World Cup South Africa

The 2010 World Cup will be the first ever held in Africa, and the first to be held in the southern hemisphere since the 1978 World Cup in Argentina. The location has always had a great effect on the outcome, a European team has never won a World Cup held outside of Europe, despite making several finals appearances, and only once has a non-European side won the World Cup on European soil (Brazil won the 1958 World Cup in Sweden). The Confederations Cup held last summer in South Africa saw defending World Cup Champions Italy eliminated in the group stage, and UEFA Euro Champions Spain shockingly eliminated by the United States, meaning European sides may struggle again this summer. The South African weather will certainly have an effect too, cool and wet conditions will be a far cry from the scorching temperatures seen in the last few World Cups. Plus there will be huge variations in elevation from sea level at Cape Town to well over a mile at Johannesburg. A record six African nations will be represented in South Africa, with Cote d’Ivore and Ghana being dark horses to go deep in the tournament, an unfavorable draw makes advancing out of the group stage difficult for the host nation, but Bafana Bafana had a surprise showing at the Confederations Cup, so they shouldn’t be counted out. Brazil and Spain are considered the favorites, with Argentina, England, Germany, and Netherlands being the next best contenders, it seems unlikely that Italy will be able to do much to defend their title. Of all those teams Brazil stands out, A Seleção has won the last two World Cups off of European soil, have only been beaten by France in the World Cup since Argentina topped them in 1990, and appear to have one of the easiest paths to the final. However, one of the biggest stories is the teams that did not qualify and will not participate in the worlds greatest sporting event. Ireland missed the tournament thanks to a Thierry Henri double hand ball, but more shocking is the absence of Russia and Croatia, teams that are both in the top 11 in FIFA world rankings, also Africa’s best side Egypt is missing. More unfortunate is the epidemic of injuries that has afflicted almost every squad, many of which will have to play the tournament without their very best players. Last year’s Confederations Cup went very successfully, but security remains a huge problem for a country that has a degree of instability, and not just the threat of crime, but unfortunately also terrorism both of a local and international origin. Hosting the World Cup in South Africa is one of the most ambitious moves that FIFA has ever made, and it certainly will be one of the most memorable, hopefully for all the right reasons.

World Cup Champion – Brazil
World Cup Runner-up – Germany
World Cup Third Place – Spain
Golden Shoe Winner – Luis Fabiano
Golden Ball Winner – Kaka
Golden Glove Winner – Iker Casillas
TEAM PREVIEWS

Vamos Rafa

Rafa Benitez is parting ways with Liverpool FC after six seasons as the manager, receiving a £6 million pay-off to leave the club. Under Benitez’ stewardship The Reds finished a disappointing seventh in the Premiership League Table, after being a runner-up to Manchester United in the previous campaign, and the equally disappointing were the early exits in the FA Cup and the League Cup. Liverpool failed to advance out of the Group Stage of the UEFA Champions League, which Benitez won in his first season with the club. Liverpool did advance to the UEFA Cup Semifinal before being heartbreakingly eliminated by Athlético Madrid, on an extra-time goal from Diego Forlan. The season started with high expectations, but ended with no new silverware for the trophy cabinet.

In the summer transfer window Benitez sold Xabi Alonso to Real Madrid, for €30 million, a deal that made fiscal sense, but left the club with no other holding midfielder to set up the attacking players. Naturally the offense struggled mightily early in the season, the mid season acquisition of Maxi Rodriquez did not fill the vacuum of Xabi’s departure, and the club finished with sixteen fewer goals than the previous Premiership season. Shuffling of line-ups due to performance, as well as injuries, led to the mixed results, and by mid-season it was clear that Liverpool were not in-line for any football honors. Benitez’ defensive oriented style has led to moderate success, but it has led increasingly disappointing results, like losing to Reading at Anfield. More questionable has been his personnel decisions, using ownership turmoil to expand his power Benitez had free reign over the squad, but his constant buying and selling of players finally caught up him this season as Liverpool drifted away from the top squads in Europe, and perhaps has pushed the club out of the “Big Four” in the Premiership.

The “Big Four” are Arsenal, Chelsea, Liverpool and Manchester United, the four clubs account for all but one of the League Champions since the formation of the Premiership in 1992 (The Premiership was part of a reorganization of English football, and was previously League One), and regularly finish in the top four slots in the league table, which qualifies them for the Champions League. However, Liverpool has not won a title in the Premiership, from 1975 to 1990 The Reds won ten League One titles, but have not toped the table since. Meanwhile, Manchester United has claimed ten league titles, tying them with Liverpool for the most all time. What separates the “Big Four” from the rest of the Premiership is their ability to out spend all the other clubs, after a decade of glutinous spending Liverpool maybe tapped out.

Liverpool is over £350 million in debt, and is only afloat because of a £290 million loan from RBS and Wachovia, which expires in July. American owners Tom Hicks and George Gillett have again secured an agreement with the lenders to give them time to sell the club, but KPMG, the club’s auditor, expressed a “material uncertainty” about Liverpool’s ability to continue as a going concern. However, Hicks and Gillet are holding out for an offer of over £600 million, three times what they paid for the club only three years ago, and £200 million more than RBS currently values the team. With RBS pressuring a sale, along with falling revenue it will be hard to sell the club for anything other than a discount price, but the Americans seem too stubborn to acknowledge their position, even Sheikh Mohammed bin Rashid al-Maktoum, the ruler of Dubai, who really wanted to purchase the club, balked at the asking price. Fans, former players and mangers, even David Moores, who sold the club to Hicks and Gillet, have spoken out against the owners, some publicly demanding a sale. Despite the club’s unfortunate position, Liverpool fans may take solace in the fact that their greatest rivals could be facing an eerily similar situation.

