John Abbamondi’s term as CEO of the Nets and BSE Global, Joe Tsai’s holding company, is ending. He said he’d stay on through the end of the season and as we know, it’s over. CNBC hinted two days ago that Tsai already identified a candidate to replace Abbamondi, suggesting a transition may be imminent.
On Sunday, the New York Post’s Brian Lewis and Josh Kosman detail the enormity of the challenge the new CEO — whoever he or she is — will face once they move into the corner office at 168 39th Street in Sunset Park. The organization is bleeding money, Lewis and Kosman report, at a league-high rate.
The Nets and Barclays Center lost between $50 million and $100 million combined in the 2021-22 season, giving Tsai perhaps the worst financial losses in the NBA, sources with close knowledge of the situation told The Post.
Working with both public and internal figures, Lewis and Kosman detail where things have gone wrong and in the process ask if Tsai is too demanding, considering that the Nets have put up record-setting numbers for attendance, ticket revenue and sponsorships.
Rather than a good showing, they report, Tsai wants a great showing and quote sources saying he felt Abbamondi, who in the course of his career was a vice president of MSG and assistant GM of the St. Louis Cardinals, was not “innovative or data-driven enough.” Both of those qualities, of course, were critical to the rise of Chinese e-commerce giant Alibaba which Tsai co-founded and is the primary source of his wealth.
While they detail what’s going on behind the scenes, there’s no indication that a new CEO ... or the losses ... will affect the on-court product. There’s no indication that Tsai’s financial commitment has changed and in fact, he will likely continue to pay out enormous sums of money on salary, luxury taxes, etc. ESPN’s Adrian Wojnarowski and Bobby Marks said last week that Tsai is projected to pay out between $330 and $350 million next year in just salary and taxes in an attempt to win it all.
Lewis and Kosman address the big issue with the Nets business side this way:
The Nets’ average gate receipts this season were $2.1 million per game, fourth in the league. That was better than a 100 percent improvement over the $1 million per game during the last full pre-pandemic season in 2018-19, according to an NBA source. It also was the biggest jump in the league (the Suns were the only other team with a similar increase).
Still, the Knicks brought in $3 million per game, a 9 percent bump over 2018-19, though they did not make the playoffs.
The Nets, after giveaways, sold about 15,000 tickets a game, a 26 percent improvement over 2018-19. The Knicks averaged just over 16,000, according to an NBA source.
In other words, the Knicks were still the kings of New York basketball though the Nets’ payroll was $174 million, 48 percent higher.
The revelations are the latest on the Nets as a business to emanate from the Nets since they were swept last weekend by the Celtics in the first round of the NBA playoffs. CNBC’s Jabari Young wrote two days ago about about the Nets being seen as “dysfunctional” business.
In fact, the Celtics’ sweep adds to the financial woes suffered by BSE Global which controls not just the Nets but Barclays Center. The further a team goes in the playoffs — and adds home dates — the more profit it makes. The league pays pays more of the teams’ expenses in the post-season.
The Nets, the Post writers add, are only one part of the problem. The arena whose operating rights Tsai controls is also under pressure.
Barclays also expected this season to increase its percentage of revenue that came from non-Nets events from 36 percent pre-pandemic to 48 percent, according to the Moody’s report. Instead, there are projected to be just 147 Barclays Center events for the year ending in June, compared to 194 in the last pre-pandemic year.
That shortfall in revenue is forcing Tsai into personally paying out tens of millions to the city. Tsai, who’s required to be the personal backstop on municipal bond losses, will need to send the city $30 million this year after paying $52 million the prior year, Moody’s, the big credit agency, said in a March analyst report. (That report was first detailed by Norman Oder, the critic and chronicler of the overall Atlantic Yards/Pacific Park project.)
A lot of the financial issues faced by Tsai are of course related to the pandemic, but Lewis and Kosman also write that the Nets owner can be impatient with his subordinates. Since gaining full control of the Nets in October 2019 from Russian oligarch Mikhail Prokhorov, he has dumped two CEOs at BSE Global, first David Levy two months into his job, then Abbamondi two years in. He’s also replaced Jonathan Vanica, the chief investment officer of personal investment vehicle, Blue Pool Capital, toward the end of 2021. He had only been on the job less than a year. (He also changed Liberty head coaches twice in three years.)
