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Bruno
08-22-2011, 05:25 PM
http://www.grantland.com/story/_/id/6874079/psychic-benefits-nba-lockout

'Psychic Benefits' and the NBA Lockout
"The author of The Tipping Point explains why owning a basketball franchise has always been a bad business — and ought to stay that way"


The Boston Red Sox signed their first black player in 1959, a utility infielder named "Pumpsie" Green.1 This was 12 years after the Brooklyn Dodgers broke the color line with Jackie Robinson. No other team in baseball dragged its feet on integration like the Red Sox. It wasn't until 1965, in fact — 18 years after Robinson started at second base for the Dodgers — that Boston had its first full-time black player. Why?

The simple answer — that the Red Sox owner at the time, Tom Yawkey, was a racist — is not terribly satisfying. Lots of racists are happy to hire black people, particularly if they can exploit them as spectacularly as baseball owners exploited their players in the postwar years.2 There was a lot of money to be made by raiding the Negro Leagues in the 1940s. The talent pool was extraordinary: Jackie Robinson, Roy Campanella, Hank Aaron, Ernie Banks, and Willie Mays, among others. The Sox were well aware of this. They tried out Mays and Robinson — both of whom they could have used in the lean years of the 1950s, when the team was known as "Ted Williams and the Seven Dwarfs." In a recent academic paper, the economist Jonathan Lanning has also shown that almost without exception integration in the 1940s and 1950s had an immediate and significant positive impact on a team's attendance — even in cities where you might not think the fan base would be enthusiastic.3 Lanning calculates, in fact, that almost no team in baseball had as much to gain financially from bringing in black players as the Red Sox, particularly since they were losing money in the 1940s. Yawkey's bigotry left millions of dollars on the table.

Yawkey was not just a racist, in other words. He was a racist who put his hatred of black people ahead of his desire to make money. Economists have a special term they use to describe this kind of attitude. They would say that Yawkey owned the Red Sox not to maximize his financial benefits, but, rather, his psychic benefits. Psychic benefits describe the pleasure that someone gets from owning something — over and above economic returns — and clearly some part of the pleasure Yawkey got from the Red Sox came from not having to look at black people when he walked through the Fenway Park dugout. In discussions of pro sports, the role of psychic benefits doesn't get a lot of attention. But it should, because it is the key to understanding all kinds of behavior by sports owners — most recently the peculiar position taken by management in the NBA labor dispute.

The rationale for the NBA lockout, from the owner's perspective, goes something like this. Basketball is a business. Businesses are supposed to make money. And when profits are falling, as they are now for basketball teams, a business is obliged to cut costs — which in this case means the amount of money paid to players. In response, the players' association has said two things. First, basketball teams actually do make money. And second, if they don't, it's not the players' fault. When the two sides get together, this is what they fight about. But both arguments miss the point. The issue isn't how much money the business of basketball makes. The issue is that basketball isn't a business in the first place — and for things that aren't businesses how much money is, or isn't, made is largely irrelevant.

Basketball teams, of course, look like businesses. They have employees and customers and offices and a product, and they tend to be owned, in the manner of most American businesses, by rich white men. But scratch the surface and the similarities disappear. Pro sports teams don't operate in a free market, the way real businesses do. Their employees are 25 years old and make millions of dollars a year. Their customers are obsessively loyal and emotionally engaged in their fortunes to the point that — were the business in question, say, discount retailing or lawn products — it would be considered psychologically unhealthy. They get to control their labor through the draft in a way that would be the envy of other private sector owners, at least since the Civil War. And they are treated by governments with unmatched generosity. Congress gives professional baseball an antitrust exemption. Since 2000, there have been eight basketball stadiums either built or renovated for NBA teams at a cost of $2 billion — and $1.75 billion of that came from public funds.4 And did you know that under the federal tax code the NFL is classified as a nonprofit organization?5 Big genial Roger Goodell, he of the almost $4 billion in television contracts, makes like he's the United Way.

But most of all professional sports owners don't have to behave like businessmen. For every disciplined and rational operator like the Patriots' Robert Kraft or Mark Cuban, there is also someone like Washington Redskins owner Dan Snyder. Snyder was a brilliant entrepreneur, who at the age of 36 sold Snyder Communications — the marketing company he built from scratch — for an estimated $2 billion. He has subsequently run the Redskins like a petulant 14-year-old fantasy owner. Snyder Communications was a business. The Redskins are a toy. The former he ran to solely maximize profit. The latter he runs for his psychic benefit — as a reward for all the years he spent being disciplined and rational. And it is one of the surreal qualities of professional sports that they are as welcoming and lucrative for those owners who chose to behave like 14-year-olds as they are of those owners who chose to behave like grown-ups.