Manchester United has been the most successful sqaud in the Premiership, and are considered one of best in all of Europe. While United’s on the pitch results have been more impressive than their chief rivals, they have the same off the pitch problems. Manchester United has an American owner, Malcolm Glazer, and have debts that exceed £700 million. United’s board of directors have been trying to get Glazer to sell for several years, and group of wealthy fans, dubbed the “Red Knights”, have been pursuing a £1 billion takeover bid. Since 1990 Manchester United had been a publicly traded, and it took almost £800 million to purchase all the shares, most of which was borrowed against the club’s assets, the rest in PIK loans which were sold to hedge funds. Glazer will be forced to sell the club by 2017 or he will lose his shares to the hedge funds, but he could damage the club a great deal before then. Glazer would certainly be willing to sell the club, however, as will Hicks and Gillet, Glazer is seeking an excessive offer, over £1.6 billion, and has claimed that he has already turned down a £1.5 billion offer. It is only a matter of time before Manchester United is in the same position as Liverpool, and with a much greater burden of debt.

The uncertainty about the Liverpool’s future has hamstrung the club, and while this downturn may not be as severe as what financial mismanagement has done to Leeds United, it may be a while before Liverpool are playing Champions League again. Yossi Benayoun has already been linked with a move to Chelsea, Captain Steven Gerrard has been linked to Real Madrid, and it appears a bidding war for star striker Fernando Torres will start after the World Cup. Javier Mascherano, Dirk Kuyt and Glen Johnson could all also become transfer targets, devastating the clubs starting eleven, as clubs begin to pick the carcass of a not yet dead Liverpool. Interim manager Kenny Danglish, a star and later a manager during the clubs most successful run, will had pressed to keep the core of the squad together. New chairman Martin Broughton was an odd choice, considering the turmoil he is dealing with at British Airways, and his search for a new manager isn’t going to be easy, but while European mangers might steer clear, the Liverpool job is still going to be very appealing to domestic mangers despite the turmoil surrounding the club.

The financial reality is finally catching up to clubs that spend to much, revenues are falling along with team values. The last decade saw a wave of billionaires buying up teams from long time owners, who would make a huge profit, then flipping the team a few years later, as sports teams values inflated at a ridiculous rate. Liverpool is going to have to adjust to this new reality, and an era of austerity may have to be endured at Anfield. However, with a good manager, and a focus on cheaper young talent The Reds will not fall far.

WORLD CUP 2010 SOUTH AFRICA PREVIEW

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Lebrocalypse Now

The Cleveland Cavaliers were eliminated from the NBA Playoffs in second round by the Boston Celtics, in what will probably be Lebron James’ last game for the Cavs. A combination of factors led to the Cavaliers’ failure to win a championship: general manager Danny Ferry failed to put another top flight player along side Lebron, head coach Mike Brown did little to develop a half court offense, and was incapable of adjusting his rotation and strategy from game to game, while Lebron himself deserves some blame because his leadership on and off the court became increasingly questionable. Cleveland has little to no flexibility to change a roster that was unable to even reach the conference finals. Mike Brown has already been fired, although it appears that Danny Ferry will remain the Cavs general manager, but it seems unlikely that anything owner Dan Gilbert does will be enough to keep Lebron in Cleveland.

Dan Gilbert bought the Cleveland Cavaliers in 2005 for $375 million, and the franchise’s value has increased over $100 since then, mostly because of Lebron’s incredible marketability. When Lebron leaves most of that added value will contract, and with all small market franchises being highly overvalued, the team could end up being worth less than what Gilbert bought it for. Gilbert, a sports fanatic, has done everything he can to build a championship squad for Lebron, spending over the salary cap for several seasons, this past year, after luxury tax, the Cavs spent almost $100 million on player salaries. Because of this excessive spending the Cavs are actually losing money, and Gilbert has been looking to sell a minority stake in the franchise to a group of Chinese investors, however, no one will be interested in investing any money into a Lebron-less Cavaliers. Even with Lebron’s and Shaq’s huge salaries coming off the books, Cleveland will have very little cap room to bring in any new talent even if someone wanted to play in Cleveland without Lebron. Lebron’s departure will have a long-term impact on the viability of the franchise, which will certainly slump to the level of the other Cleveland sports teams.

The looming lockout in the summer of 2011 will have a huge effect on the current free agent pool. NBA teams will be reluctant to sign anyone to anything more than a one year contract, knowing that the next collective bargaining agreement (CBA) will be much more favorable for the owners. This will have no effect on Lebron James or Dwayne Wade, but it will for all the other free agents, although Lebron and everyone else will be trying to negotiate the longest contract possible. If there wasn’t a new CBA in the offing, the most logical thing for Lebron to do would be to re-sign with Cleveland for three years, after which he would be eligible for the biggest contract under the current CBA, which is only eligible to players with ten years of service. Cleveland can offer the longest contract with the most money (a sixth year at about $26 million), but the difference in the final year of a contract in Cleveland and the first year of a new contract somewhere else would only be a couple million dollars, not enough to sway Lebron to stay.

Lebron, Wade, Chris Bosh and Joe Johnson are in communication with each about the possible moves that they could make in concert with each other, not a good sign for Cleveland since they are unable to sign anyone other than Lebron. Dirk Nowitzki is going to opt out of the final year of his contract, as is A’mare Stoudamire, creating an incredible group of available talent, not even including a strong group of restricted free agents. Where these players end up, as well as possible shake ups in coaching situations in several of Lebron’s possible destinations will dictate where he finally ends up.

