Monday, July 16, 2018

Can We at Least Keep It Real, Bucks Fans?

Complain that Ersan Ilyasova is getting old.  Complain that he's not clutch.  Complain that he doesn't match up with Philly.  Or complain that the Bucks are engaging in a vast conspiracy to avoid signing black free agents this offseason.

For, no matter how stupid those complaints may be (and the last one would be a doozy, were anyone to sincerely think it), none are dumber than the ideas that Ersan is hard-capping the Bucks, or that he is eating into the Bucks' 2019 cap space.

Some background:

The NBA has a soft salary cap, meaning that there are exceptions that allow teams to exceed the nominal cap limit.  An exception to the cap's soft-ness, however, is that teams have a strict salary limit ("hard-capped") at a number slightly above the League's luxury tax threshold if the non-taxpayer mid-level exception ("non-tax mid") is used by a team with salaries already exceeding the salary cap ("capped-out" team) to sign a free agent.

The Bucks are capped-out.  Ersan was signed for the non-tax mid.  Therefore, the Bucks are now hard-capped.

And Ersan's contract has two guaranteed years.

Back to the lecture at hand:

There is just one teeny, tiny, itsy-bitsy problem with Bucks media/fans' complaints about hard-capping and 2019 cap space: in real life, those things have zero effect on the Bucks' roster. Here's why.

Complaint #1: The Bucks are hard-capped for 2018-19

Teams that pay the NBA's Luxury Tax are never hard-capped.  However, if the Bucks owners have no intention of paying the Luxury Tax, then being hard-capped has no effect on the Bucks' roster.

To Bucks Forest's knowledge, Bucks owners Marc Lasry, Wes Edens, and Jamie Dinan have not commented publicly on whether they are willing to pay the Tax.  That said, consider the evidence:

-Edens & Lasry are known for buying distressed assets, wringing out profitability, then flipping them.
-The Bucks either lost money, or made about $20 million in profits in 2016-17.
-Luxury Tax teams are not allowed to receive money from revenue sharing.
-The Bucks receive money from revenue sharing, according to ESPN.
-Forbes values the Bucks franchise at $1.075 billion.
-Google (just picking a random "growth" stock) has a price-to-earnings (P/E) ratio of 32.
-The Bucks have a P/E ratio of 54 (if Forbes' estimate of $20 million in profits is correct).

What does all of this mean?

It means that the Bucks are "valued" 69% (nice) higher than Google, relative to profitability.  For profit-wringing investors, that means that the Bucks need to start making higher profits, otherwise the franchise value may fall back below $1 billion.

It also means that going into the Tax would seriously jeopardize profitability.  Bucks Forest was unable to find any published reports detailing exactly how much money the Bucks receive from revenue sharing, but ESPN reported that NBA teams have been receiving as much as $32 million in one season.

So ask yourself: Do you think that the Bucks' value-seeking owners have any intention whatsoever of giving up their revenue sharing checks (and, potentially, sabotaging the Franchise's market value) by going into the Luxury Tax?  In this blog's opinion, that's an obvious "No", which means that the complainers aren't keeping it real.

Complaint #2: The Bucks now have $7 million less in 2019 Cap space

At the risk of creating a straw man, here is the argument some Bucks media/fans are making:

"The Bucks could've had at least $16 million; maybe more, if they wouldn't have signed Ersan.  Now they'll only have $9 million.  That's important because $16 million would've allowed the Bucks to out-bid teams that will only be able to offer the mid-level exception to 2019 free agents."

The flaw in this line of thinking is that the above scenario is exceedingly unlikely to occur, in real life.

Consider the scenarios:

If the 2018-19 Bucks have a Lottery season; or perhaps even an inconsistent season that ends in a First Round exit, the Bucks may well be looking to break up the team.  Once Bledsoe or Middleton (or both) have their rights renounced as free agents, they're off the Bucks' Cap sheet, thus giving the Bucks the ability to offer a Max salary to a superstar who wants to play alongside Giannis.  And Ersan's presence would have no effect on the Bucks' ability to sign a mid-level player alongside that Max player, because the difference between the Salary Cap and the Luxury Tax threshold is more than Ersan's salary of $7 million.

