Could bad deal mean end to Jazz in Utah?
Small-market NBA teams facing tough times
Keith Johnson, Deseret News archives
SALT LAKE CITY — The ongoing NBA lockout situation presents a dilemma for the Utah Jazz and their fans.
Everybody wants basketball to be played, not delayed by a labor mess.
But even if it brings pro hoops back sooner than later, an unfavorable collective bargaining resolution for Utah could adversely affect the organization as it tries to maintain a tradition of winning despite market-size challenges.
In fact, one source with intimate knowledge of the Larry H. Miller Group of Companies' inner workings speculated that small-market-related economic hardships could force Jazz ownership to place a "For Sale" sign on the franchise. The source told the Deseret News that the Jazz were expected to report losses in the $17 million range for the 2010-11 season.
"If I was a betting man," the source said, "my guess is that the Millers will sell the team within the next five years, unless this CBA changes the formula so that the team can make some money."
Others say the Millers will never sell the Jazz.
The late Larry H. Miller viewed the Jazz as a "community gift" to Utah. The self-made entrepreneur once put it like this, "Selling the Jazz would be like selling Canyonlands."
From his vantage point, RSL owner and pro sports mogul Dave Checketts can't envision the Miller family selling the Jazz. He doesn't view their commitment as conditional.
"I think the Jazz have a tremendous, tremendous fan following. I think teams like that will always exist in the markets they're in," said Checketts, whose resume includes time spent as the Jazz's president and general manager.
"I don't think the Jazz are an endangered species."
Fans can thank NBA commissioner David Stern's league-wide gag order on lockout talk for Jazz CEO Greg Miller's decision to turn down an interview request.
"Based on the circumstances," Jazz spokesman Jonathan Rinehart said, "we respectfully decline to comment on your questions."
Despite his current silence, Miller hasn't shied from emphasizing his intent to keep the Jazz in the family and in Utah. He told a packed EnergySolutions Arena at the 2009-10 season-opener that his family would ensure the Jazz stay in Utah as long as the support remained.
"These fans," he said that night, "are the engine of the Utah Jazz."
Even so, the Millers would make an enormous profit by selling the franchise.
According to Forbes, the Jazz are the 16th most valuable NBA franchise and are worth $343 million. While that's down from its $358 million value in 2008, the late Larry H. Miller bought the team outright from Sam Battistone for $24 million in 1986.
But due to circumstances, the Jazz would be in a much stronger financial situation with a more generous revenue-sharing model between the NBA's 30 owners and a greater share of the league's Basketball Related Income (players have earned 57 percent of BRI).
"Greg has consistently stated that as long as owning the Jazz makes financial sense, the Millers will own the team," the source said. "However, under the current system, it doesn't make financial sense."
Miller seemed to agree with that sentiment during an interview with ESPN last year when he said, "almost anything we did with our money would get a better return on investment."
But, Miller added about Jazz ownership, "it's really a community asset that our family is charged with running."
Before the 2006 season tipped off, eight NBA owners sent a petition letter to Stern.
With his peers, Larry H. Miller pleaded for increased wealth distribution, especially with local TV revenue, between the league's 30 franchises.
One snippet from the letter read: "We are asking you to embrace this issue because the hard truth is that our current economic system works only for larger-market teams and a few teams that have extraordinary success on the court and for the latter group of teams, only when they experience extraordinary success.
"The rest of us are looking at significant and unacceptable annual financial losses."
Five years later, the message still resonates.
ESPN.com NBA writer Brian Windhorst recently described the contents of that old letter as being "the root of the current lockout" and the reason behind the impasse on negotiations, which have lasted for two years.
A comparison of the Los Angeles and Utah markets offers a stark example of the uneven financial playing field in the NBA.
Earlier this year, the Lakers signed a 20-year deal with Time Warner Cable for a whopping $3 billion, according to the Los Angeles Times.
Utah's current TV contract?
The Jazz signed a 12-year pact in 2009 with ROOT Sports, formerly Fox Sports Network, worth $240 million.
"There is such a wide disparity among the values of those in cities like L.A. vs. Salt Lake City," former Jazz marketing vice president Eric Schulz said. "The big-market teams have such a huge advantage financially, it's akin to Zions Bank trying to compete with Citibank."
Financial losses the last couple of years were partially self-imposed by the Jazz. They carried a high payroll, hoping it would pay off in the form of an elusive championship, only to see those chances leave with Carlos Boozer, then Jerry Sloan, then Deron Williams.
But the team, the source said, has lost money almost every year since moving to Utah from New Orleans in 1979. Last year, Greg Miller admitted to ESPN that, "some years we make money, and some years we lose money."
The 1997 and '98 NBA Finals teams were profitable, the source said. Larry H. Miller pointed out in his posthumously released biography, "Driven," that the team made a small sum in the first few years he owned it outright (about $100,000 a year). Yet even under Miller's watch, the source claimed the Jazz lost millions most seasons.
That, despite the Jazz being one of the most successful NBA teams with one of the most loyal fan bases.
With last season's franchise-high payroll of $75.3 million, the Jazz were cast further in the red than ever before. Carrying massive contracts like Andrei Kirilenko's ($17.5M), Al Jefferson's ($13M) and Mehmet Okur's ($10M) put the Jazz on the world's biggest-spenders list.
The Jazz payroll ranked 11th in the world in average salaries at $5,829,643 a player, according to sportingintelligence.com.
That heavy payout by the Jazz came on the heels of a $9 million loss in 2009, the source pointed out.
To make matters worse for Jazz ownership, the Miller Motorsports Park has been a consistent money loser since opening in 2006. One of Larry H. Miller's pet projects, he admitted in his book — co-authored by Deseret News columnist Doug Robinson — that the world-class complex was losing $2 million a year. He even called the racetrack "an ugly stepchild" for the Miller Group because it was ahead of its time in Utah (in other words, unappreciated and underused).