The coach is an essential piece of the puzzle, but it will be hard for any team to get a big name coach without already having signed Lebron, and vice-versa, Lebron is going to want to know who the coach is going to be before he is willing to sign anywhere. Phil Jackson and John Calipari are using the media to play footsie with NBA teams in order to improve their contract situations with their current employers. If Mike Krzyzewski was going to leave for the NBA he would have done so before, and much of his archaic system would not work very well in the NBA anyway, which is why so many Duke players struggle at the next level. Larry Brown will be seventy years old by the start of next season, although it is not impossible to see him being lured away from the Charlotte Bobcats. Tom Izzo is the best college coach, and maybe someday he will coach in the NBA, but by all indications it’s not going to happen anytime soon. Jeff Van Gundy is best coach not currently employed by a team, but he seems content to stick to his successful broadcasting career. Most unemployed coaches like Byron Scott and Avery Johnson are unemployed for a reason, just as most assistants are assistants for a reason. Mark Jackson is the best available coaching candidate if he can be pried away from ESPN, but the opportunity to coach Lebron would probably be enough to make that happen, but Lebron would have to be satisfied with a completely unproven coach. The shot Miami has at landing Lebron, is that Pat Riley could offer to take the over as Coach again, and he has the rings to get Lebron’s respect.

New Jersey has a brand new billionaire owner, and could provide Lebron an opportunity to build a franchise in his own image. There is already talent on the Nets, former All-Star Devin Harris and future All-Star Brook Lopez, and they would have cap space to add several other pieces to make New Jersey a contender. However, the proposed move to Brooklyn is way behind schedule, and may never happen, so regardless of how close he may be to minority owner Jay-Z, it’s doubtful he be wearing a Nets jersey next year. The Chicago Bulls made the playoffs last season, and have an emerging young star in Derrick Rose, but their next best player is Joakim Noah, a good young post player, but not exactly All-Star material. If they could somehow trick Toronto or Miami into a sign and trade for the inflated contracts of Luol Deng and Kirk Hinrich in exchange for Bosh or Wade, then maybe Lebron would be interested. However, Michael Jordan’s shadow looms large in Chicago, and equalling Jordan’s six championships would be tough regardless of what combination of talent they surround Lebron with, and while Chicago’s market is much larger than Cleveland’s, it’s no New York.

The New York Knicks are the most likely destination for Lebron, they have the cap room to sign two max contract players, giving Lebron a legitimate running mate for the first time in his career. Playing in Madison Square Garden is a huge draw for Lebron, and while winning a title for Cleveland would have made him a legend there, winning one at MSG, and becoming a New York legend is far more appealing for him and for Nike. New York could be an instant contender, if the Knicks can land a combination of Lebron and either Nowitzki or Bosh, and they would still have the mid-level exception, along with about $5 million in cap space, as well as Eddie Curry’s expiring contract. The Boston Celtics made this one year transition from doormat to Champion when they acquired Kevein Garnett and Ray Allen after they failed to win the NBA Draft lottery, so it’s not outside the realm of possibility that Lebron can bring the Larry O’Brien Trophy back to New York next season, and he certainly would do at least as well as he did with the Cavs this season. New York has endless marketing opportunities, and corporations will be lining up to have his face and name adorning their products and services. With the impeding lockout on the horizon, New York will give Lebron a chance to expand his presence in the entertainment world very easily. The only caveat is that Mike D’Antoni is one of the worst head coaches in the NBA, and there is no way that Lebron would want to play for him, but there is no doubt that the Knicks would be willing to eat the remainder of his four year $24 million contract, and bring in a coach that Lebron approves of, no matter the cost. Lebron will be in New York next season, it’s to good of an opportunity to turn down, and by every indication it’s where he really wants to be.

The Center of A Centerless Universe

The Globalization of the world economy dates back to the sixteenth century, essentially back to the point of the discovery of the Americas. From that point hegemony over world trade has dictated hierarchy of power across the globe, in the sixteenth century Spain, in the seventeenth Netherlands, in the eighteen century Great Britain and France, in the nineteenth century Great Britain, and in the twentieth century the United States. Now, in the twenty-first century the US hegemony over the world is waning, it’s military strength remains unparalleled, but it’s financial stability is wavering, especially the strength of the worlds most important currency, the US dollar.

In 1944 at the Bretton-Woods Conference world currency exchange rates were all pegged to the fixed value of the US dollar, which was still based on the gold standard. The US dollar came off of the gold standard in 1971, in what was called the Nixon shock, and the dollar became a floating currency with a variable exchange rate. However, dollar hegemony remained, and the world’s economies were still subject to the dominance of the dollar. The world’s dependence on a strong dollar for economic stability has been one of the biggest factors that caused the 2008 economic crisis, and a driving force in the current financial situation.

In 1997 the Thai government unpegged the Thai baht from the US dollar after stubbornly refusing to devalue the baht. The result was an almost complete collapse of the Thai economy, at a time when Thailand had a large burden of foreign debt. The resulting fear spread across Asia, with the Thai, Indonesian and South Korean economies being hit the hardest. The International Monetary Fund (IMF), another creation of Bretton-Woods, stepped in with loans for the afflicted economies, but a big change in US policy shifted it’s relationship with Asian economies. Alan Greenspan began a long term policy of low interest rates to drive working and middle class Americans to prop up global demand for Asian products. After a decade of low interest public debt more than doubled, and continues to climb.

The end of dollar-gold convertibility was the beginning of a new financial era with a great deal of monetary volatility. The floating value of the dollar was subject to speculation, it’s future value became more important than it’s current value. The US economy became increasingly dependent on interest paying transactions to not only mitigate risk, but more importantly to take advantage of that risk. These practices eventually led to the formation of hedge funds, and the development of risk hedging financial devices like derivatives. The overpopulation of risk takers in the US economy, and some financial institutions across the world is what caused the economic meltdown in 2008. The US government was very slow to acknowledge this problem, for years under Alan Greenspan encouraged it, and in fact there are many that still disagree that more government oversight of these financial practices is necessary.

