Bucksketball Podcast

Herb Kohl’s actions may be betraying his words

| November 16, 2011

Category: The Off Season

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Within the past year, Herb Kohl has been one of the senate’s most ardent crusaders in the way of competitive balance in private business. As leader of a Senate Antitrust Subcommittee, Kohl was vocal in protest of an AT&T/T-Mobile merger. The merger, he wrote in July, would “cause substantial harm to competition.”

Months later, Kohl was among senators that grilled Google CEO Eric Schmidt on competition issues. Kohl wondered if Google’s transformation into something more than just a search engine “created an inherent conflict of interest which threatens to stifle competition.”

Competition is a recurring theme for Kohl, be it as a senator or as an NBA owner. As much as he wants to be sure major companies like AT&T and Google are operating on a level playing field, he says he wants his small market Milwaukee Bucks to be given the chance to compete with teams from big markets like Los Angeles, New York and Chicago.

“I’m not in this business to make any annual profits,” Kohl said after dismissing General Manager Larry Harris in 2008. “The value of the asset fortunately has appreciated over the years. On an annual basis, it’s a money-losing proposition. I’m in it because I love the sport, I love the competition and I love winning.”

At what point does our current reality, the reality that has connected Kohl with a group of owners now looking to tip the basketball related income scales heavily in their favor while making other radical system changes, contrast with Kohl’s traditional motives that don’t involve making money, rather just competing and keeping the team he loves in Milwaukee?

Kohl and Charlotte Bobcats owner Michael Jordan gave a presentation to fellow owners this year calling for a robust revenue sharing package, something Kohl spoke about back in 2008.

“They have a fabulous revenue sharing program in Major League Baseball, primarily due to (Commissioner) Bud Selig,” Kohl said in the aforementioned 2008 press conference. “It has put teams like Milwaukee in a position to be successful and make money and spend what is necessary.”

Revenue sharing is Kohl’s way to keep big and small markets playing the same game. Kohl believes in a situation that encourages competition between markets regardless of size, one where it’s performance that matters. He wants an NBA in which the Bucks can reap the rewards a successful team should bring, not one in which he’s struggling to stay afloat even in the best of times.

But owners like Kohl who are now reportedly attempting to insist on not only a 53-47 split of BRI in favor of the owners (Note: owners took an agreed upon amount of more than $500 million in operating costs off the top before the split last season), but a hard cap as well, aren’t just trying to fix the system to encourage competition. More accurately, it seems like they are attempting to fool proof the system to ensure profits, regardless of what’s happening on the court. A system that’s tipped so heavily in the favor of the owners, one that protects them from themselves essentially, could assure profits whether a team is a success or a failure.

If the league is honest about its losses, and there are many who feel it hasn’t been, the $300 million it claims to have lost last year would nearly be offset in the first year of a 50-50 split of BRI alone. Over a ten year lifespan of a 50-50 split, the players would give back three billion dollars, more than enough to keep owners operating when coupled with intensified revenue sharing. Especially owners who claim they aren’t out to make a year-to-year profit.

ESPN cap expert Larry Coon has estimated that for every one percent of BRI split the owners gain, their team evaluations could go up by as much as $3-$12 million dollars. For owners like Kohl, who have lauded his asset’s appreciation over the years, this should be no small victory in itself. And for Kohl himself, who is reportedly looking into selling the Bucks regardless of how the lockout plays out, that boost surely will be valuable.

Kohl has positioned himself as a fighter for the regular guy from Wisconsin, out to make sure the little guy is allowed a shot at the big guy, and that’s admirable, so long as that’s actually what’s happening. But this seems like something more than that. We can’t say for certain, as no NBA team would ever open its books, but something is up here.

Kohl and the other small market owners certainly look like they are out to get repaid after years of losing money in an unfavorable system. They don’t just want an even playing field, they want revenge. And since no one wants to hear owners worth hundreds of millions or billions of dollars complain about operating losses, they’re selling it as competitive balance.

