: $480 million
Current Record: 11-6
5) Cleveland Caveliers
Valuation: $477 million
Current Record: 15-3
What? 15-3? These guys are only a 1/2 game back from the lakers and we're a little over a 1/5 of the way through the season. And although the East has improved significantly in recent years, they are still top heavy, and lack the depth of the West. I cannot WAIT for the Cleveland-Boston Eastern Conference Finals.
Anyhow, we can see that team valuation has little to do with how the team performs. Chicago and New York are perenially among the most valuable despite being bottom feeders for the past few years. Which is no surprise as New York is the single largest media & entertainment market in the US and Chicago is the city where Jordan took flight.
What may seem funny about the valuations is that they have seemingly no relationship to income. Usually, businesses are valued based on how much money they can earn in the future (which tends to be related to how much profit they make currently). If we think of worth in its purest sense (what someone else will pay for it) then it starts to make more sense.
The NBA is a unique type of business in which expenses can vary wildly from year to year. A significant proportion of a team's expenses lie in its payroll. The Knicks, for example, have one of the league's highest payrolls this year at $98million. But due to some drastic cost cutting measures (like disparaging the entire team) the Knicks only have $69million in payroll for 2009-2010. That's $30million that will go directly to net income.
Question: Shouldn't ticket sales be related to the quality of team the Knicks put on the floor?
Answer: Heck no! New York is a special, special place, where the basketball fans haven't had anything at all to get excited about, other than Patrick Ewing--yippeee! The Knicks have become some sort of weird fabric of culture and society.
For those reasons, team valuations are most closely linked to revenues. Building a revenue base involves a whole lot more than just winning. Just ask the 17 time world champion Boston Celtics who are only the 9th most valuable team in the league.
Most Valuable NBA Teams
Back From Hiatus: When Will the Economy Be Fixed?
Back from a small hiatus (sorry!) to bring you more comedy to feed your economically destroyed heart. When is all of this going to be fixed?
SNL knows it's stuff. "Really AIG??"
I love it when the mainstream media actually gets it right. This is from "Really? With Seth and Amy."
AIG execs what are you doing?? Do you really think this is the time to try to sneak away some presents for yourself? Only the entire nation is watching you right now.
Read / Discuss >>
AIG Gets It's Wish: Bailout
There was only one thing that AIG was wishing for before it went to sleep on Tuesday. A Bailout.
And a bailout was what it got as the Federal Reserve just announced that indeed they will be granting AIG it's wish. Why? The same old same old. The Fed decided that AIG is too big to fail.
In short the terms of the deal are that:
- The New York Fed will loan AIG up to $85 billion worth of taxpayer money
- This loan facility is open for 24 months and will have interest at 8.5% above the 3-month LIBOR
- In exchange the government will have 79.9% ownership in the company
The Federal Reserve Board on Tuesday, with the full support of the Treasury Department, authorized the Federal Reserve Bank of New York to lend up to $85 billion to the American International Group (AIG) under section 13(3) of the Federal Reserve Act. The secured loan has terms and conditions designed to protect the interests of the U.S. government and taxpayers.
The Board determined that, in current circumstances, a disorderly failure of AIG could add to already significant levels of financial market fragility and lead to substantially higher borrowing costs, reduced household wealth, and materially weaker economic performance.
The purpose of this liquidity facility is to assist AIG in meeting its obligations as they come due. This loan will facilitate a process under which AIG will sell certain of its businesses in an orderly manner, with the least possible disruption to the overall economy.
The AIG facility has a 24-month term. Interest will accrue on the outstanding balance at a rate of three-month Libor plus 850 basis points. AIG will be permitted to draw up to $85 billion under the facility.
The interests of taxpayers are protected by key terms of the loan. The loan is collateralized by all the assets of AIG, and of its primary non-regulated subsidiaries. These assets include the stock of substantially all of the regulated subsidiaries. The loan is expected to be repaid from the proceeds of the sale of the firm’s assets. The U.S. government will receive a 79.9 percent equity interest in AIG and has the right to veto the payment of dividends to common and preferred shareholders.
Lehman Bankruptcy Freezes Hedge Funds
In this globally interconnected world, everything effects everything. And those Hedge Funds loyal enough to trust Lehman and stick with them through uncertain times are now getting thrown under a dead 500lb gorilla.
About 100 hedge funds that used Lehman Brothers as their prime broker had positions held via the failed bank frozen on Monday as administrators took charge of the London business and the US holding company filed for bankruptcy.
“Lehman makes us worry about prime brokers that don’t have a commercial bank with deep pockets standing behind them,” said one hedge fund manager.