In 1998 Long Term Capital Management (LTCM) received a government bailout very similar to the bailouts used to curb the recent economic crisis, and LTCM collapse essentially a mirror of what happened to wall street a decade later. LTCM aggressively short selling of bonds based on computer models the company made on small amounts of money on each bond, so the company had to invest in great quantity to make a significant profit, eventually being leveraged to the point of a 25 to 1 debt to equity ratio. LTCM also had off-balance sheet derivative positions with a notional value of approximately $1.25 trillion. After several years of remarkable success the Russian government defaulted on it bonds in August of 1998, and the result was a massive sell off of European and Japanese bonds, as investors fled to the perceived safety of US Bonds. The highly leveraged LTCM was bankrupted instantly, necessitating a $3.625 billion bailout from the Federal Reserve and several corporations. This epic collapse caused a stir on Capitol Hill, but the push back from financial institutions was too great for any new regulations or oversight to be established.

It is very important for the US to maintain a robust economy and a strong dollar, mostly to keep faith in US treasury bonds. The US uses bonds to finance the massive budget deficits the government has been running, and to pay back previously issued bonds as they mature. Without the faith that the US Treasury will be able to buys back matured bonds with a solvent currency the government would come to a standstill. The perceived safety of the investment in US Treasury bonds is essential to the stability of the country.

In todays world the dollar’s overwhelming importance is waning, however, competing currencies are struggling to exert any dominance over the dollar. The US dollar is still the world’s most common reserve currency, and despite doubts about the US economy it is still perceived to be a relatively safe currency to hold. The euro is the second most widely held currency, but the european debt crisis recently had the euro on the brink of collapse, and of all the Eurozone economies, only France and Germany maintain the strength of the euro. Meanwhile, the British pound has stumbled from it’s position of strength. China maintains capital controls on the conversion of the yuan, so it can’t be used as a reserve currency. China, Russia and the Gulf States have called for a new reserve currency to replace the dollar.

The United Nations Conference On Trade and Development proposed a new currency based on the IMF’s Special Drawing Rights (SDR). The SDR is used by the IMF for international payments, and is computed from a combination of dollars, pounds, euros and yen. The combination is reevaluated and adjusted every five years, and it’s value is computed daily, although it’s computation ends up in the form of a dollar valuation. Some variation of the SDR as a universal reserve currency would help stabilize global markets, even though it would not end speculation entirely, it would mitigate the influence of speculators. A universal reserve currency would also reduce the global panics caused by fluctuations of the major reserve currencies.

The interconnection of the global economy is not a new phenomenon, the connections are simply moving increasingly from a macro to micro scale. Individual institutions can bankrupt a nation across the world, and in an environment where the level of systemic risk is so high, governments need an equally high level of oversight and cooperation. Expansion of the G8 to the G20 is a great step forward, but with an absence of any formal structure to the organization it doesn’t achieve very much, other than being a lightning rod for massive protests. Recent economic crises should be a revelation to any doubters that a new global economic system needs to be developed, with strict rules on not only debt and budget deficits, but also guidelines for banking and other financial sectors. The IMF and World Bank need a more balanced leadership, instead of being dominated by American and European interests. The world needs a new Bretton-Woods System that reflects the new realities of a decentralized global economy, and an acceptance that markets are incapable of regulating themselves in any stable way.

Winning The John Wall Lottery

Later today the 2010 NBA Draft will be held to determine the order in which NBA teams will be able to select players from college or from Europe. The fourteen teams that did not make the playoffs are all entered into a weighted lottery with the worst team (New Jersey Nets) having the greatest chance of winning the first pick, however, it is certainly no guarantee that the worst team will win the lottery. No matter which team wins the NBA Draft Lottery, the first player selected will almost certainly be John Wall, he is a unique talent and has unparalleled physical gifts. The pool of players to select from is deep, and there are many players that project to be successful in the NBA, some of which may even be more successful than John Wall, but Wall has something that none of the other available players have. John Wall is by far the most marketable player in the entire draft.

NBA teams, especially small market teams, rely heavily on sponsorship dollars, and marque players increase opportunities for corporate sponsorships. Without even dribbling a basketball in the NBA John Wall will create numerous possibilities for sponsorships. For the past year Wall has been the face of collegiate basketball, and along with his Kentucky teammates, has generated a great deal of publicity and income for his university. However, his amateur status limited the amount the he and the University of Kentucky could profiteer off of his incredible marketability, but once he reaches the NBA corporations from Nike to Gatorade will be lining up to have him and by proxy his team represent their products.

In some years there aren’t any players available that have Wall’s marketability, and rarely there are several players that share this attribute. A player like Wall can change the fate of a franchise, like LeBron James has for the Cleveland Cavaliers. The Cavaliers were a struggling small market franchise, and like most small markets Cleveland has few Fortune 500 corporations in town to infuse the franchise with sponsorship dollars. At the time the before Lebron, the team’s best player was Zydrunas Iguaskas, a soft spoken seven foot center from Lithuania, which isn’t exactly the most marketable combination in the United States. In 2003 the Cavaliers won the NBA Draft Lottery, naturally selected local high school star LeBron James, and instantaneously corporate sponsors from across the country were lining up to associated with the Cavs. Eventually, LeBron’s marketability would become worldwide, today the Cavs are minority owned by a group of Chinese investors, and the value of the franchise has increased about $200 million since LeBron’s arrival. If Wall can deliver just a portion of what LeBron has done for cleveland it would be a financial windfall for whichever team drafts him.

