Here’s how the Lakers qualified for a Payment Protection Program loan

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The program that is supposed to keep small businesses afloat during situations like that of the COVID-19 pandemic is the Payroll Protection Program, or PPP. It’s not exactly doing its job — at least in terms of what you might imagine that job to be — for a number of reasons, one of which merits mention here, thanks to the NBA’s Los Angeles Lakers.

The Lakers received a $4.6 million loan from the PPP. The Lakers, who are worth $4.4 billion according to Forbes, who generated nearly half-a-billion in revenue (and $178 million in operating income) just last season despite being a garbage fire, received nearly $5 million from a government program, and at the expense, hypothetically, of some Los Angeles-based business or another that isn’t worth 10 figures.

Now, the Lakers returned that money after it became clear that accepting it was going to be a terrible look for them as actual small businesses struggle and fail across the country:

“The Lakers qualified for and received a loan under the Payroll Protection Program,” the Lakers said in a statement to ESPN. “Once we found out the funds from the program had been depleted, we repaid the loan so that financial support would be directed to those most in need. The Lakers remain completely committed to supporting both our employees and our community.”

The Lakers still applied for a loan, let’s not forget that. They just returned it because they realized there would be bad press, as there was for Shake Shack, should they keep it. It’s that “qualified for” part that we should focus on the most, though, not whatever public relations-related discussion led to giving the loan back.

Thanks to Pat Garofalo’s explanation in his Boondoggle newsletter, we can see just how it was that the Lakers — again, an NBA team worth multiple billions of dollars – qualifies as a small business. Everything has to do with the government’s definition of what a small business is:

A large part of the misunderstanding about this program, I think, is definitional. Most of us envision the local dry cleaners or mom and pop hardware store when we think of a “small business.” But the government’s definition is very different.

For most industries, having under 500 employees qualifies a business as “small”; in others, it’s up to 1,500 employees. And some industries have no employee standard at all, merely an annual level of receipts that for many sectors is in the millions of dollars.

So many companies that don’t look “small” to you and me are small in the government’s eyes.

Garofalo also goes on to explain that businesses with connections to larger banks — which the Lakers would have, while your local laundromat might not — also helped larger companies/businesses get ahead in line for the funds.

The Lakers don’t have thousands of employees: there might be over 1,000 concessions workers at the STAPLES Center, sure, but those aren’t direct employees of the team. They work for a third party, like Aramark, who has a contract with the Lakers. So, the Lakers’ employees are really just their actual NBA players, their front office staff, and any full-time arena workers they might employ. That’s a number well below 500, never mind 1,500, which helped the Lakers qualify as a “small” business.

I understand why the Lakers applied for a loan. The program was part of a $2.2 trillion bailout, and if the team used at least 75 percent of the funds to pay its front office staff and full-time arena workers, they wouldn’t even have to repay the loan, as per the rules of the arrangement. Without knowing the next time revenue is coming in from a game, ensuring that those who work for the team full-time but aren’t pulling in NBA level salaries — or like, own the team — makes a kind of sense.

The thing is, the Lakers — and every other major sports franchise — aren’t in a position of need like actual small businesses: not the government definition of one, but the ones that are actually small. Like the local bookstore/restaurant I frequent, that has had to pivot to delivering vendor items like flour, coffee, and beer, along with their stock in books, to customers in deliveries, just to stay open. Or the small craft brewery down the road that can’t be open during the pandemic, so they have to do curbside pickup or deliveries of their product in order to make enough money to keep paying their employees, whether it’s the ones who sell the beer at the counter or the ones making the actual booze.

These kinds of businesses are the ones who need the assist [basketball term] here, who would use this loan as intended: to pay their workers during a time when there might not be work to do, or when it’s unsafe to work, or both. Not the Lakers, with their valuation of $4.4 billion, principally owned by Jeannie Buss, who alone has a net worth of over $500 million. Buss is part of a family ownership group that controls two-thirds of the shares in the team: these are people with money to live off of and then some, whether they ever pull in another dollar or not. They’re in a position to help their employees out even without games being played, which is not the position your local independent bookstore or craft brewpub or mom and pop laundromat finds itself in.

Maybe this will be rectified in the next round of payouts, but we’ll see if that’s the case. The longer this goes on, the more “justified” the loan applications by “small businesses” like the Lakers become. As Garofalo notes, this all could have been avoided with a completely different model, one where the government itself pays a high percentage of worker compensation during this national emergency, as is the case in Denmark. Instead, though, the U.S. introduced an easily exploitable system that might not even get a second round anytime soon, as pressure from a vocal minority to “reopen the economy” mounts, and causes states like Texas to set themselves up to be epicenters of coronavirus spread — as well as small business closure and denial of unemployment — in the coming weeks and months.

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