You can’t win if you don’t spend.
That’s the motto of professional sports. With few exceptions, NBA teams who win are the teams with big payrolls. That, of course, makes sense, because teams with big payrolls often have stars who deserve that kind of money.
Over the course of the past season or so, the amount of money the Boston Celtics are spending has come under some amount of scrutiny. The Celtics very clearly tried to avoid the tax this past season and they moved Kemba Walker in an effort to save on next season’s tax bill. These are moves that have drawn some level of criticism, mainly because they cost the Celtics Daniel Theis, a very useful player, and, frankly, the optics of the move make the Celtics look cheap.
‘You’re a big market team! You’re worth $3 billion! You can’t pay some taxes?’ is the general theme of the blowback.
This is where things get complicated for the Celtics and their owners, because there are a lot of factors that explain why they don’t operate like other big market teams in terms of spending, but also there is clear justification for breaking their current apparent spending limitations.
Let’s start at the beginning, when Wyc Grousbeck, Steve Pagliuca, and a group of investors known as “Boston Basketball Partners, LLC” bought the Celtics for $360 million in 2002 from Paul Gaston. The Gaston family bought the team in 1983 for somewhere around $15-18 million.
Not a bad return on their investment, but it’s not like there’s an ATM plugged into the team’s value. I can have equity in my house that makes it worth a lot but it doesn’t really matter much unless I borrow against it or sell outright. It’s one thing to have a highly valuable team, but what the Celtics are missing as the fifth-most valuable franchise in the NBA is an alternate revenue source that fuels the top four.
The New York Knicks are number one at $5.4 billion, but according to Sportico, $1 billion of that comes from “team-related businesses and real estate.” Specifically, the Dolan family also owns Madison Square Garden Entertainment and MSG Networks, Inc.
Madison Square Garden Entertainment owns the arena, Radio City Music Hall, The Rockettes, The Chicago Theater, the Tao Hospitality Group, and more. MSG Networks airs Knicks and New York Rangers (which James Dolan also owns) games.
The Golden State Warriors are second, and $1.5 billion of their $5.2 billion worth comes from other team-related businesses and holdings. Most notably, the Warriors own the newly-built Chase center. The Los Angeles Lakers are third at $5.14 billion and $727 million coming from outside the team, mostly in the form of their 50% stake in Spectrum SportsNet. The Brooklyn Nets are just ahead of Boston in team value, and nearly $1 billion of that comes from their ownership of the Barclays Center.
In fact, according to Sportico, you have to go all the way down to the Milwaukee Bucks, at 16th overall in value to find a team that brings in less than Boston’s $50 million in team-related business and real estate.
The Celtics own a 20% stake in NBC Sports Boston, and little else. They pay rent to the Jacobs family for playing at the TD Garden, which means they don’t get anything beyond game-night revenue and even some of that goes to the Jacobs-owned Delaware North company.
Let’s hit the pause button here for a second and circle back after we take the CBA into account here.
Teams and players basically split the revenue down the middle. Some years it’s 51/49 one way, some years it’s 51/49 the other. The players’ portion comes in the form of the salary cap. Whatever is determined as Basketball Related Income (BRI) gets split, and other forms of income, like arena sponsorships and whatnot, are not. That goes directly to the owners.
The ownership half of the money pays to run the team. Everyone employed by the team from the head coach down to the game night stat-keepers is paid with this money. So is team travel, hotels, per diems (guys get about $140 a day on the road for food), lodging and moving expenses for traded players, uniforms, practice uniforms, blah, blah, blah ... and the luxury tax.
I’ll quickly explain the luxury tax system again so you don’t have to go back and find what I wrote before.
Salaries above the tax line are taxed at incrementally rising rates. The rates start at $1.50 for every dollar over, and rises every $5 million the team is over the tax line. So at $5 million over the tax, the rate is $1.75, then $2.50, then $3.25, then $3.75, and then an additional 50 cents every $5 million after that.
The repeater tax, which kicks in if a team has been a taxpayer for three out of the past four seasons, starts at $2.50, and you add a dollar to every one of those tiers.
A team $15 million above the tax line has a tax bill of $28.75 million. A repeater tax team would pay $43.75 million.