With no other player like him available in draft, every team is going to be anxious this evening, probably praying to whichever deity they subscribe to, hoping they will be delivered the first pick. Most of the teams in the NBA are struggling financially, the lottery teams are desperate for someone like John Wall. The New Jersey Nets have the greatest chance of winning, but an upcoming move to Brooklyn and a billionaire owner insure that the debt ridden franchise is not going to fold. However, Minnesota and Sacramento the next two most likely teams to win the lottery desperately need the infusion that John Wall could bring, both are small market teams that have had little success on court or with the balance sheets. Of all the teams with a legitmate shot at the top pick, the Philadelphia 76ers need a new face to their franchise as well as a top flight lead guard. The 76ers are in a good market, but have been struggling for several seasons to sell tickets, so the NBA would be thrilled if Wall landed in Philadelphia.

The fallout from the lottery will impact teams that are not even part of the lottery process because many of the teams that have best chance of winning the first pick already have a point guard on their roster, the position that John Wall plays. Several teams will be rooting for the Nets to win the lottery because it would almost certainly make Nets starting point guard Devin Harris available on the trade market. If Minnesota wins the lottery, it would open the door for general manager David Kahn to trade the draft rights of European star Ricky Rubio, assuming he doesn’t do something crazy and draft someone other than Wall, which is entirely plausible in his case.

There are several other blue chip prospects, and many more players that project to be successful NBA starters, DeMarcus Cousins is the best prospect in the draft, and he might not go in the first few picks. Losing the lottery may actually make it easier to make a team better on the court, but with the economy crippling franchises that couldn’t turn a profit when the economy was soaring, the off the court benefits of players like John Wall are essential. Winning the John Wall lottery will change the fortunes of one franchise Tuesday evening, which will make this one of the most important NBA Draft Lotteries rivaling 2003 (Lebron), 1997 (Tim Duncan) and 1985 (Patrick Ewing).

Odds of winning the 2010 NBA Draft Lottery

The draft lottery drawing only determines the top 3 positions, the remaining 4-14 picks are the inverse order of the final standing for the non-playoff teams.

1. New Jersey Nets – 25.0%
2. Minnesota Timberwolves – 19.9%
3. Sacramento Kings – 15.6%
4. Golden State Warriors – 11.9%
5. Washington Wizards – 7.6%
6. Philadelphia 76ers – 7.5%
7. Detroit Pistons – 4.3%
8. Los Angeles Clippers – 2.8%
9. Utah Jazz (from NY Knicks) – 1.7%
10. Indiana Pacers – 1.1%
11. New Orleans Hornets – 0.8%
12. Memphis Grizzlies – 0.7%
13. Toronto Raptors – 0.6%
14. Houston Rockets 0.5%

Not Just A Greek Problem

With the Euro hitting a 14 month low, and with pressure from both Washington and Tokyo, the European Union (EU) finally acted in support of the Greek economy, as well as pledging aid to other Eurozone economies facing massive debt burdens. The 16 members of the single currency bloc will have access to 440bn euros of loan guarantees, and 60bn euros of emergency European Commission funding, along with another 250bn euros from the International Monetary Fund (IMF). The level of interconnection of economies not only in the Eurozone, but also around the world led to fears that the Greek debt crisis could have caused a world wide tumble as economies across the globe are starting to recover from the previous economic melt down. The stability package has eased fears of a collapse of the euro, and stock markets have reacted favorably to the news. However, there will be long term ramifications across Europe, and there is no guarantee that this package alone will ensure long term stability.

The Greek Government racked up an impressive amount of sovereign debt, by 2009 it was more than 13% of its gross domestic product (GDP), to the point that their credit rating was downgraded to junk last month. The large budget deficits were caused by excessive spending on social programs, defense and on the government itself. By some estimates the government was spending more than 50mn euro per year on pensions for civil servants that were eligible to retire in their 40s, and even their defense spending was mostly on staff and administrative costs. Furthermore, the inflated government bureaucracy has been infected with widespread corruption. For years Greek economy has been stymied because the best job to get is a government job, which generates no economic activity, and just drains the government coffers, while cheap credit and a strong euro did nothing to curb the excessive spending.

The 143bn loan from the EU and IMF is enough to stem the immediate crisis in Greece, and stabilize the euro for the rest of the EU, however, that money alone can’t fix the Greek economy. The government has already instituted an austerity package which has been incredibly unpopular even though most Greeks agree that something has to be done. Reductions in civil servants bonuses, social security payments and military expenditures have all been proposed, as well as increase in the value added tax, and taxes on fuel, cigarettes and alcohol will all be increased. The public reaction has been visceral, and in country where political and economic stability has been in short supply, it may be to much for the government to handle, there has been a bombings and protestors have been killed in violent protests. The IMF will monitor the governments headway, and try to enforce benchmarks for progress, but a protracted economic downturn unlikely. However, the Greece was not the only EU country living beyond it’s means, the crisis hit Greece earlier because it’s economy is one of the weakest of the single currency bloc.

Ireland, Spain and Portugal all could be as threatening to the euro, in some cases more so than Greece. Spain is in trouble because it’s economy for the last decade has been riding a housing boom that fueled the construction sector. That boom has collapsed, and unemployment has soared to over 20%, meanwhile the 2009 budget deficit spiked to 11.2% of GDP. Spain is one of the largest owners of Greek bonds, which led them to be the strongest supporters of the stability package. Prime Minister Jose Luis Rodriguez Zapatero has presented an economic savings and reform plan, containing similar measures to the Greek austerity package, which has not been received well. Meanwhile, there hasn’t been any progress on restructuring the economy, which will be hard to do under a strict savings plan. Portugal is suffering from an ineffective minority government that has been unable to implement any austerity measures, and has in fact passed spending measures that will increase the national debt, which was already at 9.3% of GDP in 2009. With no movement by the government, and a rapidly increasing debt to GDP ratio, Portugal looks to be as much of a problem as Greece. Ireland’s 2009 budget deficit was 12.9%, but Ireland has already implemented the type of austerity measures that these other countries are only beginning to address, although Ireland’s banking sector has struggled to recover.

