Economics

Every year, Forbes Magazine rates the value of all the franchises in the NBA.   Here is the complete list:

http://www.forbes.com/lists/2011/32/basketball-valuations-11_rank.html

Surprisingly, the New York Knicks are now the most valuable team in basketball, topping the list at $655 million.  Their 12% increase in value since last year certainly has something to do with the impact of Amar’e Stoudemire, who has raised both the team’s competitiveness and marketability.  The fact that the Knicks carry no debt probably plays a part in their high valuation as well.

It appears as though the Knicks’ signing of Stoudemire last year to a 5-year, $100 million contract was a good move after all, despite my strong belief that it was a mistake.

It’s no surprise that LeBron James’ decision had serious financial ramifcations for both teams involved.  The value of the Miami Heat rose 17% to $425 million.  That’s an increase of nearly $60 million.  The value of the Cleveland Cavaliers dropped 26% to $355 million, a decrease of nearly $130 million.

One might wonder where that extra $70 million in value went!

There’s an interesting article in the NYT about the economics of baseball’s revenue-sharing system.

The revenue-sharing system is essentially a robin-hood style redistribution of baseball income, taking money from the most profitable teams and dividing it up among the least profitable.   The system, in theory, gives smaller-market teams a chance to compete with their big-market brethren by providing them with addtional cash to invest on players.  But are the recipients of these baseball bailouts really using the money to improve their teams?  Thanks to an anonymous leak last summer, the public was given an unprecedented look at some MLB financial information.

It was quite interesting to see that the Pittsburgh Pirates, who not only have posted a league-record 18 consecutive losing seasons but also rank near the bottom of the MLB in both popularity and team payroll, have actually been quite profitable the past few years.  For example, in 2007 and 2008 the Pirates, who routinely traded away their best players, not only made around $30 million in profit but also collected around $70 million in revenue sharing payouts!

Maybe the owners of the Pirates have figured out that spending their yearly $35 million bonus on players doesn’t increase revenue enough to make it worthwhile.  Why not just take the safe money?  Not a bad year for a business that hasn’t seen success in two decades.