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ESPN.com (Lowe and Windhorst) — Despite a flood of new national television cash, 14 of the NBA’s 30 teams lost money last season before collecting revenue-sharing payouts, and nine finished in the red even after accounting for those payments, according to confidential NBA financial records obtained by ESPN.com.
I’ll start this by saying that if you are genuinely interested in this, it’s worth reading the whole piece from Lowe and Windhorst (after you finish this blog). They lay out the entire situation in more detail and it’s worth the time if you really care about this stuff.
This blog gives you the broad strokes and, more importantly, what actually matters here for fans of the NBA.
So… 14 teams lost money this season before revenue-share payments were distributed, and 9 teams were still in the red after receiving those payments. Ignoring the revenue sharing for a minute, that means that those 14 teams spent more (on player salaries, employee salaries, operating costs, travel, promotions, etc) than they got back (from local TV deals, national TV revenue, merchandise, advertising, sponsorships, ticket sales, etc.). I know… no shit.
The revenue sharing model is supposed to help offset the gap between the most profitable and least profitable teams – a gap that’s almost entirely due to the size of the teams market. New York and LA are going to make money that Memphis and Indiana just can’t.
The problem is that even under the league’s current revenue sharing model, there’s still an enormous gap. Teams like New York and LA are nine figures in the black despite putting out an awful on-court product, while one of the best-run franchises in all of sports like Memphis lost $40 million dollars despite running an extremely competitive, likable team and fostering one of the most impressive team-to-community connections in the NBA.
Is the league in dire straights because of this? No. And nobody is going to cry for the billionaire owners taking a loss here. It’s important to note that these numbers are strictly in regards to basketball operations. Most of these guys own their arenas, and are undoubtedly offsetting most of these “basketball losses” through concerts, other sporting events, conventions, and other non-basketball sources of revenue.
But this does matters for the competitive balance of the league. Big market teams that are turning an eight-to-nine figure profit from local TV money and ticket sales during their worst seasons simply have an easier time housing a payroll past salary cap. The Warriors and Lakers and Knicks and Bulls can soar past the luxury tax line knowing that their market easily allows them to generate enough revenue to offset the price tag of… say… keeping Durant, Curry, Draymond, and Klay on the Warriors. Whereas a small market owner is highly disincentivized from passing that luxury tax number when he doesn’t have the guaranteed profits of a big market to offset those costs.
The owners will discuss and likely vote on a change to the revenue sharing model next week at the Board of Governors meeting. And with only a 16-14 majority needed, it’s likely you’ll see a change that gives greater revenue sharing to the smaller market teams.
Is that good? I don’t know. The answer is probably yes and no. You’ll see some teams put that money to good use and sign better players and invest more into fan experiences. And you’ll also probably see some owners just enjoy the extra profits and take no steps to fix their team. I’m sure there may even be a few teams that take the money and feel even less of an obligation to put a good product on the court if they’re already guaranteed a profit from revenue sharing. That’s just the way the world works.
There’s more to come on this for sure. We’ll know more, obviously, after the owners vote next week.
(This was an excerpt from today’s Ham’s Hoops Roundup. You can read the read rest here.)