On the other hand, if the 2018-19 Bucks win the Championship, win the East, or even come close to winning the East, then who cares!  The Ersan signing worked!  And even if Ersan wasn't a part of the Bucks' success, the team's ability to sign free agents still wouldn't be affected, when accounting for the huge salary increases Bledsoe and Middleton would likely get by being free agents coming off a Championship season.  If those salary increases happen, the Bucks will push up against the Luxury Tax line next summer.

The only way the Ersan signing affects the summer of 2019 in the real world is if the Bucks are planning to retain Bledsoe, Middleton, and Brogdon while being a Tax team in 2019-20.  Otherwise, the team will be able to sign its top free agent target, assuming that player reciprocates interest.

This blog is optimistic about next season.  Some Bucks media/fans aren't.  That's fine.  But let's keep things real.


Wednesday, June 6, 2018

Bucks Money: The New Arena and the Fox Sports Wisconsin Deal

Bucks Forest has long had an interest in the business side of the Milwaukee Bucks, and there have been two Bucks business topics have been making news recently: the New Arena and the extension of the Bucks' local TV deal with Fox Sports Wisconsin.

The New Arena - Capacity, Cost, and Naming Rights

The soon-to-be-corporately-named new Bucks arena in downtown Milwaukee is almost ready to debut.  The first scheduled event is a Kevin Hart "in the round" comedy show on September 13, but rumors persist that the Bucks will schedule an act with a more local flavor for early September.

Season ticket holders were given brief "hard hat tours" last weekend, which included sampling parts of the Lower level concourse and the "party club" space that sits at the west end of the Club level.  Bucks Forest was part of those tours (as a season ticket holder; not as a media outlet), and in this blog's opinion the arena looked fantastic.

A secondary hobby of Bucks Forest is being a connoisseur of sports stadiums.  As such, this blog felt compelled to A) compare the new Bucks arena with other NBA & NHL arenas, and B) analyze the overall design of the building.

On "A", the new Bucks arena appears to instantly enter the top tier of modern arenas.  (With "modern arenas" being defined as arenas that were conceived with luxury boxes splitting the seating bowl horizontally.)  

Why?  The new arena has plenty of concourse space.  Luxury boxes are kept to a minimum (only 34 traditional suites in this building), thus keeping the upper level closer to the action.  The main entrance is massive, and includes a large gathering space.  The lower bowl has the bulk of the seats.  Seating capacity is team-appropriate.  (More on that later.)  

Bucks Forest has sampled some impressive arenas, but the new Bucks arena has advantages over all of them.  Staples Center is located in the home city of this blog, Los Angeles, and it is excellent.  But it has a huge amount of space dedicated to suites (at least 50% more than the new Bucks arena.)  SAP Center in San Jose matches the intimate feel of the new Bucks' arena, but a lot of its closest upper level seats are obstructed by entrance railings, as was the case at the Bradley Center.  Air Canada Centre (soon to be known as Scotiabank Arena) in Toronto manages to cram a full 20,000 people into a tight space in a way that no other arena does, but its seating capacity would be too large for the Bucks' current fanbase.

T-Mobile Arena, the Las Vegas home of UFC and the NHL's Golden Knights, is the arena that most closely compares to the new Bucks arena, which leads into part "B", the overall design of the building.

The new Bucks arena and T-Mobile Arena were designed by the same company, Populous, and the similarities are quite noticeable.  Both arenas have a grand entrance.  Both arenas are built above ground (meaning that stairs or an escalator must be taken in order to get to the lower level concourse. Both arenas have large lower seating bowls.  (Though the new Bucks arena's appears to be a higher and narrower.)  Both arenas have a single ring of luxury boxes.  Both arenas have floor-level clubs, accessible only with an extremely high-priced ticket.  Both arenas have open concourses.  Both arenas have the upper concourse above the upper seating bowl, which eliminates the aforementioned entrance railings that used to cause obstructed views at the Bradley Center.

In essence, the new Bucks arena feels like the NBA/Milwaukee equivalent of T-Mobile Arena's NHL/Vegas feel.  NBA seating bowls are a little tighter and Vegas tends to draw a larger number of people willing to spend big bucks for "club" access, but otherwise the two buildings feel the same.  In the eyes of Bucks Forest, that's a good thing.

