"Get your facts first, and then you can distort them as much as you please." (Mark Twain)

Wednesday, July 19, 2006

Nothing But Net 

The big local story here in the Jet City is, of course, the imminent loss of the Sonics. Pay attention, because here's a good example of (a) what's wrong with sports, and (b) what's wrong with capitalism.

A group of local investors (headed by Starbucks' head bean, Howard Schultz) has agreed to sell the team to a group of investors from Oklahoma. The principle reason for the sale is the team's inability to turn a profit. It seems that Key Arena (remodeled only a decade ago) and the lease thereon (renegotiated concurrently with the remodel) are not economically viable - the owners claim to have lost $60 million over the last five years. That's a lot of lattés, to be sure. Thus, in the absence of a government subsidy to compensate for that loss, the team must be sold.

Here's the problem: Schultz and his partners bought the team in January, 2001, for $200 million. The price they received is reportedly in the neighborhood of $350 million. Thus, even accounting for the claimed $60 million loss, the outgoing owners made at least $90 million dollars over five years on a $200 million investment (not counting tax write-offs, salaries and consulting fees drawn, etc.). That's a pretty good little investment, if you ask me.

Now, I understand that it is possible to be asset-rich and yet be cash-poor. It matters very little how much an owner might gain in equity (assuming that the goal here is to avoid selling, and realizing that gain) if the year-to-year operating expenses are onerous. But - for all the begging for taxpayer assistance that the Sonics (and other teams similarly situated) have indulged in over the years, there has been no suggestion that the taxpayers get any stake in the equity in return. Essentially, the game is this: Heads, I win (handsomely increased equity value); tails, you lose (enormous operational subsidies).

This pattern is not restricted to sports, unfortunately. Lots of businesses do the same thing. This is the nut of the corporate welfare problem - businesses want subsidies of various sorts to shield their shareholders from risk and/or actual losses, but when the profits come (and they always come), then the shareholders reap the entire benefit.

As far as I'm concerned, either you're for a free market or you're not. If a corporation or an industry is going to accept a subsidy in the form of preferential tax treatment, government participation in R&D, or whatever, then the public ought to be treated as a stakeholder, and not as a red-headed stepchild. You pays your nickel (or your $200 million, as the case may be) and you takes your choice.

In the meanwhile, my goodbye message to the Sonics is this: Don't let the door hit you on your ass on the way out.

 

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