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Hollinger’s Showcase notebook: Suns’ $4 billion sale renews NBA expansion buzz


LAS VEGAS — Normally the G League Winter Showcase marks a starting point for a giant chunk of the NBA’s trade conversations. Even in our networked/texting/Zooming world, face time matters. Nearly every exec within the league spends not less than a day here hobnobbing.

Front office members and staffers see one another on the two courts where the event is held, and maybe on the bar at the tip of a protracted day, too, since virtually everyone seems to be in the identical hotel. Relaxed without the prying eyes of fans around, they trade bits of knowledge and crop up conversations. Next thing , there’s a three-team, eight-player deal on the table. It still takes the urgency of the trade deadline in February to truly get these conversations to the finish line, but this week is commonly the catalyst.

This yr has felt … different. The overarching theme is that things seemed quieter than usual.

“Quiet” isn’t the identical thing as “dead,” in fact, and flickers of trade market life might be detected if one looked closely enough. Teams spent the week kicking the tires on Chicago’s situation. Phoenix’s exiled Jae Crowder stays a goal for several contenders. Oh, and have you ever heard Atlanta’s John Collins is offered?

Nonetheless, the cold math stays: It’s tough to have buyers with none sellers, and there just aren’t many sellers right away. That will change as we catch up with to the trade deadline and more teams see their preseason hopes collide with the realities of their rosters. Straight away, nevertheless, the doubtless interesting sellers are either straddling .500 or, in a number of cases, clinging resolutely to the delusion that they’ll get there. As a substitute of actual trade talks, we’re left speculating about guys who might, perhaps, sooner or later, wish to be traded. Fun times.

As a substitute, it was a unique transaction that got everyone’s attention this week.

4 billion dollars? Now that got people talking. That was the valuation Mat Ishbia agreed to this week in purchasing a controlling stake of the Phoenix Suns and the WNBA’s Phoenix Mercury.

It’s one thing when the LA Clippers go for billions, but Phoenix? A growing but transplant-heavy market, with a drained arena and plenty of pro and college sports competition? That’s news. In October, Forbes rated the Suns the Thirteenth-most useful NBA property, at a price of $2.7 billion. Ishbia went much higher than that.

The sale of the Suns and Mercury must have a big effect on NBA business in two areas. To begin with, it could precipitate moves in other markets. The working presumption by many insiders is that we might see a raft of sales after the brand new collective bargaining agreement and next TV deal are finalized, since secure labor peace and a possible TV money bonanza would likely increase valuations. (As would expansion fees which may occur concurrently, but more on that below.)

Nonetheless, economists who imagine in efficient market theory would let you know this information should already be baked into bidders’ valuations. The Suns’ sale appears to be an ideal example. At first glance, it looks like a wild overvaluation, nevertheless it makes lots more sense if one is the post-2026 market.

So the query becomes: What other owners might realize that they don’t have to wait and might money out immediately? Definitely, Portland involves mind. There could also be other reasons for Paul Allen’s estate to attend some time longer, but getting a price within the $3 billion to $4 billion range right away could easily trump them.

Similarly, Michael Jordan in Charlotte has been whispered about for ages as a possible seller. Though the Hornets haven’t exactly set the league afire, he bought the team for relative peanuts in 2010 (a reported net price of $175 million) and would make a mint on a sale, perhaps 10 times what he paid. Recent Orleans is one other franchise that many insiders mention as a sale candidate, although the seek for a neighborhood buyer could stymie a transaction. Those are the known knowns, in Rumsfeld-speak.

But what in regards to the known unknowns? Are there other owners who weren’t really fascinated by selling per week ago, but now might suddenly be tempted in the event that they can get a number like $4 billion?

And whither the T’wolves? The bizarre multi-installment sale from Glen Taylor to Alex Rodriguez and Marc Lore remains to be creaking along toward its Dec. 31, 2023 completion date, but should anything go amiss, Taylor could seemingly make lots extra money from one other buyer. Pointless to say, if the brand new dudes a lot as misplace a comma in a document, Taylor is massively incentivized to nuke the deal and begin over. The valuation on that Timberwolves sale was $1.6 billion, so Taylor might make an additional billion if the team went back available on the market! Fortunately, that is the Minnesota Timberwolves, so nothing crazy like that might possibly occur.

Nonetheless, even that pales as compared to the opposite essential piece of the Suns’ sale news: what it means for expansion.

The possibilities of the NBA returning to Seattle continue to grow. (Joe Nicholson / USA Today)

Principally, it makes it seem almost inevitable that we’ll have two recent teams inside the subsequent half decade. (Not breaking any news here, but each person I asked thinks those teams will probably be in Seattle and Las Vegas. My personal crusade for Bali and Kauai appears to have gained little traction.)

If you wish to understand why the Phoenix sale is so essential to this, do the maths. The largest obstacle to expanding from 30 teams to 32 isn’t an absence of accessible markets wherein to sell tickets or pipe in local TV broadcasts. It’s because they dilute the national TV money.

The league’s national TV deal has develop into an increasingly large portion of teams’ budgets, and that quantity is just expected to rise in the subsequent TV deal. Adding two recent franchises dilutes every one’s share of that piece by roughly 1/16, and does so in perpetuity. That will be positive if adding teams grew the TV pie proportionately, nevertheless it doesn’t, since the NBA already has more games than ESPN and TNT can possibly air. Sure, they could get barely higher rankings in Seattle and Las Vegas than many other cities, but that’s a barely noticeable blip on a national level.

The one thing offsetting the lack of national TV money is the expansion fee, which is shared by the 30 current owners. That fee, alas, is just paid once, and never yr after yr, and thus must be many multiples of the lost annual TV revenue for the league’s owners to return out ahead — and thus, presumably, vote in favor of expansion. That is why a few of my spies were pouring cold water on expansion speculation: The financial math wasn’t guaranteed to pencil out for the 30 owners.

