Tuesday, October 27, 2009

The NBA: Where Frugal Happens [David Biderman]

Like a lot of NBA executives, Fred Whitfield, the president and chief operating officer of the Charlotte Bobcats, has been looking for creative ways to save money in a slouching economy.

So during halftime this season, don't expect to see one of those national traveling acts that cost up to $15,000 per game. For about a dozen games this year, Mr. Whitfield has enlisted the Junior Bobcats—a group of youth basketball players who are mostly 8 to 12 years old—to entertain the fans. The kids work pro bono, he says, and as a bonus, their parents usually buy tickets to see them perform. "It saves money and drives in revenue," Mr. Whitfield says.

Ever since NBA commissioner David Stern announced in July that more than half of the NBA's 30 franchises lost money last season—and recently said overall league revenue is expected to fall by as much as 5% this season—NBA teams have been trying to unwind some of their operations for the first time since the 1980s.

Most of these cuts, like the Bobcats' halftime budget, will be cosmetic: The Cleveland Cavaliers will save $40,000 by switching from paper Christmas cards to electronic ones, while the Denver Nuggets have eliminated free cellphone texting for employees. The Memphis Grizzlies say they'll save $50,000 by upgrading existing computers rather than buying new ones. "Our philosophy: lean and mean," says team executive Greg Campbell.

But behind all the small cutbacks, NBA teams are making a few adjustments this season, which begins Tuesday, that could impact the quality of play—if not the final standings. Some teams have reduced the number of assistant coaches from five to three. The New Jersey Nets grounded their advance scouts, who used to travel to watch the team's upcoming opponents, while the Grizzlies eliminated the entire scouting department. The Miami Heat asked everyone on its basketball-operations staff, including its coach, to take up to a 20% pay cut.

Meanwhile, several teams plan to reduce their rosters to 13 or 14 players from the usual 15—a maneuver that will save around $1 million per team, but could start to take a toll in March when teams start to fatigue. "Now it'll be harder to get your key players time off," says Bob Whitsitt, a former team president and GM. Former Denver coach Doug Moe says smaller rosters will remove some of the wiggle room coaches have to teach innovative plays and concepts. "More players meant more progress," he says. "It'll be harder now."

It's been a long time since the NBA had to deal with a recession. Before this downturn, the league had seen steady, and even strong, growth almost every year since 1984. But this season, the league's salary cap, which is tied in part to revenue, shrank. It stands at $57.7 million–about $1 million less than last year—and is expected to fall by up to another $5 million next year.

In the past 12 months, the Bobcats, Sacramento Kings, Dallas Mavericks, Indiana Pacers and Miami Heat are among several teams that have had layoffs, in some cases nearly 40 people. The NBA itself eliminated about 80 jobs before the start of last season, about 9% of its work force. The league also closed its Los Angeles office. "We know that we'll be challenged by the economy," Mr. Stern said in a recent conference call.

Some NBA insiders say they're not too concerned about these changes—which, they say, are mostly nipping at the margins. When it comes to things like assistant coaches, Jerry West, the Hall of Fame guard and former Memphis Grizzlies general manager, says there's been a hiring bloat in most franchises. "You look at all those assistants and say, 'My god, what's the point of all those guys?' "

Indeed, some of these cuts are really just steps toward efficiency. Rather than hire a bunch of no-name players over the summer to help give their recent draft picks some seasoning, the Bobcats instead shipped Gerald Henderson to Minnesota and Derrick Brown to Utah, where they played with rookies from other teams. And instead of spending thousands to fly each college prospect out for a couple of nights, teams decided to join forces for cattle calls.

At one mass audition in June hosted by the Nets, some 20 teams sent scouts. The event took place at the Nets' practice facility, where groups of at least six players would work out together in morning and night sessions over three days. The would-be stars grunted through one-on-one games and speed, strength and shooting drills. For the games, the scouts wanted to see players of the same position match up against one another. "We'd scrounge up whoever showed up to try to make it right," a Nets spokesman says.

By splitting the cost with about 20 other teams, the Nets ended up paying about $2,000 for an event that would have normally cost six figures.

"Given the economy, they can't fly all these guys out anymore," says NBA agent Sam Goldfeder.

The Nuggets are promoting a digital ticketing system where buyers never actually see a printed ticket. They say it could save six figures once all their fans are on board. The Orlando Magic is cutting the holiday party.

In Detroit, a city hard hit by the recession, the Pistons made a painful, if necessary, decision. A few years ago, the team delivered season tickets that were wrapped in leather portfolios that played music when they were opened. In other seasons, they'd come with trading cards, T-shirts and coupons. "They were the size of Monopoly box," says team president Tom Wilson.

This year, he says, tickets were shipped in a drab cardboard box—a move that saved close to $100,000. So far, he says, only one fan has complained. "I ask, 'What do you want instead? Higher ticket prices?' "

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