Author: Justin Levine

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Coronavirus, The NBA, and The Houston Rockets: Assessing the Financial Impact (Part 1)

This time last week, it seemed nearly incomprehensible that the NBA season could be suspended. The coronavirus pandemic was less real here in the United States, with only mumblings that games could be played without fans in attendance. And yet the signs were all there. Japan’s professional baseball league, defined by an atmosphere more akin to an American college football game than an MLB game, was beginning to hold games in empty stadiums. Countries around the world had been limiting travel, with Italy closing its borders all together. In the United States, travel had been restricted to particular hotspots Italy and South Korea, and the signs of the first community spread of COVID-19 were found in California.

The league and its owners convened this past Wednesday afternoon to discuss options on how to approach the season in light of coronavirus. Some owners suggested playing games without fans in attendance, while others, including Houston Rockets owner Tilman Fertitta, preferred the league suspend the season for a few weeks. Then, on Wednesday night, moments before tipoff, a game between the Utah Jazz and Oklahoma City Thunder was abruptly cancelled, an unprecedented move made by the league. It would come immediately apparent that Rudy Gobert, the center for the Utah Jazz, was diagnosed with COVID-19.

While the spread of COVID-19 is becoming worse, its economic impact is as well, should not be taken lightly in any respect, and arguably will have much more lasting consequences.

The sequence of events set off a firestorm, which was particularly fueled by a video of Gobert being flippant about the virus two days prior. The league, now having its “Patient Zero”, had no choice but suspend the season. Players and media members at the game were held in quarantine throughout the night as testing was performed on each and every one to ensure no one else had the virus. The following day, it came apparent that Gobert’s teammate, Donovan Mitchell, was diagnosed with COVID-19, which undoubtedly created tension between the two players. With the NBA suspending its season, several other sports leagues followed suit, including the NHL and MLS, while one of the marque sporting events of March, NCAA’s March Madness, was cancelled outright.

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On the evolution of NBA players investing in real estate

Watching ESPN’s “30 for 30” “Broke”, one hears some sobering statistics around professional basketball players ability to preserve their wealth. In 2009, it was noted by Sports Illustrated that 60 percent of former NBA players were broke within five years of retirement. In the past, aspiring professional basketball players, having needed to focus on their craft 24/7, have been victim to lacking financial literacy and knowing how to invest a hard-earned, million-dollar salary. Now, it is encouraging to see how NBA players are changing that narrative.

Two NBA players that arguably popularized real estate investing in the league also gave NBA fans one of the greatest playoff match-ups in league history.

It’s no secret that real estate represents one of the greatest forms of long-term investing, a hedge on inflation and an effective diversification strategy against traditional public equities investing. Two NBA players that arguably popularized real estate investing in the league also gave NBA fans one of the greatest playoff match-ups in league history.

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Assessing the financial impact from the China fallout on the Houston Rockets

This article was originally posted for Red94.net on October 29th, 2019.

By now, everyone is aware of geopolitical firestorm created by Daryl Morey’s tweet supporting the Hong Kong protests. I won’t rehash the events, as they have already been covered extensively by every media publication around the world. I completely support Daryl on the basis of his right to express freedom of speech, and certainly abhor the strong-arm tactics China employed in trying to have Morey fired. Still, the financial impact on the Houston Rockets and NBA from the “tweet read around the world” is not insignificant.

Many people could scoff at the Houston Chronicle’s estimate, with the general line of thinking being if Mr. Fertitta can afford to pay $2.2bn for the team, what’s $10-25 million? But one has to consider the drop in valuation and leverage Mr. Fertitta utilized to purchase the team.

It is no secret that the Rockets have been China’s most popular team since they selected Yao Ming as the #1 draft pick in 2002. Up until this 2019-2020 season, the Rockets donned alternate jerseys that paid respect to the Chinese market rather than their hometown. The team has also played in China three times and hosts the Shanghai Sharks annually at Toyota Center during the preseason. Further, the team has had longstanding sponsorships with several Chinese brands, including sports apparel company Li-Ning, bitcoin mining company Antpool, Shanghai Pudong Development Bank, and, most importantly, media conglomerate Tencent, for which the NBA just enacted a $1.5 billion five-year partnership to stream games in China. So when these Chinese businesses suspended ties with the Rockets, one begins to understand what is at financial stake for the team.

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Lessons to be learned from the Golden State Warriors’ business and real estate strategy

This article was originally posted for Red94.net on June 18th, 2019.

With the NBA Finals now having passed, I found myself reflecting on the successes of the Golden State Warriors these past five years, and how the team became the greatest NBA dynasty of its time. As a Rockets fan, it sometimes pains me to discuss the Warriors, a team that has been responsible for Houston’s four out of its last five exits from the NBA playoffs. However, the Rockets can learn a great deal not only from the organization’s careful roster construction but also its business operations.

They say ownership is the greatest competitive advantage in sports, but owning one’s real estate is certainly a close second.

Much has been discussed how the Golden State Warriors successfully managed to build arguably the greatest roster of NBA talent ever assembled. First, the team drafted extremely well, choosing Stephen Curry in 2009, Klay Thompson in 2011 and Draymond Green in 2012, setting up its core championship foundation. Next, the team pivoted away from head coach Mark Jackson in 2014, hiring Steve Kerr as his replacement. In Kerr, the franchise developed a stronger identity and its now famous “assist-first” culture – the team went from being sixth in assists during 2013-2014 to leading the league in all seasons subsequently thereafter. Finally, as a result of a collective bargaining agreement between the league and players’ association, the salary cap jumped from $70 million in 2014-2015 to $94 million in 2015-2016, allowing the team to add arguably the greatest player of this era’s current NBA generation in Kevin Durant to an already 73-win championship team. These were perhaps the three most important developments on the basketball side that allowed the Warriors to dominate the league over the last five years. Credit to General Manager Bob Myers is well-deserved.