How does all this affect the Nets? Tsai has repeatedly said he’s in it to win it and back in October made it clear to NetsDaily that he was well aware of what it would take financially to create and sustain a winner in New York.
“Do you think that is still a question?” Tsai joked back before the season. “I mean I did pay luxury tax last season. This season, it’s all public information, I’ll be paying over $100 million in luxury tax. So the answer is yes, yes, I’m committed and I’m committed for the long haul.”
He specifically noted that he is willing to pay the repeater tax and contended he was well aware of the high cost of operating an NBA team. The luxury tax for this year, which must be paid out by the first week of July, will cost him an estimated $97 million, the second highest in the league, behind the Warriors, and the highest the Nets have ever paid, topping the $90.6 million Prokhorov paid out in 2014.
“When you look at an NBA team, the cost is the cost, right? It’s the players salaries
“You have have a set of P&L (profit and loss) that’s before you pay the tax and a set of P&L that’s post luxury tax. At least on a pre-luxury tax basis, we’re making money.”
Tsai has long seen the Warriors, rather than the Knicks, as the model for his Nets investments. Golden State, which has the same kind of payroll — and ambitions — as the Nets, averages twice the per game revenue as the Nets, $4.2 million to $2.1 million.
Tsai wanted better results and became unhappy with Abbamondi for not hitting off-court numbers that were as robust as the Warriors’ despite spending like Golden State, sources said.
Lewis and Kosman also note that Alibaba stock has plummeted in the past year and a half, going from more than $300 a share to $97 as of Friday. But the funds used by Tsai to buttress the Nets and his other sports investments — the Nets, Liberty, two National Lacrosse League franchises in San Diego and Las Vegas — come from that family investment vehicle whose holdings are diversified beyond Alibaba stock.
Tsai, unlike Prokhorov, is also not an absentee owner. He’s been courtside or in his 888 Suite at Barclays Center on a regular basis this season and he also spent more than $300 million in the last year to buy multi-floor apartments in 200 Central Park South in Manhattan.
There are of course plenty of indicators that the Nets are becoming more popular (despite their disappointment on the court and various controversies.) As Lewis and Kosman write:
During the season, the Nets did not suffer from a lack of attention. They played in seven out of the top 25 games in national television audiences. Their Christmas game against the Lakers drew a league-best 5.8 million viewers, and the four playoff games against the Celtics averaged 4.8 million across ABC, ESPN and TNT, the most-viewed first-round series since 2016.
YES Network ratings are way up as well, nearly 40 percent over 2019-20 before the pandemic hit and 95 percent since 2018-19, the last traditional season, going from an average of 40,000 to 78,000 households, per a recent YES release. No team has seen its regional sports ratings jump as much. In comparison, the Nets 2016-17 ratings were the lowest for any NBA team in six years, They drew only 27,000 households in the New York area that season.
Unfortunately for Tsai, none of those numbers provide immediate dollars but long-term, they and other developments in the NBA provide building blocks for future profit.
Moreover, there is also the promise of new revenue streams, starting with much bigger TV and streaming package when the league’s new broadcast deal is negotiated two years from now. By some estimates, franchise values could double. There’s also increasing talk of NBA expansion which would bring in billions more to the owners of current franchises in the form of entry fees. Not to mention the new worlds of gambling and NFTs. The Liberty announced 10 days ago that they would be the first team in WNBA history to drop NFTs — non-fungible tokens in the form of digital art.
While a lot of the Nets fortunes are tied to what’s on the court, Tsai has joked about the NBA’s “socialist” model, that is, the sharing of most league revenues among 30 teams. On a more serious note, he’s also said buying the Nets meant buying a 1/30th interest in a rapidly growing business, the NBA.
No doubt the new CEO will face challenges, including Tsai’s demands for more revenue production, but there’s enough backstops — including his willingness (so far) to on the on-court product — to suggest that long-term, Tsai and his new CEO will be able to figure it out.
- Nets, Barclays Center’s losses are costing Joe Tsai millions - Brian Lewis & Josh Kosman - New York Post