The company's TV and radio stations (KJZZ and KFAN) have also taken significant losses, cutting into profits made by the Millers' movie theaters and Fanzz stores, according to the source.
The Miller's biggest moneymaker and original raison d'etre — the car dealerships — continue to bring in big bucks. However, according to the source, the 40-plus new and used auto lots saw their profits fall more than 50 percent in a recent three-year period.
For years, the Millers have considered the Jazz's financial losses "a cost of doing business." After all, what better marketing tool than to be directly associated with the most popular team in the region? That connection helped the Millers sell billions of dollars worth of cars, movie tickets and merchandise, easily making up for Jazz-related economic losses. In 2010-released "Driven," Larry H. Miller said the LHM Group brought in $3.2 billion in sales annually. (For a companywide perspective on his basketball team, Miller revealed: "If the Jazz were a Toyota car dealership, they'd be only our fourth largest Toyota store in terms of annual revenue in 2008.")
Last year, Greg Miller also told the Deseret News the LHM companies streamlined expenses during the recession, reducing overhead and increasing cost-efficiency. Car inventory, for example, was reduced by 40 percent.
That's helped the Miller group counter a rough economy, make money monthly and service debt despite decreased revenues.
"Fortunately, we're doing very well," Miller said at the time. "My dad left the organization very well capitalized (and) very well positioned economically.
"With the combination of our expense reductions and our (collective efforts) to keep our house in order, we've been able to remain profitable."
That success helps the Millers sustain financial setbacks by their most popular organization. The Jazz, according to the Larry H. Miller autobiography, will pay off the final part of the $20 million bond for their arena by 2013. Forbes claimed the Jazz have the fourth-best debt-to-value rating in the NBA at 5 percent, trailing only the Los Angeles Clippers, Detroit Pistons and New York Knicks (all debt-free).
"The profits from those entities far and away made up for the minor losses of the Jazz," the source said.
Miller also said Jazz management, committed to paying higher salaries for competitive purposes, was looking to capitalize on new and existing revenue streams (e.g. club seats) "without pricing ourselves out of the market" in hopes of not requiring other entities within the LHM Group to carry the financial burden.
Still, Miller called coping with rising player salaries and revenue issues in a rough economy "a very delicate balance."
"That's without question the biggest challenge that we're going to have," Miller said in 2009. "As long as this community is willing to support us to the level that they have, it's going to work out."
Nobody likes losing money, especially when it's believed the hole in the financial dam can be patched up.
Getting an economic boost from the league would be important for the Jazz, who have the sixth-smallest market size (954,000 homes with TVs compared 7.5 million in L.A.), according to Sports Media Watch.
One reason for concern and additional help is a dramatic decrease in season-ticket sales for the Jazz — from 15,000 in 2008 when Utah ranked No. 1 in the NBA to 10,000 last season.
It's also challenging to get enough fans to buy single-game tickets to consistently fill up the 19,911 seats in EnergySolutions Arena. A new variable pricing plan — placing a premium on seats for more enticing match-ups — helped counter some ticket losses last season, but it's a mystery how, or if, the departure of the Jazz's Hall of Fame coach and All-Star point guard might affect sales.
Over the past three seasons — after stellar Stockton-and-Malone era attendance was finally being realized again — Utah has seen its attendance dip from 19,900-plus per game in 2009 to just over 19,500 last season. That means 400 fewer people bought tickets (which average $44, per Forbes), concessions and souvenirs at the Miller-owned arena at 41 home games. The Jazz also lost out on all playoff revenue, due to their historic second-half collapse last season.
The possibility of fan backlash is another factor that could hurt the Jazz when the lockout ends.
Watching owners and players bicker and battle about the portioning of a $4 billion pie while the overall economy struggles and unemployment hovers around 9 percent doesn't sit well with some people. Venting Jazz fans have told the Deseret News they will withhold financial support in protest.
Because of his team's predicament, Miller has been labeled as a hawk in the ongoing negotiation process. Though Miller isn't directly involved with the NBA's labor relations committee, his hawk designation suggests the Jazz boss is among the hard-line owners pushing to drive a tough bargain with the players.
Interestingly, though, the Jazz were not one of 10 teams who co-signed a letter to the NBA voicing opposition to the 50-50 revenue split Stern most recently offered before players disbanded their union and filed antitrust lawsuits.
According to the Indianapolis Business Journal, that group of hawk owners included: Atlanta, Charlotte, Denver, Indiana, Memphis, Milwaukee, Minnesota, Philadelphia, Portland and Sacramento.
But the Jazz are one of 22 teams that lost money in 2010-11 when the NBA said it took on $300 million in losses.
Utah isn't likely to carry near the salary it had last year. That doesn't change ownership's opinion that the league's economic model needs an overhaul, meaning less money for players and large-market teams and more financial assistance for small-market organizations.
"The Jazz paid through the nose for a competitive team most of the last decade — money that's tough to make up in a small market without a different CBA," wrote ESPN.com basketball expert Henry Abbott. "Miller also just lost a star player, Deron Williams, to a threat to move to a bigger market. He'd like changes. The Jazz are in a small market without much profit, so they would be recipients."
Question remains: What will happen if they aren't?
Asked if he'd consider buying the Jazz, Checketts, who used to oversee Madison Square Garden and mulled putting an offer to buy the St. Louis Rams, reiterated that he doesn't foresee the Jazz putting their franchise on the market.
"Oh, gosh, I do not believe the Miller family would ever have any intention to ever sell the Jazz," he said, "so I think it's a moot point."
Of course, as it stands, Utah is without the Jazz anyway.
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Contributing: Brad Rock
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