The Business Side of the NBA

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The Business Side of the NBA

The NBA is one of the most profitable sports leagues in the world. The league rakes in billions of dollars every year, and its 30 teams can be valued to as high as $5 billion. Plus, the emergence of international superstars such as Giannis Antetokounmpo and Luka Doncic has made the NBA even more marketable to a worldwide audience than it was in previous times.

Because of how much the NBA and its teams make every year, it’s no surprise that NBA players are handsomely paid too. Teams spend up to hundreds of millions of dollars, even overpaying at times, to retain the services of some of the league’s best. For the 2020-21 season, the average salary for an NBA player was $7,455,059, and it’s much more than that for the league’s superstars. Next season, Stephen Curry, the highest player in the league, is set to earn $45,780,966 from his contract with the Golden State Warriors.

But where does all this money come from? How the NBA and its teams manage to rake in billions of dollars in revenue is unfortunately not something that can be thoroughly examined since the NBA is a private entity. It is not required to disclose its financial records, but there is plenty of information to be found in this area nevertheless.
There are numerous ways of how the NBA makes money, and all these different revenue streams make the NBA the multibillion-dollar institution that it is and make NBA teams worth billions of dollars.

How the League Makes Money

🏀 National and International Television Deals 

National and International Television Deals 

Although streaming has taken over as the place to watch television shows, live sports remain a powerful force in television. Viewership of live sports has not taken the dramatic dip experienced by television shows due to streaming. Because of this, networks pay top dollar to have the right to televise these games.

At present, the NBA is under a nine-year media rights deal with ESPN and Turner Sports worth a whopping $24 billion. This deal, which took effect in the 2016-17 season, makes the NBA $2.6 billion every year and marks a 180% increase in revenue from the NBA’s previous media rights agreement with the networks. Under the previous deal, ESPN and Turner Sports only paid $930 million annually to the NBA.

The present deal, which the NBA is under until the 2024-25 season, also covers ESPN’s rights beyond television and now includes digital, audio, data, highlights, and international NBA rights.

🏀 Local Television Deals 

Local Television Deals 

While the league itself is involved in the national and international television deals, franchises can also strike up local television deals to give local networks the right to broadcast that franchise’s games.

Although these local deals aren’t as lucrative, they can still bring considerable revenue for each team and increase their value. For instance, the Los Angeles Lakers in 2011 signed what was at the time the richest local television rights deal with Time Warner. The 20-year local television rights deal with Time Warner is worth $4 billion for an average of $200 million a year.

🏀 Ticketing and Concessions

Ticketing and Concessions

Now that the NBA allows audiences to watch live games again, teams can rake in ticket sales and concessions. Although this is not a primary source of revenue for the league itself, ticket sales are one of the top ways franchises can make money.

For example, the Philadelphia 76ers make a considerable amount of money for having one of the highest attendance rates in the NBA. In the 2019-20 season, the Sixers had an average attendance of 20,628 people for homes games.

However, ticket sales vary based on the team since each team has a different market size and ticket prices for home games. People can pay anything from $50 up to $50,000 to watch an NBA game, depending on the team and whether it’s the regular season or the playoffs.

🏀 Sponsorships and Licensing 

Sponsorships and Licensing 

The NBA is currently under an eight-year, $1 billion contracts with Nike, producing official uniforms and selling NBA jerseys. The NBA, of course, has its share for merchandise sold by Nike and other companies it is in partnership with.

Corporate sponsors also comprise a portion of the NBA’s revenues. These are the brands that fans could see in the arena and the NBA’s promotional materials. Sponsors may also spend millions of dollars for naming rights over NBA arenas. For example, it was reported that the British banking company Barclays paid $200 million for the naming rights over the Barclays Center, which is the home arena of the Brooklyn Nets.

🏀 Revenue Sharing 

Revenue Sharing

Not all franchisees have the same market size as other franchises. For instance, franchises such as the Los Angeles Lakers and the New York Knicks have bigger markets and thus higher overall value and revenues than franchises like the Memphis Grizzlies and the New Orleans Pelicans.

To address this, the NBA has a revenue-sharing system where all franchises pool their yearly revenue to redistribute it equitably among all teams. Through revenue sharing, each team shall receive a share equal to the salary cap for the season. This allows small-market teams to stay competitive in free agency since they can match the offers made by big-market teams.

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Author: DLM Editor

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