Beyond comparing and analyzing the new Bucks arena, there are a few other issues to touch upon.

The cost of the new Bucks arena has been reported as $524 million and the seating capacity has been reported as 17,500.  Both of those numbers are deceptive.

The "$524 million" includes many items that are not exactly arena-related.  It is no secret that $38 million of that $524 million is for the new parking structure on 5th Street, between McKinley & Juneau.  That's not the only non-arena expense for the new Bucks arena.  There's also the design of the Bucks' new practice facility (it should be pointed out that the team paid for construction), "professional services" (which almost certainly include the Bucks paying themselves for shepherding the arena project), and the Bucks' corporate offices.  

An under-reported aspect of the new Bucks arena is that the team ensured that the building would have space for the corporate offices of the team.  That's not scandalous in and of itself, but when the costs of non-essential items are removed from the overall "$524 million", the price of the arena likely ends up right around $350 million.  Lo and behold, $350 million is the amount that Wisconsin taxpayers and Herb Kohl contributed towards the project.

What all of this essentially means is that Wisconsin taxpayers & Herb Kohl built the Bucks an arena, and the Bucks' "$174 million contribution" was mostly for things that really only benefit the Bucks: designing the practice facility, "professional services", building the team's corporate office space, etc.

Building an arena for a private company (and handing over potentially lucrative leasing rights in exchange for bupkis) is not necessarily high on the list of Things A City Should Do, but at least the team stayed in town.  The point of all of this is simply to say that the city, county, and state could have (and maybe should have) just built a $350 million arena themselves, with or without the Bucks. The government could've offered the Bucks a chance to stay in Milwaukee, likely with a more taxpayer-friendly lease on the new arena.

The Local TV Deal - Is This a Win for the Bucks?

The most recent financial news related to the Bucks was the announcement of an extension of the Bucks' local TV deal with Fox Sports Wisconsin.  

Sports Business Journal reported the numbers at approximately $200 million over seven years, with next year's number at $26 million (up from $20 million this past season).

In the eyes of Bucks Forest, a few things stood out about this deal:

One, it's only a seven year deal.  While some local TV deals have been short term -- most notably the Clippers' recent acceptance of a two-year deal at half the price they were hoping for -- many have been for a decade or more.

Short term local TV deals often are a sign of a team's frustration with a deal (like in the Clippers' case).  From this blog's perspective, it appears that the Bucks wanted a heck of a lot more than $26 million next season, but had to settle based on market conditions.  The fact that Bucks co-owner Wes Edens told the media that the team was looking into creating its own network that would compete with Fox Sports Wisconsin; but ultimately didn't, is a major reason why this blog thinks that the Bucks were hoping for more money over more years.

A second point about this deal is that $26 million may not actually be $26 million.  The Bucks may be paying for production.

Bucks Forest suspects that the Bucks are on the hook for production costs for a few reasons.  One reason is that Fox has a history of allowing sports organizations to tout high dollar TV deals, while making the sports org pay for production.  That happened with Fox Sports and UFC, where Fox retained significant control over broadcasts, but UFC was on the hook for paying talent (and, presumably, other production personnel).  This blog has never seen Tully Hughes's paycheck, but we have a sneaking suspicion that it's signed by the Bucks, not Fox Sports Wisconsin.

Third in the line of items about the Bucks' local TV deal is that it really illustrates the inherent unfairness of the NBA's "territorial rights" model.  

The Bucks get money from Fox Sports Wisconsin.  Fox Sports Wisconsin broadcasts Bucks games in Wisconsin, only.  The Bucks cannot have a local broadcast in the Chicago area or eastern Minnesota or northern Iowa.  They are limited to their Wisconsin territory, which at the moment means Fox Sports Wisconsin's reach of 1.5 million homes.

Due to this territorial limitation, it is dang near impossible for the Bucks to ever have the local reach of even mid-level NBA teams.  Obviously the Lakers' and Knicks' of the world have greater local reach than the Bucks, but even teams like the Suns, Hornets, and Hawks have a far, far larger local domain to broadcast in.