The political ramifications of the stability package are already being felt in Germany, the country that will shoulder the greatest burden of any of the EU countries. German chancellor Angela Merkel‘s Christian Democrats lost an election in North Rhine-Westphalia, which no longer gives the party a majority in parliament’s upper house, leaving the government in limbo until a ruling coalition can be formed. The most contentious issue was the Greek bailout, which happened only days before the election, polls indicated 21% of voters would change their vote because of the bailout. Many Germans believe the 28bn euros German contributed should be used to ease the financial tightening at home. While the bailout has made the internal politics of EU nations tumultuous, it has also created tensions between the EU nations that are driving the economic recovery and those that are dragging the EU down.

The EU average for debt to GDP ratio is over 70%, and many of the EU member states are running budget deficits well over the 3% limit set the by the Stability and Growth Pact. Italy is not in immediate danger of economic collapse, but it’s debt to GDP ratio is 115%, has a budget deficit of over 5% and has a projected to hover around 1% GDP growth for the foreseeable future. If it wasn’t for a relatively strict banking oversight system, Italy would be in real trouble, and even so, the future doesn’t look very bright. After a disastrous 2009 and an tumultuous start to 2010, future growth is going to be slow at best, with France, Germany and the United Kingdom being the only strong economies, and even they have economic problems. Across Europe there is going to have to be a sea change in domestic policies to reduce spending to at least lower budget deficits under the 3% threshold, before every Eurozone country is carrying a burden of debt like Italy’s. Those changes are going to be incredibly unpopular, and while the public reaction might not be as violent as it is in Greece, but strikes and protests will certainly be common place as governments curb benefits and raise taxes. Nevertheless, fiscal responsibility is the only sensible way governing, but with many countries suffering from incompetent or corrupt governments the EU may be afflicted by a series of economic crises.

The End of Fundamental Basketball As We Know It

Unfortunately for NBA fans owners and players are gearing up for a lockout in 2011.  David Stern may very well be the best Commissioner in North American pro sports, but that may be due more to his competition (MLB’s Bud Selig is weak and conservative, NFL’s Rodger Godell is over zealous and power drunk, while NHL’s Gary Bettman is incompetent) than his own prowess.  There is no doubt that the economic environment has drastically altered the sporting world, but most of the financial problems in the NBA are self induced wounds inflicted by incompetent management.  Last season twelve teams lost money, and according David Stern at least half of the league is projected to lose money this year, and almost all of the teams are carrying debt.  The basic problem is that NBA teams are unable to generate enough revenue to support the exaggerated cost of operating an NBA team.  The largest slice of operating costs are player salaries, which will be the main target of the owners in the negotiation for a new CBA (Collective Bargaining Agreement).  However, the main problem is the revenue, even if the players are willing to accept reduced pay, many teams are still going to be unable to turn a profit.  These teams fall into two categories, horribly mismanaged franchises that lose and lose year after year, and small market teams that are simply unable to compete financially.  Market size is the largest factor in the financial viability of a franchise, Los Angeles, New York and Chicago routinely top Forbes’ NBA team valuations every year because those teams have access to the biggest markets in the US.  Last year Forbes’ bottom three teams were small markets, Milwaukee, Memphis and New Orleans.  New Orleans made the playoffs in back to back seasons, and has an All-NBA player in Chris Paul, but is was only able to generate $28 million in gate receipts last season, and the team is barely able to generate a profit despite having one of the most streamlined operations in terms of cost.  Meanwhile, the Lakers were the most profitable team last year, generating $95 million in ticket sales on the back of the highest ticket price in the NBA, enough to cover their $83 million spent in player salaries, not to mention the millions more generated in sponsorship deals and merchandise sales.  In total there is more than $100 million difference in revenue between Los Angeles and New Orleans, and yet there is only a $15 million difference in team payroll.  It is impossible for a small market team to be consistently competitive when operating at such a huge financial disadvantage, the fan base is not necessarily to small in these cities, but they lack the depth to absorb exorbitant ticket prices, and more importantly small markets lack enough fortune 500 companies to ensure the pricey luxury suites are bought up, and that everything regarding the team is sponsored and branded.

Player Contracts

Player Salaries have rocketed in the past decade, in 2000-01 the salary cap was $35.5 million, this season the cap is almost double that at $60.7 million, Tracy McGrady, the highest paid player in the NBA this year, is making $23.2 million, much of which he earned while deactivated.  This summer the salary cap will shrink for the first time since 2002, and projections show the cap continuing to shrink.  This alone will help reduce the max contract salaries, which are tied to the size of the cap.  NBA general managers have become accustomed to being able to spend like crazy, just like every other business in this country, NBA teams were addicted to the cheap credit available over the last decade.  The result were expensive long term contracts for role players, teams over paying for players just to appease agents and re-signing players to lucrative contracts who have no other suitors.  To solve this problem, the owners are going to look to eliminate guaranteed contracts, but how can the owners blame players for singing the contracts that are being offered to them, and since there is no rule that a player has to be signed for five years, the General Mangers should know better than to sign Tim Thomas or Jason Maxiell to long term contracts.  The NBA already has the  rookie salary scale that is cost effective for the owners, and NBA players have to play at least six seasons before the are eligible for the really big contracts, there are effective rules in place, they just aren’t being used effectively.  General Managers got really sloppy, and owners did not hold them accountable, despite many poor performers, a General Manager being fired is relatively rare compared to the turnover rate for NBA coaches.  However, as bad as many General Managers are, running a small market team makes the decisions much tougher, and their mistakes are understandable.