Forbes lists the annual operating income between the top three teams at somewhere between $155-$200 million. Boston’s is $86 million, which means they’re not even in the same ballpark as the big boys. From that perspective, it’s easy to see why managing a tax bill is a lot more of a concern for the Celtics than it is for the biggest market teams.
This is where it gets a little more complicated.
It’s still $86 million. There’s still money to go around. Yes, the Celtics operate on a different plane and, to put it in relatable terms, don’t have the same disposable income as the other guys, but they still have that disposable income. The owners all make money elsewhere, so no one is going to cry about rich guys trying to save a few bucks.
Most of the fans in the stands are at their only game of the year, saving up to treat themselves to a fun night at an NBA game. Their disposable income is going into Jacob’s pocket in the form of a couple of beers, a bottle of water, and a bucket of chicken tenders and fries. It’s hard for them to give a damn about a team working with eight-digit operating income versus nine.
Fans show up year after year to root for whoever comes through town to wear those jerseys. Sorry Daniel Theis, who is a nice guy and good player, but fans are on to the next one and wondering what Moses Brown has to offer. It’s all about the city or team name on the front of that jersey. It’s a matter of civic pride. Their reaction to the first half of this piece is something like 'oh boo hoo mister rich guy, how about you spend some of your millions of dollars so I can have a little enjoyment after sitting in Pike traffic for an hour and a half after working at a job I hate.'
Yes, from a sheer business perspective, the Celtics have sound reasoning for operating this way. If they didn’t make the Theis trade, the repeater tax would have come around quickly, and the team would have gotten very expensive. Because they don’t have the same advantages as other teams, the Celtics have to be more prudent in their spending.
Yet, they do have money to spend, and not doing so can cross into a territory fans find almost offensive.
This is how it is. Business people are going to run this like a business. Fans are going to want fan things like owners who spend freely. Until something changes with the Celtics ownership situation, this is how it’s going to be.
So ... can something change?
Yes they can!
The Los Angeles Lakers just sold a 27% stake of the team to two new minority owners. While the price paid isn’t public at this time, we can deduce that at the current team value it would cost about a $1 billion or so to get in.
There’s no reason why the Boston Celtics ownership group can’t put up some stake of the team that keeps control in the current group’s hands while still infusing the team with fresh cash. That’s money that can be used to help with things like a short-term luxury tax bill (or to recoup running the team at a loss over the next couple of seasons). There would be a line as long as the parade route to buy into the Celtics, and it would be a way for the owners to realize some of the value of the franchise.
The team will also get a massive influx of money when the new television deal kicks in for the 2025-26 season. The current deal was worth $24 billion while the new one has been estimated to be as high as $75 billion.
While player salaries will balloon in accordance with the split, the team isn’t going to be tripling everyone’s salary on the operations side. This is a windfall for them.
The league has also been talking about potential expansion, which would carry a $2.5 billion fee for each team. That money would be split between the 30 teams, with zero dollars going to the players.
I have long advocated for the team to build its own arena so it can reap the benefits of the building without having to pay rent. The old Garden is already gone, and the emotional attachments are gone with it.
When Guy Fieri’s restaurant occupies the spot where those 80’s battles were waged, I think it’s a safe time to move on. But that’s a conversation for another time.
I get why finances are a little tighter with the Celtics. I’m not going to begrudge someone’s right to run a business so long as the people working for that business are properly compensated. They own the team, they can do what they want with it.
However, they can be stingy at their own peril. Being too tight with money risks blowing a real opportunity with two young stars. If they operate with too much of a focus on spending, they’ll end up with the worst kind of cost-saving team ... a tanking team rebuilding through the draft.
The business of basketball makes things difficult because the rules are complicated and so much depends on the whims of others. The Celtics are in a unique financial position right now as they have never had a 23 and 24 year old making this much money for as long as the city hopes they do. The planning around them is tight and filled with financial landmines that jeopardizes the entire process.
The worst thing this group can do now is tighten up the purse strings in a short-sighted move to save some short-term money now. They have to let Jayson Tatum and Jaylen Brown know they’re serious about winning, or risk them trying to find a team that is a few years from now.