Wednesday, July 18, 2012

When Orlando’s Good Assets Go Bad

By Corrie Trouw

Dwight Howard is a physical specimen, the kind of lean, chiseled living statue that is often described as a brickhouse. And that metaphor is especially appropriate in the post-2008 real estate market. As a basketball talent, Howard is a really nice, well-built house on a giant lot — and his value has never been lower.

For those of you who missed it, the 2008 economic crash marked the end of a wildly profitable era in American real estate. It was so profitable, in fact, that people "bought" spec condos by the half-dozen, only to turn around and sell them in a matter of months. After all, with housing inevitably appreciating as it did, there wasn't a more reliable way to make a buck safely.

But then in 2008, reality found its second wind, and suddenly the mortgages people could not really afford became debt companies would not expect to see repaid. Loans were no longer plentifully available, and rather overnight, the demand that urged real estate prices into a bountiful harvest dried and withered on the vine.

The Orlando Magic have suffered the same market contraction in the valuation of Howard. For 48 minutes a night, Howard is virtually priceless. An All-NBA performer by virtually any measure, one could argue Howard's super-sized skill set is the rarest basket of goods in a league trending toward small ball.

Yet, with the end of his current contract on the table, Orlando has struggled to find any prospective buyers at anything resembling what the center was worth only a few years ago for several reasons.

First, Howard has wantonly sabotaged any effort to move him to a location other than New Jersey/Brooklyn by insisting he would not sign a contract extension in any other place. There was a time pro sports teams barely considered a player's contract when making a trade. Baseball teams in the late 1990s were especially notorious for mortgaging the farm system for a 10-week rental.

Ah, but these are far brainier days of Google machines and wizard tip-calculator phones. With no guarantee at this point that a trade for Howard would ensure anything beyond the coming season, NBA teams have treated negotiations with Orlando like Craigslist best offers. How about $50 bucks for that Tag Heuer Grand Carrera? No? Okay, final offer: $75.

The corollary of this one-team market is that, knowing they are the only credible buyer for Howard, the Nets have little incentive to upgrade their lukewarm trade proposals (that they have few attractive pieces to offer Orlando also may affect this position). The Magic are like a desperate auctioneer, looking around the room and begging for a better bid from anyone else. Even when they find it, they will have to settle for far less than they thought they were going to get.

Furthermore, the season-old CBA is also conspiring to squash the Howard market. Lost amid the Decision fallout, most NBA fans overlooked that LeBron James actually left Cleveland via sign-and-trade, a transaction that netted the Cavs four draft picks. Given how strong Miami has been and likely will continue to be, they're hardly franchise changing pieces, but the handful of picks has some value.

However, the new labor agreement signed a year after the Summer of 2010 forbids that type of maneuver. Under the old rules, teams seeking Howard would have had to offer Orlando something better than whatever the Magic could get in a James-style sign-and-trade. But now, without that opportunity as leverage, the rest of the NBA has a lower implied floor for a Howard trade package. Because Orlando almost certainly has to move the center before the coming season's trade deadline, trade partners can wait until the Magic resign themselves to getting whatever they can scrounge up.

The strangest element of this bizarre saga is how little it has to do with Howard's ability. Sure, there are concerns about his recurring back issues, and the guy hasn't won any character points in how he has handled this transition, but Dwight Howard can be the keystone of a championship team. That population is incredibly small, definitely fewer than the number of teams in the league, and easily in single digits.

Like our beautiful mansion that nobody wants to buy, Howard has undergone only negligible changes since the days when he was worth so much more. Joining so many realtors and homeowners, the Magic and its soon-to-leave all-star are overwhelmed by the three most important words when valuing a property.

Location, location, location.

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