Given his track record and the Bucks struggles over the years, competitive balance could be music to the ears of Bucks fans. But Kohl and the other small market owners look to be out for more than competitive balance. If I didn’t know better, if he hadn’t specifically said otherwise, I would swear he and the other owners were after some pretty big profits, under the guise of increased competition.

Jeremy Schmidt writes the Milwaukee Bucks blog Bucksketball.com. Follow him on Twitter and become a fan on Facebook.

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About the Author ()

Jeremy Schmidt writes the Milwaukee Bucks blog Bucksketball. He founded it in January of 2009 because he hated his job. It’s like basketball, but with Bucks instead of basket. I know ... I’m sorry. He might come off as a bit negative, but I'm really not so bad. He just wants the Bucks to succeed, so he points out areas where they are coming up short. Someone has got to do it and he's ornery and opinionated enough to take on that task. He isn't sure if this should be in third person or not. Contact him at Jeremy@Bucksketball.com if you must use e-mail.

Comments (8)

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  1. Michael says:

    Hey, this is a great post, but I actually disagree with much of your conclusions. You remind me a little of my early thought process on the matter, but my position has evolved and I’ll explain below. Perhaps you will understand my perspective.

    The league claimed they lost $300 million last year. Recall this was in a year that the league had record revenues. The league says their losses are increasing and more teams are losing money. According to the NBA in 1998 (before the 99′ CBA was agreed upon), the NBA claimed 15 teams lost money (http://findarticles.com/p/articles/mi_m1208/is_n26_v222/ai_n27540806/). In 2011, the NBA claims 22 teams are losing money. I mention these things to clarify 1) the league’s losses are increasing and growing since 1999 and 2) league revenues are higher than ever. This information is important.

    My next piece of information is the most startling fact of all I have found throughout this CBA- the player’s share of BRI has remained stagnant at 57% of BRI since 1998 (evidence can be found in my link above). This means the player’s share of BRI has remained the same since 1998 which means it is in effect, a fixed expense. Fixed at 57% of BRI for the last 13 years.

    If the NBA’s losses are increasing which they claim, how can they solve this problem by reducing player salaries, which amount to a fixed expense? Clearly there are other expenses that are growing and continue to grow which have resulted in these increased losses since player salaries have remained the same percentage of revenue for the last 13 years.

    This leads to the owner’s current proposal. How does cutting player salaries solve the league’s financial problems? It appears to be nothing more than putting a tiny band-aid on a large and growing flesh wound. It’s not a solution to the problem.

    Further, if you were to believe a single BRI point is about $40 million (it’s actually a little less if total BRI was $3.8 billion in a record year as in 2011) this would result in a $280 million concession by the players. This concession wouldn’t even result in the league breaking even next year if the league is claiming $300 million losses. And since expenses have been rising as the past 13 years indicate, the NBA would be losing even more money in year 2 of their proposed CBA and suffer even worse losses in the following years.

    Anyways, my conclusion is that this is part of a more long term systematic process by the owners to lose money such that they receive an even greater share of BRI during the new CBA’s. This greater share in BRI equals higher franchise values. Plus, imo, these increased expenses are the direct result of owner purchases of franchises for an overinflated value and then passing the costs onto the players via increased interest/depreciation expenses (believed to be at least $250 million alone last year according to Billy Hunter). Bottom line, owners win. They don’t have to pay so much for the franchise plus sell it for a huge price in the end. Maybe suffer a few paper losses in the middle, but they are just paper losses and nothing more.

    Anyways, sorry this is so long. But it’s a different view that you might be able to appreciate.

  2. @Michael
    This is an awesome comment, Michael.

    I think your points are very interesting, and you very well could be right on a lot of them. I thought about this post a lot yesterday; part of me thinks it’s possible that Kohl is doing everything he is doing so he can secure a system that will allow a new owner to keep the team in Milwaukee and accomplish his goal if it’s making a profit year to year.

