NBA Lockout Seen Costing $1 Billion as Darkened Arenas Become Black Holes

National Basketball Association arena operators would miss out on more than $1 billion in ticket revenue if a labor shutdown wipes out the 2011-12 season, probably leaving their buildings dark those nights.

“Most all the dates would go unfilled,” former Portland Trail Blazers President Steve Patterson wrote in an e-mail.

The NBA’s 30 teams generated more than $1.1 billion in gate receipts during the 2010-11 campaign, according to the annual postseason audit conducted by the league and the players’ union. That probably would rise due to customary ticket-price increases if players and owners reach a labor agreement in time to prevent lost games this season. The New York Knicks, for example, said in March they were raising prices by an average of 49 percent amid an $850 million renovation of Madison Square Garden.

The NBA locked out players on July 1, saying the league’s financial system needs to be overhauled to stem $300 million in annual losses. Management and labor disagree on how to share more than $4 billion in annual revenue, and when union Executive Director Billy Hunter was asked whether the season would take place, he answered, “If I had to bet on it, no.”

Stuck in the middle are arena operators who have blacked- out exhibition, regular-season and playoff dates for their NBA tenants. Because securing big-name talent like Lady Gaga and Jay-Z requires so much lead time, it would be “impossible” to replace each team’s 40-plus basketball dates with other events, said John Wentzell, president of TD Garden in Boston, home of basketball’s Celtics and hockey’s Bruins, who own the building.

‘A Painful Hit’

“As much as we would like to have the ability to repurpose those dates, it’s just impossible,” Wentzell said in a telephone interview. “I don’t think anyone would attempt to spin this -- that it’s not a painful hit to their business.”

NBA employees, under the threat of a fine, have been instructed by Commissioner David Stern not to discuss matters that pertain to the labor contract. Since the Bruins own TD Garden, Wentzell is not bound by the commissioner’s edict.

Wentzell declined to offer a dollar figure on losses. In addition to the empty dates, dark buildings strain an arena manager’s relationships with advertisers, sponsors and suite holders.

“Very painful,” he said.

$1 Million a Night

Bob Gutkowski, former president at Madison Square Garden Inc. (MSG), home of the Knicks and Rangers, said the basketball team generates at least $1 million in ticket revenue per game. That’s about $45 million over the course of a season for the Knicks, excluding playoff games and the team’s effect on MSG Network advertising.

“Every night there is a good amount of revenue that isn’t going to come through,” Gutkowski, a partner in the New York- based sports consulting firm Innovative Strategic Management, said in an interview. “And most of it isn’t going to be replaced.”

Stacey Escudero, a spokeswoman for MSG, declined to comment. MSG split from Cablevision Systems Corp. in 2010; James Dolan is chairman, as well as president and chief executive officer of Cablevision.

According to a 2009 arena bond prospectus by the NBA’s Nets, who are tenants at Newark, New Jersey’s Prudential Center until the Barclays Center in Brooklyn is ready in 2012, the average arena hosts 161 events a year, about 25 percent of them NBA games.

For some, like Miami’s AmericanAirlines Arena, home of the Heat; Conseco Fieldhouse, home of the Indiana Pacers; and FedExForum, where the Memphis Grizzlies play, NBA games accounted for at least 43 percent of the year’s events.

‘Very Damaging’

“They’re losing up to half of all revenue that comes to them over the course of a year,” said Rob Tilliss, founder of Inner Circle Sports, a New York-based advisory firm that represented Apollo Global Management LLC co-founder Josh Harris in his purchase of the Philadelphia 76ers. “It’s very damaging.”

The NBA last locked out its players in 1998, when games that count were lost for the first time. The result was a 50- game season, down from the usual 82.

Richard Krezwick, general manager of the Prudential Center, said there is nothing he can do.

“We unfortunately have 44 dates in our calendar that are at significant risk right now, but we can’t touch them,” the 52-year-old Krezwick said, declining to quantify projected losses. “You try to play out every scenario, but there really is no solution.”

Krezwick said Prudential Center officials addressed a possible lockout in the lease with the Nets, although the basketball team that is owned by billionaire Mikhail Prokhorov doesn’t face penalties for the landlord’s lost revenue. “So the facility is at risk,” Krezwick said.

Double-Date

If Krezwick has, as he said, a date problem, the Anschutz Entertainment Group-owned Staples Center in Los Angeles has a double-date problem. It’s the only arena that houses two NBA teams: the Lakers and Clippers. Of the arena’s 246 events in 2009, 101, or 43 percent, were NBA games, according to the bond prospectus. The Lakers, Tilliss said, generate about $2 million a game in ticket revenue.

AEG spokesman Michael Roth didn’t immediately comment.

“The worst scenario for arena operators,” Tilliss said, “is to have their building dark.”

To contact the reporter responsible for this story: Scott Soshnick in New York at ssoshnick@bloomberg.net

To contact the editor responsible for this story: Michael Sillup at msillup@bloomberg.net

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