What can the Bucks possibly do, given their territorial restrictions?  Get more Wisconsinites to subscribe to cable or satellite service (when the number of FS Wisconsin subs has dropped from 1.7 million to 1.5 million over the last few years)?  

The final thing that stood out to Bucks Forest about the TV deal is the Bucks' relationship with the Brewers.

Fox Sports Wisconsin only gets so much revenue from its 1.5 million subscribers, and the TV ads it sells.  The subscriber base is going to expand only if more people sign up for cable or satellite TV, and those numbers have been trending down.  TV ad rates will increase when the Bucks and Brewers do well, but that's not where most of the money comes from.  Most of FS Wisconsin's revenue is from subscriber fees.

In essence, there's this pot of money that is mostly static, and both the Bucks and Brewers are competing for it.  It's not like with ticket or merchandise sales, where an inspiring team can cause local fans to bust their budget and support both teams.  The Bucks will get part of the FS Wisconsin pot, the Brewers will get part, and the only thing that will change is how large a percentage goes to each side.

Tuesday, March 20, 2018

'Due Diligence' Is for Losers

The Bucks are 37-33 and eighth in the East.  Expected in some circles; a shocking disappointment within the organization.

The natural reaction is to shuffle the roster or fire the coach.  Been there, done that.  It hasn't worked. Milwaukee is 33-28 since acquiring Eric Bledsoe.  14-11 after firing Jason Kidd.  10-10 since Jabari Parker returned.  "You are what your record says," the old saying goes.  What does the Bucks' record say?

What to do?  Ultimately, there are two paths.  Two belief systems, as it were.

Belief System #1: The Patriot Way

Focus.  On.  Today.

Many people have many definitions of the New England Patriots' method of operation; that is mine.  Identify what is in front of you and what you can control.  Devise a viable strategy and a plan.  Execute.

Example: Your roster is your roster.  Do the best you can with it.  Ignore players on other teams who might or might not fit your roster.  Scan the waiver wire, the draft, the free agency market with neither hope nor cynicism.  The players available are the players available.  OG Anunoby is no longer available to be drafted ahead of DJ Wilson.  Jabari Parker will never be a free agent.

Belief System #2: Trust the Process

Chase.  Perfection.

Sam Hinkie did it in Philadephia.  Daryl Morey does it in Houston.  Danny Ainge is Boston's man.

'Trust the Process' means that everything is an asset or a liability; yours, your competitors', and third parties'.

Example: Joe Prunty is not the Bucks' Head Coach.  He is the Bucks' Head Coach Right Now.  And he is worth X.  Most basketball coaches are worth less than X; some may be worth more.  When the time comes, the Bucks will be prepared to Maximize The Value of the Head Coaching Position.  If X is the Max Value, then Prunty stays.  If Other Coach > X, then Prunty goes.

Trust the Process people do not believe in winning the day.  They aim to Win The Lifetime.  They believe that preparing for every conceivable eventuality leads to better outcomes whenever eventualities become realities.

Daryl Morey knew that secondary Alpha Dogs often force their way out.  He knew that talent-rich teams can't pay everyone, and thus covet draft picks and young players.  He was prepared, and so he got Harden.  The Rockets have been winning ever since.

There is an irony: trust in the process removes trust in everything else.  Which brings us to today.

Marc Stein; long a semi-reliable source of NBA news, reported today that the Bucks have a "list" of potential head coaches.

Alex Lasry; Bucks Senior Vice President and son of co-owner Marc Lasry, wrote on Twitter that there is no "list", but that the team is doing "due diligence" in its evaluation of Head Coach Joe Prunty.

"Due diligence" is disturbing.  It reveals a belief in the lessor "Trust the Process" system.  It is for losers.  The Celtics got a lonely championship when Andrew Bynum got hurt in the Playoffs.  Outside of that one lucky Ring, Hinkie, Ainge, Morey, and their ilk are oh-for-a-lifetime at winning Championships.

The Patriot Way does not tolerate "due diligence".  Head coaching candidates do not exist until the day there is an open position at Head Coach.  As long as that position is filled, the focus is on succeeding with the man who is in place.

Lasry is young, and young men can be impetuous.  Perhaps his "due diligence" comment should be taken lightly.  Still, it was a mistake to write it and it is an even greater mistake if he abides by it.