But many of the hedge funds have switched to prime brokers which are part of bigger banks, a series of former clients said on Monday. “In the last two to three weeks everybody ran for the doors,” said one hedge fund which retains small balances with Lehman. “I don’t think this is a systemic risk issue, as lots of people had taken precautionary measures.”It's amazing how much our financial system relies on confidence and trust. There's almost the consensus now that dealing with an independent investment bank is inherently riskier than dealing with one owned by a commercial bank.
-Via the Financial Times
The prophecy that Nouriel Roubini is getting so much credit for stating (that by the end of this mess there will be no large independent investment banks) is practically self-fulfilling. The only big I-Banks that are left are Goldman Sachs and Morgan Stanley. And if all the people that do business with them are running scared, there is nothing that will stop them from collapsing either.
Good luck to all the college finance majors. Heh, heh...
Read / Discuss >>
Flashback - Henry Paulson April 2007
I ran across this old quote from Treasury Secretary Henry Paulson from April 20, 2007. Rather hilarious:
U.S. Treasury Secretary Henry Paulson said on Friday the housing market correction appears to be at or near its bottom and that troubles in the subprime mortgage market will not likely spread throughout the economy.Read / Discuss >>
"We've clearly had a big correction in the housing market. Retail housing was growing for some time at a level that was not sustainable," Paulson said in a speech to The Committee of 100, a business group in New York promoting better Chinese relations.
"I don't see (subprime mortgage market troubles) imposing a serious problem. I think it's going to be largely contained," he added.
Everything is Okay...
Despite what many professors will tell you (okay maybe one in particular that I didn't agree with), a recession is not defined as 2 successive quarters of negative GDP. And it shouldn't be.The NBER does not define a recession in terms of two consecutive quarters of decline in real GDP. Rather, a recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.
And to think, that professor was an economist..
A depression is when you lose your job.
A Broken Economy
Terrific piece from Joseph Stiglitz entitled: Falling Down - No manufacturing. No new ideas. What's our economy based on?
Stiglitz is a Columbia University Professor and won the Nobel Memorial Prize in Economics in 2001.
Too much energy has been spent trying to make an easy buck; too much effort has been devoted to increasing profits and not enough to increasing real wealth, whether that wealth comes from manufacturing or new ideas. We have learned a painful lesson, both in the 1930s and today: The invisible hand often seems invisible because it's not there. At best, it's more than a little palsied.
Even with federal intervention, I have estimated the cumulative gap between what our economy could have produced--had we invested in actual businesses, rather than, say, mortgages for people who couldn't afford their homes--and what we will produce over the period of our slowdown to be more than $1.5 trillion
We live in a knowledge economy, an information economy, an innovation economy. Because of our ideas, we can have all the food we can possibly eat--and more than we should eat--with only 2 percent of the labor force employed in agriculture. Even with only 9 percent of our labor force in manufacturing, we remain the largest producer of manufactured goods. It is better to work smart than to work hard...
The task of unraveling all that went wrong in our financial system is a difficult one, but in essence the financial system's latest innovation was to devise fee structures that were often far from transparent and that allowed it to generate enormous profits--private rewards that were not commensurate with social benefits.
What do I believe will be the next producitivity revolution? If you haven't noticed by the header of the website, it will be led by biotech, cleantech and technology in general. The internet, although having already gone through a bubble, is still very infantile. Biotechnology and bioengineering, although responsible for many of the amazing advances in medicine is still a very crude science, largely based off of experimentation as opposed to mechanical or civil engineering. And cleantech will be the future whether we like it or not, because the economics of energy will force us in that direction.
Why throw commodities in the mix? Commodities are the inputs for everything we create, so they help us understand the macro-economic picture better. Plus, it doesn't hurt that commodities essentially bottomed early in the decade and from here on out should see finite supply and rising demand. Read / Discuss >>
Citi Slashes Bunge Price Targets
A Citi analyst cut their price target on Bunge (BG) from $130 to $95--a 27% drop. Despite the drop, they maintain a "hold" rating. But, I would take their "ratings" with a grain of salt.
Citi analyst says, "Given what our Citi (Invtmt Research) Emerging Markets Economist team views as the possible beginnings of a potential slowdown within the emerging markets, we believe that the risk of moderating demand growth has increased and thus future earnings at Bunge could come under pressure...Adding to the risk profile surrounding 2009 earnings at Bunge is the recent decline in commodity prices which has been led by crude oil, which is down approximately -25% from its July peaks. At this point we don't know for sure that events will unfold to reduce commodity demand and thus prices, but the signs seem to be forming, as several of our fellow analysts have reduced their price forecast for different commodities such as our commodities strategy analyst who on Monday reduced his forecast on aluminium, copper, and nickel prices by -10% to -27%, due to concerns of a slowdown in industrial activity."
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