Superstars Needed

In 2005 the Milwuakee Bucks signed Michael Redd to a max contract, the largest available contract under the salary cap rules, he was the Bucks best player, coming off of back to back 20+ point seasons, but he wasn’t worth 25% of the team’s entire payroll.  The six year $91 million contract will expire next season, paying Redd $18.3 million to likely sit out due to injury, while the Bucks only collected $21 million from gate receipts last year.  Larry Harris, Milwaukee’s General Manager at the time of Redd re-signing, made many poor decisions that led the Bucks into the basement of the Eastern Conference (signing Bobby Simmons to a 5 year $47 million contract, which is paying him $11 million to sit on the bench in New Jersey this season, and the drafting of Chinese star Yi Jianlian despite his refusal to play in such a small market, which also landed him in New Jersey), but re-signing Redd wasn’t necessarily one of them because Harris didn’t really have a choice.  Redd was in high enough demand that if Harris only offered market value, Redd would have certainly elected to play in either a larger market or with a star player on a winning team, and even then, at the time every player’s market value was inflated.  While losing Redd would have made financial sense, it would have left Milwaukee cap space with no relative talent to use it on to replace Redd, the team would lose the face of the franchise and all the marketing opportunities Redd provided on a team of relative unknowns.  Harris was gambling that the revenue that Redd could generate would offset the exorbitant cost of retaining his services, but the injury plagued jump shooter was a bad investment, one that can haunt a small market team for multiple losing seasons.  Under the current structure every NBA team can afford at least one max contract player, but honestly there are only a handful of players that have a balance of basketball production and marketability that deserves max contract money (LeBron James, Kobe Bryant, Dwayne Wade, Kevin Durrant, etc.), but there is a group of second tier players that can squeeze inflated contracts out of smaller market teams simply because they have the cap space and they have to sign someone.

Enter Prokhorov

The New Jersey Nets represent the worst case scenario for the NBA, a team that is essentially a small market team, but sitting on the fringe of New York City has tried to operate like a big market team.  The result is a team that needs a bailout more than the Detroit automakers, the Nets are more than $200 million in debt, and are being kept afloat by creditors and the NBA itself.  The NBA has been desperately pushing Bruce Ratner to sell the team, but with the franchise on such rocky footing, and a costly  proposed move to Brooklyn up in the air, no one was particularly interested in buying the team.  In steps Russian billionaire Mikhail Prokhorov with enough money to ease the Nets financial distress, David Stern would like to avoid the foreign investment, but with no other solution available, the NBA will soon be introducing its first Russian owner.  It sets a dangerous precedent, which already has a parallel in European Football, of owners falling deeply into debt, and then selling their clubs to foreign billionaires including the now deposed Prime Minister of Thailand, today less than half of the Premiership clubs have an English majority owner.  The Nets are in the worst shape by far, but four other teams (Washington, New Orleans, Charlotte and Memphis) are severely leveraged already, and Charlotte is in the process of being sold Michael Jordan, which will only leverage the team more, making the sale to Jordan a dubious decision for David Stern.  Beyond that there are another nine teams that are carrying significant debt (Orlando, Portland, Sacramento, Toronto, Cleveland, Boston, Phoenix, Miami and Oklahoma City), Cleveland owner Dan Gilbert is currently seeking to sell a portion of the Cavs to Chinese investors, and in all likelihood the NBA is going to need more foreign investment to escape the burden of debt.  Just like the housing market, the sports franchise market became incredibly over valued, and while NBA franchises are starting to devalue, they still are not a particularly enticing enterprise to invest in, unless you are an oil tycoon who doesn’t care about absorbing a lot debt, and possibly losing money for the foreseeable future.  Furthermore, while the Nets move to Brooklyn will infuse that franchise with a new audience and many new marketing opportunities, buying a small market team like New Orleans or Memphis is not going to have same allure to a foreign billionaire.

The Worst Is Yet To Come

The NBA’s current economic situation has definitely alarmed David Stern, but the uncertainty of the future must be far more terrifying.  As the economy continues in this protracted recession attendance will fall off, and more importantly corporate sponsors are going to be less willing to throw eight figures at a team for naming rights, so they can brand everything they can slap a logo on.  Television ratings will increase as more people elect to stay home instead of buying pricey tickets, even franchises that struggle to sell more than 70% of their tickets still have average ticket prices around $50, not to mention the increasingly expensive concessions.  NBA teams need to be more effective in their use of the internet and other media to generate more revenue, Cavaliers.com should be best resource for Cavs information and programing, but it’s less useful than the plethora of bloggers following the Cavs, hire those guys for the Cavs site, and every team should be producing as much original content as possible from player reality programing to tutorials explaining the complexities of the game.  Advertising on uniforms is certainly on the way, and a corporate sponsor for the Larry O’Brien Trophy is probably already being arranged.  The big market teams will have a much better chance of survival, the local economies of the small market teams like the Pacers are terrible, the Pacers have asked for help from the local government, which runs Conseco Fieldhouse, but since it is already running at a deficit, and already pays out to the Pacers for non-basketball events, there simply isn’t any help to give.  Lenders are hesitant to hand out cash like they have in the past, and with a lockout looming and franchises no longer increasing in value, there isn’t any reason they will change their stance, making it harder for teams to refinance the debt they carry.