The Financial Times recently interviewed Diego Della Valle, the chief executive of the Italian luxury goods manufacturer Tod's. Della Valle owns the celebrated Italian football club Fiorentina. "I ask if the decision to buy the club was made from the heart, or for business reasons," the Financial Times interviewer writes. Della Valle replies: "With football, business reasons don't exist." Exactly. Yawkey did not have "business reasons" with the Red Sox either. Why did he care that keeping the club lily white cost him millions of dollars? He inherited $40 million from his grandfather when he turned 30 in 1933 (which is roughly $700 million in today's money). He fell in love with baseball growing up in Detroit. Ty Cobb was one of his best friends. The Red Sox were his heart's desire, and in his case his heart's desire — so the story goes — included things like running out on the field during Jackie Robinson's tryout and yelling "Get those [expletive] off the field." In case you were wondering how this kind of thing goes over with the baseball establishment, Yawkey was elected to the Hall of Fame in 1980.6

The best illustration of psychic benefits is the art market. Art collectors buy paintings for two reasons. They are interested in the painting as an investment — the same way they would view buying stock in General Motors. And they are interested in the painting as a painting — as a beautiful object. In a recent paper in Economics Bulletin, the economists Erdal Atukeren and Aylin Seηkin used a variety of clever ways to figure out just how large the second psychic benefit is, and they put it at 28 percent.7 In other words, if you pay $100 million for a Van Gogh, $28 million of that is for the joy of looking at it every morning. If that seems like a lot, it shouldn't. There aren't many Van Goghs out there, and they are very beautiful. If you care passionately about art, paying that kind of premium makes perfect sense.

Pro sports teams are a lot like works of art. Forbes magazine annually estimates the value of every professional franchise, based on standard financial metrics like operating expenses, ticket sales, revenue, and physical assets like stadiums. When sports teams change hands, however, the actual sales price is invariably higher. Forbes valued the Detroit Pistons at $360 million. They just sold for $420 million. Forbes valued the Wizards at $322 million. They just sold for $551 million. Forbes said that the Warriors were worth $363 million. They just sold for $450 million. There are a number of reasons why the Forbes number is consistently too low. The simplest is that Forbes is evaluating franchises strictly as businesses. But they are being bought by people who care passionately about sports — and the $90 million premium that the Warriors' new owners were willing to pay represents the psychic benefit of owning a sports team. If that seems like a lot, it shouldn't. There aren't many NBA franchises out there, and they are very beautiful.

The big difference between art and sports, of course, is that art collectors are honest about psychic benefits. They do not wake up one day, pretend that looking at a Van Gogh leaves them cold, and demand a $27 million refund from their art dealer. But that is exactly what the NBA owners are doing. They are indulging in the fantasy that what they run are ordinary businesses — when they never were. And they are asking us to believe that these "businesses" lose money. But of course an owner is only losing money if he values the psychic benefits of owning an NBA franchise at zero — and if you value psychic benefits at zero, then you shouldn't own an NBA franchise in the first place. You should sell your "business" — at which is sure to be a healthy premium — to someone who actually likes basketball.

Malcolm Gladwell is a staff writer at the New Yorker and the author of The Tipping Point, Blink, Outliers and most recently, What the Dog Saw. He is a consulting editor for Grantland; this is his first piece for the site.

Bruno
08-22-2011, 05:35 PM
Don't agree with the entire article but I thought it was interesting and worth presenting.

Law25
08-22-2011, 06:10 PM
If all he said about Yawkey is true than that guy was an idiot, but i believe all racist are idiots, lol. I loved the article. Especially the last paragraph becuase thats how i feel about owners.

NBA_Starter
08-22-2011, 06:11 PM
Interesting

Tony_Starks
08-22-2011, 06:38 PM
Good article. People want to compare the owners to like the manager at Ralphs or something but its not the same. These guys owns these teams basically as a hobby and play with the franchise like a video game. Then they get mad when the profits they expect aren't rolling in.....

tredigs
08-22-2011, 07:12 PM
If singular Van Gogh pieces came with annual operating costs in the dozens of millions per year and thousands of employees, this argument might have more weight.

