The NBA Has a Revenue Problem

Despite the NBA’s freshly signed $24 Billion television deal with ESPN and Turner Sports, a report from ESPN’s Brian Windhorst and Zach Lowe says that nearly half of the league’s teams lost money before revenue-sharing payouts. In simpler terms, 14 NBA franchises lost money last season before the profitable teams cut them a check.

That’s not good.

Even after revenue sharing, the report continues, nine teams finished the year in the red – the Atlanta Hawks, Brooklyn Nets, Cleveland Cavaliers, Detroit Pistons, Memphis Grizzlies, Milwaukee Bucks, Orlando Magic, San Antonio Spurs and Washington Wizards. Even succesful, well-run teams, highlighted by the Cavs and Spurs (you can scratch out the ‘well-run’ part for the Cavs, but they do have LeBron) are finishing with losses.

No, this doesn’t mean the NBA is on the verge of economic collapse. It does, however, have a startling revenue gap that could manifest into a problem.

The gap is best explained in the report by comparing teams at the opposite ends of the spectrum – the profitable Los Angeles Lakers and Golden State Warriors vs the Pistons and Nets. After revenue sharing, the Lakers and Warriors reported profits of $115.4M and $91.9M respectively. The Pistons and Nets, meanwhile, had losses of $45.1M and $44.3M, a difference of over $125M.

 

You can check more into Windy and Lowe’s piece, which delves into how the revenue gap came to be and what the league’s response to it will be HERE.

It’s pretty shocking to hear these numbers, especially because of the much publicized $24 Billion TV deal the league signed in 2016. With all that money, how on earth could there be this huge of a revenue gap? Better yet, how are teams like the Knicks and Lakers still so much more profitable than smaller market franchises, like the Spurs and Cavs?

New York has been devoid of consistent playoff basketball for the entirety of the 21st century and was a particularly beautiful disaster last season under the mis-management of former GM Phil Jackson (public beefs with star players, only 32 wins, a twitter-porn-loving assistant coach, etc etc). Los Angeles just saw the worst two seasons of Lakers basketball ever.

The Spurs, meanwhile, have not missed the Playoffs since 1997 and the Cavs have the best player in the world, maybe of all time.

They both finished in the red.

That leads me to believe the system might need to be tweaked.

Owners will try to make those adjustments at the annual Board of Governors meetings on September 27-28 in New York. Listen, teams in major markets with massive fanbases are always going to make more money than small market teams, it’s basic economics and there really isn’t anything wrong with it. But when nearly half the league is losing money? That’s not sustainable.

Obviously I’m not an expert on revenue sharing or the NBA salary cap and won’t pretend to act like one, revenue and the cap are both determined through wildly complex formula’s and language that I simply cannot grasp. In fact, I’m not entirely sure anyone can. With that in mind, it’s possible that the league addresses the problem by giving relief to teams getting pounded by the luxury tax, as well as some alterations to the revenue sharing process.

The luxury tax got a bit sticky last season, as teams prepared for a projected salary cap of $122M. The problem? The cap only rose to $99M this season and a small bump to $102M next year. In other words, a lot of teams spent a lot of money that they couldn’t actually spend.

As the report says though, people in the league are looking to tweak the system, not blow it up, so don’t expect to see any drastic, NBA-altering decisions coming out of next weeks meeting.

 

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