    But I’m curious about why, when salaries have been a fixed cost, the league has seen its other expenses spiral so out of control. Some real good stuff on this from Tom Ziller at SBNation http://www.sbnation.com/nba/2011/7/5/2259647/nba-lockout-2011-news-other-expenses. There is no debate that other expenses are rising, but why? And should the penalty of those costs be passed on to the players if they have no control over those costs? Maybe it should, but that probably depends on what the costs are.

    If they are related to ownership purchases at inflated values, is that really something that is fair to pass on to the players? Again, I don’t really know, maybe it is. I’m not a business major or anything like that, so I’m not the authority on where cost control should come from. But it’s certainly all worth discussion.

    I couldn’t be any more pleased with your response though, probably the best internet comment I’ve ever seen. Thanks again.

  3. Matt says:

    Nothing to do with this post (my apologies for that) but I have a question regarding a roster addition.

    I am a Toronto Raptors fan. I think Andrea Bargnani is a good player but the time for he and Toronto to part ways has definitely come. When I look around the league at teams where he could land and make an improvement, Milwaukee tops my list. Bargnani needs a dominant defensive C (Bogut) and a strong defensive SF (resign Mbah a Moute, Illysova at times) plus with the addition of Stephen Jackson helps the perimeter D as well. Obviously Scott Skiles is a tough as nails coach and Bargnani has been coddled enough in his NBA career. What Bargnani would bring the Bucks is a very gifted scorer – something they could use. Given that a number of key contributors are approaching 30 and SJax is well past, it would see the time to win is now.

    What would you think of Bargnani on the Bucks?

  4. @Matt
    I don’t see Bargnani working out on the Bucks. I think his awful rebounding would make him too unappealing to take a chance on with him already being labeled as an awful defender, despite his scoring abilities.

  5. Matt says:

    @Jeremy Schmidt

    Thanks for the reply.

    In his defense though, and having watched him play a few hundred games, he is an awful help defender (which is why I thought of Bogut) but an average/decent one on one defender and he has shown the ability to rebound when motivated (maybe Skiles could help with consistency? lol).

    Thanks again for the response.

  6. Michael says:

    @Jeremy- Glad you appreciated my post.

    I wish more people in the media would talk about this stuff, especially the inconsistencies with the owners last proposal. I honestly cannot explain 1) how the owners would break even or be profitable under that proposal in the first year and 2) how it’s a long term viable plan for the league.

    There is something really fishy going on here. That plan to me was the biggest indictment that the league has drastically overstated its losses.

    Thanks for linking me to that Tom Ziller article. This “other expenses” mystery is something I really wish the media would look into more. I have my suspicions of what it is, that being increasing interest/depreciation (rda) expenses, but only the people who have access to the NBA’s books know what it really is or how to justify it.

  7. Del3no says:

    Jeremy, I like your articles but think you’re missing the point here. After Kohl has supported a losing venture for years and lost money trying to keep them competitive it is just silly, if not wrong, to question his intentions. If he were looking to make money he definitely wouldn’t be trying so hard to assure that the bucks stay in Milwaukee. The new revenue sharing plan will simply allow the bucks to get out of the red, but it isnt going to make Kohl any richer. As rich as Kohl is there is a limit to what he can afford to lose on the Bucks. How could you believe the new revenue sharing plan is some scheme by small-market owners to get rich? you crazy

    This will make the Bucks and the league BETTTER! A hard cap means we can compete with the Lakers, Homerun for us! Similar to the NFL owners will have a larger revenue share because they are taking the financial risk, not the players. Players should be fairly compensated, but last time i checked 2x a doctors salary was more than fair as minimum pay to play a game that millions enjoy playing for free everyday.

    I love Bucksketball but this is truly an awful article. Competitive balance in the league will only make it better duh! Now if they only could make it more like the college game (real basketball)………..