Wednesday, August 24, 2011

Psychic friends connection: Malcolm Gladwell on 'Psychic Benefits' and the NBA Lockout

Malcolm Gladwell does a fine job if telling one side of the story with fairly old information and remarkably little insight into the decline of the psychic friends network between sports professional sports are the public in general.
Here is Gladwell explaining the NBA as if this were 2007.

Psychic benefits describe the pleasure that someone gets from owning something — over and above economic returns . . .

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.
. . .

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 Se├žkin 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.
. . .

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 what is sure to be a healthy premium — to someone who actually likes basketball.
Malcolm Gladwell on Malcolm Gladwell on 'Psychic Benefits' and the NBA Lockout

A couple things, the Hornets sold below market rate to prevent a sale at a massive loss (more or less a repo by the NBA), the Bobcats sold at a massive loss.
Never, ever, compare the NBA with the NFL. The NFL makes money, no matter how badly they try to screw it up. The NBA has high revenue but that doesn't always mean profit, and absolutely not profits on the scale the has anybody in the NBA acting like Jerry Jones of the Dallas Cowboys. Remarkably few NBA team owners could whip out a checkbook and build an area knowing that they will make freakish amounts of actual, honest to goodness, profit from that investment in facilities. Know why? Because the actual value of an NFL team still puts it in the realm of being a profitable business.

The bulk of NBA franchise do not exist on the same financial planet as the bulk if NFL teams. The Dan Snyder reference is absurd in its meaninglessness to the NBA owner situation.

The bulk of the latest NBA franchise sales have more to do with the profitability of their associated arenas than with the actual NBA team. If the Memphis Grizzlies owner controlled all of the revenue in his building then he could have sold his team 4 years ago for $400 million dollars with very little effort. But he doesn't, so he bleeds money.

The public has stopped giving away brand new arenas.

The reality is that the NBA is a business because people borrow money to buy teams, and the lenders expect to get repaid. The cities that most of these franchises exist can no longer afford to play along in feeding this broken business.

Wealthy individuals owning teams has been on the decline for years, and lately so has the publics desire to fund sports facilities.

The fact is that in order for the NBA owners to keep this art form going they are going to have to pitch in on building facilities, borrow large sums of money to do it, and have to run their hobbies like businesses, or you end up like 1/4 of the teams, bleeding money while trapped in an arena lease that can't be justified by the profits the these teams are making.

As local theater stages went dark over the past year was it that wealthy people just didn't love them enough? I think not. Was it that they, too, were in a broken business model, that despite the psychic value, there still needed to be a viable business underneath?

That is more likely a better comparison, local live theater and the NBA, and neither is like the NFL.