The precise break-even point is a fancy calculation based on projections of future TV revenues, future rates of interest and investment returns, an estimate of the expansion fee and what economists call the discount rate for the time value of cash, accounting for the actual fact you’d fairly have your money today than 10 years from now.

As a substitute, let me make some grossly simplifying assumptions to walk you thru the exercise. I actually have an economics degree and I stayed at a Holiday Inn Express last night. This could go great.

The last TV deal was $24 billion over nine years. Let’s say the subsequent one is $75 billion over nine years, which some have estimated.

Now, for some math. (Sorry). Divide by 30 and you might have each team’s share of that package ($2.5 billion). Divide that number by nine and you might have each team’s annual share ($277 million). That share, in turn, is diluted 1/16 by expansion. The dilution, then, is value about $17.3 million annually. If an owner’s financial mandarins find yourself with a ten percent annual discount on future revenues (it is a quasi-reasonable ballpark), they’ll want the expansion fee to be not less than 10 times the diluted revenue to justify a yes vote.

And that’s the reason an expansion fee within the $4 billion to $5 billion range is so essential. It’s a lot easier to pencil out the owners coming out ahead than if the fee were, say, within the $3 billion to $3.5 billion range.

Which, in turn, is way easier to assume happening if an existing franchise just sold for $4 billion. Most observers I spoke with see a Vegas team as being of comparable or barely greater value than Phoenix, and a Seattle team as being value considerably more. Suppose, for argument’s sake, it was $4 billion for Vegas and $5 billion for Seattle. That’s an easy $300 million windfall for each owner … and a roughly 17x ratio to the diluted TV money.

Yes, my math here involves sweeping assumptions and simplifications. Nonetheless, let’s exit the financial weeds here and conclude with the big-picture takeaway from this exercise. If the expansion fees were $3 billion, it could look like a detailed call for the league’s owners to approve it.

If it’s at $4 billion? It’s a no brainer.

Jalen Brunson against his former team, the Mavericks

The Knicks’ punishment for tampering with Jalen Brunson was as tame, as expected. (Brad Penner / USA Today)

Another thoughts from the Showcase:

That’ll show ‘em, huh?

The opposite hot topic in league circles was the collective eye roll on the NBA’s decision to penalize the Knicks a 2025 second-round pick for tampering in signing Jalen Brunson. As many have already noted, giving up a second-rounder to sign a max-level free agent is a trade every team within the league would make in a nanosecond. When you’re coping with All-Stars and max players, there is no such thing as a amount of second-round picks the league could penalize a team to disincentivize them.

On the flip side, league personnel I talked to recognized the impossibility of the league’s situation. The underlying issue isn’t that the Knicks (or Sixers, for that matter) cheated the letter of the rule this summer, but that the present rules on free agency are virtually unenforceable. There is just one rule most execs really care about: Tampering with a player whose team remains to be playing games stays a fully uncrossable red line, one which must be punished with a decades-long banishment to a dank, windowless cell, containing only a bed product of carpet from the visiting locker room in Oracle Arena and a giant screen TV showing games from the 1998-99 lockout yr.

As for jumping the July 1 deadline on contacting free agents by a number of hours (or days, or weeks) …. whatevs. There are rules written on paper about audits and commandeering phones and whatnot, but no person wants to truly try this.

In point of fact, the league’s de facto policy is “just don’t embarrass us.” Which is tough to put in writing about, because we’ve develop into a part of the issue.

News flash: Teams have been jumping the gun on free agency for years and years and years. The news just didn’t get out nearly as fast prior to now. It worked in 2012. It doesn’t in 2022.

You may see the issue: The league doesn’t want news leaking of complicated sign-and-trades mere seconds into the alleged start of free agency, nor does it want breathless coverage of back-and-forth free agent negotiations on June 26. Well, good luck with that. Unless every social media outlet concurrently fails while cutthroat reporters throttle back to Andrea Bargnani-esque tameness, it’s virtually not possible to maintain the genie bottled.

The Elam ending factored prominently within the Showcase, even when the word Elam was never mentioned.

The G League has used it in time beyond regulation all yr to generally positive reviews, requiring teams to attain eight points fairly than playing for a specified period of time. That change got a thumbs-up from NBA personnel I spoke to, with the consensus being that NBA overtimes are too long right away and deflate drama from the tip of the fourth quarter. The goal rating also eliminated the prospect of multiple overtimes and the crazy player minute situations they’ll engender. The G League staffers all like it, too.

Nonetheless, using it for the complete fourth quarter generated opposite reactions. Playing a fourth quarter with a “goal” of 25 points greater than the leading team’s rating, fairly than a set time, created a bunch of recent issues. For starters, coaches were left guessing on substitutions with out a clock to point how long players had played (or rested).

This was particularly true in lower-scoring games, a few which became interminable as teams struggled to hit the goal rating. And this was in today’s more open, offensive era! Imagine my Grizzlies playing, say, Utah in 2016, and check out to work out how long they’d have to play for one team to get to 25.

Secondarily, the goal rating produced some interesting strategy of its own. In case your opponent is three points away from the goal rating, do you foul to eliminate losing on a 3-pointer? Concede a layup to do the identical? (I saw a few teams in this example hug all of the shooters and leave gaping holes down Principal Street). What about in a one-point game? Would any ref dare call defensive three seconds?

For those reasons, the Elam ending seems way more more likely to gain eventual NBA-wide adoption in time beyond regulation than in regulation. Regardless, kudos to the league for continuing to make use of the G League as a lab to experiment with improvements to the sport.

(Top photo: Lucas Peltier / USA Today)

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