Fact of the matter is that he is entirely skipping through or 100% omitting two key factors:
1) There are thousands of employees of each team right now that are currently out of work (in a horrible economy no less) due to this lockout because the operating costs are too great for most owners to turn a profit (psychic benefits or not).
2) The #1 operating cost of the league (and main issue in the owners turning profits) is the players salary. If the players were willing to take the paycut to an average of ~5 million a year (the horror), split the cream 50/50 and be willing to lessen the ridiculous length of guaranteed contracts (so we don't get any more Rashard Lewis/Gilbert Arenas, etc. etc. situations that absolutely cripple a team and make the fans suffer), then this **** would be over with.

The more I know about the lockout, the more I can't stand the players greed and unwillingness to negotiate.

Tony_Starks
08-22-2011, 07:36 PM
^ you sound really misinformed.

They are claiming they are losing money hand over fist but at the same time horrible teams are still being sold at an over $100milli profit. Its not rocket science man, somebody isn't being honest here.

Bruno
08-22-2011, 07:49 PM
If singular Van Gogh pieces came with annual operating costs in the dozens of millions per year and thousands of employees, this argument might have more weight.

Fact of the matter is that he is entirely skipping through or 100% omitting two key factors:
1) There are thousands of employees of each team right now that are currently out of work (in a horrible economy no less) due to this lockout because the operating costs are too great for most owners to turn a profit (psychic benefits or not).
2) The #1 operating cost of the league (and main issue in the owners turning profits) is the players salary. If the players were willing to take the paycut to an average of ~5 million a year (the horror), split the cream 50/50 and be willing to lessen the ridiculous length of guaranteed contracts (so we don't get any more Rashard Lewis/Gilbert Arenas, etc. etc. situations that absolutely cripple a team and make the fans suffer), then this **** would be over with.

The more I know about the lockout, the more I can't stand the players greed and unwillingness to negotiate.

You're a pretty good capitalist for a Bay Area guy 'Digs :laugh2:

tredigs
08-22-2011, 07:52 PM
^ you sound really misinformed.

They are claiming they are losing money hand over fist but at the same time horrible teams are still being sold at an over $100milli profit. Its not rocket science man, somebody isn't being honest here.

#1: Because it IS an NBA Franchise, you're not buying a franchised McDonalds where the only friggin' reason to do so would be to turn a profit. The "psychic factor" that he's talking about in this article is indeed very real (he's just taking that concept and using it as an excuse for the players greed... which is a shame).

#2: They knew this CBA was coming, and likely purchased with the expectations that they'll be getting a more equal shake of the profits (and more insurances against the Rashard Lewis death contracts) at this juncture.

If I sound misinformed, I'm all ears.

I was mostly disinterested and just staying away from any lockout talk possible until I decided to listed to Sterns appearance on Bill Simmons podcast the other day. After Stern absolutely dismantled Simmon's critiques (which were 90% on the players side), I decided to check into it more myself.

Very long story short, the players union is so strong and unwavering that they've made it to so their guys are ridiculously overpaid (even by a pro athletes standard) and have almost no accountability for their play on the court once that 6 year contract is signed.

If the owners got what they wanted, the league would be SO much better off: For the fans, their employees and the health of the league in general. The players would still have insane salaries, they'll be just fine so long as they take some accountability for their finances.

Tony_Starks
08-22-2011, 08:16 PM
Yeah I heard Simmons side and Sterns side. Both are really exaggerated, the truth is somewhere in the middle. But the part that everyone agrees on is that the League is not negotiating, they've been saying from day 1 the system is broken and its basically change it to what we say or kick rocks.

Stern also keeps running circles on the main issue of revenue sharing which would solve a lot of their "losses." Basically he's saying agree to our deal and we can discuss revenue sharing specifics and the players are saying wait we have to deal with revenue sharing first to see what the actual losses really even are. Its a huge cluster-F.

Also the avg player salary can be skewed. To listen to Stern every player is running around getting 5milli whether he's playing or not. But keep in mind the star players are soaking up most of the payroll. Say for example you got a 60 mill cap but your top 4 guys are getting 40 of that. So now for the remaining 8 players they're actually avg about 2.5.

It goes on and on man but moral of the story their both at fault but its far from simply Sterns take that these players are just making too much.

mzgrizz
08-22-2011, 08:37 PM
I thought it was an interesting article. I do think the overage paid for the franchises (as compared to value attached) must be the X factor of ego and perhaps some lack of personal attributes of the owners........Guess you can't really put a price on that.