The Los Angeles Clippers

No team catches more flak for inept management than the Los Angeles Clippers.  The Clippers have been perpetually trapped in the Draft Lottery, seen a series of talented players fail to develop, and free agents who fail to earn their contracts.  Its not so much that there is a culture of losing, but there is attitude of fiscal responsibility that pervades the entire organization from the owner on down.  Winning simply is not the highest priority, management knows it, so do the players, and the on court product suffers, so do the fans.

Contraction Through Expansion

The small market teams are struggling to compete with the larger markets, and as the NBA waits for the economy for turn, it’s only going to get tougher.  Contraction is last thing that David Stern wants to have on his resume, but there is a unique solution to this problem.  Take the twenty best markets, as league one, then the remaining ten paired with ten new markets for league two (there are 12 markets that support a NFL team, but do not have a NBA team).  League one would play an eight team playoff for the NBA title, with the bottom two teams being relegated to league two.  League two would play a four team playoff with the winner and the team with the best regular season record moving up to league one.  League one would have a soft cap around $50 million, and a hard cap at $60 million, while league two would have a soft cap at $35 million and a hard cap at $45 million.

MLB 2010

NATIONAL LEAGUE		AMERICAN LEAGUE
EAST		EAST
Philadelphia	96	New York	107
Atlanta	87	Boston	98
Florida	83	Tampa Ray	84
New York	77	Baltimore	69
Washington	55	Toronto	58
CENTRAL		CENTRAL
Saint Louis	95	Chicago	91
Cincinnati	84	Minnesota	86
Chicago	83	Detroit	81
Milwaukee	79	Cleveland	73
Pittsburgh	71	Kansas City	69
Houston	66
WEST		WEST
Colorado	95	Seattle	89
Los Angeles	86	Anaheim	86
San Francisco	80	Texas	82
Arizona	78	Oakland	74
San Diego	66

NLDS		ALDS
Colorado		New York	3-2
Atlanta	3-1	Seattle
Philadelphia	3-1	Chicago
Saint Louis		Boston	3-2
NLCS		ALCS
Philadelphia	4-2	New York
Atlanta		Boston	4-3
WORLD SERIES
Philadelphia	4-2
Boston

 

The War On…

There has been an on going debate in Washington concerning the treatment of the numerous captives the US has acquired throughout the war on terror.  Much of the debate is semantic, centered upon the terminology the US Government uses, and the legal variations depending on how these captives are classified.  While Washington is torn over the legal ramifications of what definitions they choose to use, they are missing the fact that these words, their words, are characterizing are struggle against terrorism.  The choice of using the word war has drastic implications, by calling it a “War On Terror” or even worse “War On Muslim Extremism”, it forces people to choose sides.  Furthermore, terror is an intangible thing, there is no way to conduct a war against it.  It also empowers the people whose influence the US Government should be trying to mitigate.  Osama Bin Laden is a criminal, he is not representative on any state or body of people, he is not the general of an army let alone a soldier in a regular army, he is part of an international criminal conspiracy.  Osama Bin Laden has more in common with Don Corleone than he does with Nikita Kruschev, heads of state are not found on the FBI most wanted list like Bin Laden is, he is much smaller and less deadly than he is often portrayed.  However, when he is described in the context of an existential struggle, that the fate of the US hinges upon stopping this one man, it makes him far more powerful than he really is, and makes is that much easier to recruit people into his criminal enterprise.  It also builds him sympathy in the Muslim world that he might not enjoy if he were painted as a criminal, a murderer.  But as the war has continued, leading to the unjustified war in Iraq, his narrative of a War against Islam gains more credence, especially as our footprint in the Muslim world increases, with US forces conducting military operations in a greater number of countries.  The US has used the phrase “war on” repeatedly, most often in regards to internal struggles, and it has cause the same polarizing effect.  The War On Drugs and The War On Crime in the 1980’s rapidly devolved into a war on African-Americans, with a significantly higher arrest rate among African-Americans, and stiffer penalties being placed on drugs associated with poor African-American communities.  The result is an us versus them attitude, African-Americans against the police, by characterizing it as a war is very rapidly becomes one, once a line is drawn in the sand, even if you are a law abiding citizen, when an outside force is kicking down doors, and looking to arresting African-American men, you are going to be inclined to side with your community even if you don’t agree with what they are doing, and even today there are inner city areas across the US that local police call war zones, that urban militant attitude has survived.  The equally unsuccessful War On Poverty pitted the poor against powerful business interests looking to profit from urban development projects that simply redistributed the poor as opposed to lifting anyone out of poverty.  Anytime something is characterized as a war it becomes one, so when a phrase like “Global War On Terror” is used, it has a cacophonic effect on the world, and when the a phrase like “War On Muslim Extremeism” is used, it resonates across the Muslim world.  Those words are actually promoting an existential war between the US and Islam, and arguably the US Government has done more to aid Al Qaeda than any of the grainy videos Bin Laden and Ayman al-Zawahiri have released.  We are fighting a war in Afghanistan, the Taliban is a political entity that we are engaged with, prisoners in Afghanistan should be treated under the Geneva Convention, not packed into cages in Bagram, where people will on become more isolated and radicalized.  In Iraq it is much murkier, US forces are going to be drawn down this year, and their combat role has significantly been reduced, and mostly the Iraqi’s are handling their own prisoners.  However, when a terrorist is apprehended outside of these battlefields they must be treated like criminals, tried in courts, and serve prison sentences in actual civilian prisons.  There is no need to paint these criminals as anything more threatening than they really are, it only serves their interests, isolates us from the international community, and forces Americans to compromise the laws that are designed to protect everyone.