Profits and Losses in the WNBA

There was a curious article in the Washington Post this week about the financial condition of the Washington Mystics and the WNBA. I’ve read the article a couple of times and still can’t make heads or tails of the conflicting signals it contains.  The Washington Mystics, the WNBA franchise in DC, are owned by Ted Leonsis, who also owns the Wizards of the NBA and Capitals of the NHL.  Leonsis says of the Mystics:

“The franchise is losing money,” he said. “It’s lost money every year that it’s been in existence, but that doesn’t mean it is in dire straits.

“We’ve continued to invest in the business, and we believe in the WNBA. We believe in the franchise. We believe in the fan base. To be frank about it, our expenses have been increasing faster than our revenues so we’ve been losing more money year over year, and that is troublesome for any business.”

So the investment appears to be part of a long run plan to eventually generate profits even though short run losses are generated, right?  Why else would a profit maximizing firm continue to invest in an asset that generates operating losses?  However, the article also points out that the Mystics led the WNBA in attendance for six of its first seven seasons, yet average attendance has declined since 2002, when the team drew more than 16,000 fans per game until last season, when they drew 9,500 fans per game.  Note I’m not referring to tickets sold, because, according to Leonsis, many of the tickets to games in the early days were given away.

Even though attendance has declined, the Mystics last two seasons were the two most successful in franchise history on the court.  How did Lenosis respond to this success?  The team fired the GM and the coach in a move to cut costs.  When asked why this personnel decision was made, Leonsis replied

“I’ve outsourced the leadership and management to the Mystics to Sheila Johnson and Sheila’s acting as the owner and governor,” he said. “This was the decision that she thought best.”

Huh?  That doesn’t sound like an owner who is investing in the team.  Sheila Johnson is the Mystics “managing partner,” so Leonsis is claiming that he is was not involved in key personnel decisions made by the team he owns.

Things are not so bad in other parts of the WNBA.   League-wide attendance has increased steadily over the past four years, and the Connecticut Sun became the first team to turn a profit in league history last season.  The Sun use novel, cutting edge business practices like selling tickets instead of giving them away, and making sensible front office decisions like expanding their ticket sales force.

Ted Leonsis made his fortune at AOL, which could be described as being at the right place at the right time, rather than being a sharp business owner.  Or perhaps running an internet service provider in the dial-up days may not prepare a person to run three professional sports teams.  Or maybe Lenosis has a savvy long-term plan for the Mystics that differs from the rest of the league.  Only time will tell in DC.

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