Question

Provide an analysis of the NBA-G Minor Basketball League Franchise.

Answer 1

Basketball is one of the most popular sports, trailing only soccer. With expanding viewership, revenue in the NBA has significantly grown. In fact, in the 2017-18 season, the 30 NBA teams generated $7.4 billion in revenue.

Basketball related income includes broadcast rights, advertising, merchandising, and concessions, among other things. A TV deal worth $24 billion that took effect with the 2016-17 season is expected to significantly increase basketball-related income, affecting team operations like player salary caps, as part of its complex business model.

1)Basketball Related Income

A majority of revenue generated by the NBA and its subsidiaries is classified as Basketball Related Income (BRI). This includes ticket purchases and concessions, TV deals, which deliver the game to viewers' homes, and merchandising rights from jersey and apparel sales. Not included in BRI are proceeds towards expansion teams, fines levied throughout the season, and revenue sharing.Because BRI contributes to calculating the salary cap, revenue sharing must be excluded from BRI because it would present an economic advantage to big market teams. Hypothetically, high revenue generating teams such as the Los Angeles Lakers or New York Knicks would drive the salary cap up, forcing small market teams to spend exorbitant amounts to retain players. This leads to an unsustainable system and economic disparity among franchises. As a result, revenue sharing is not designated as basketball-related income.

2)Television Deal

Over the past 15 years, TV viewership has declined due to various technological advancements, including streaming services and DVRs. However, live sports have remained largely immune to this trend. As a result, networks are paying exorbitant amounts to televise these games.In February 2016, ESPN announced a nine-year, $24 billion media rights deal with ESPN and Turner Sports. When the deal took effect for the 2016-17 season, ESPN and Turner Sports combined to pay the NBA $2.6 billion annually. Putting this in perspective, the previous deal signed in 2007 cost both networks $930 million annually. The new media rights deal represents a 180% increase from the previous agreement.The deal increased ESPN's television, digital, highlights, audio, data, and international NBA rights. Games will air on ESPN and TNT through the 2024-25 season.

3)Tickets sales and Concessions

Due to the increasing popularity of basketball, ticket sales remain an important way some teams make money. The Chicago Bulls, who continually have the highest attendance in the league, had an average attendance of 20,776 people at home games in the 2017-18 season. This number is slightly less than the previous season, in which the average was 21,680. The New York Knicks used to have the most expensive tickets in the league; however, the Golden State Warriors now report the highest ticket costs, followed by the Los Angeles Lakers. The Knicks still have some of the most expensive tickets in the league, and hold the position of third most expensive tickets.We can also take a look at the Fan Cost Index (FCI), which is the cost of taking a family of four to an NBA game. This metric includes the cost of tickets, concessions, and parking. ESPN calculated that on average, the cost of bringing your family to an NBA game was $301.06 in 2012, however that number varies greatly depending on which teams are playing and where the game is played.

4)Licensing Agreements and Sponsorships

In June 2015, the NBA decided to end its partnership with Adidas and signed an eight-year, $1 billion contract with Nike (NKE). This represented a 245% annual increase from its previous deal. Nike, which had previously produced replica jerseys, began carrying official uniforms at the start of the 2017-18 season. Before this deal, Nike had played a significant role in basketball shoes and apparel. It is estimated that Nike brands control 90% of U.S. basketball shoe sales. Likewise, many of the NBA’s biggest stars have lucrative endorsement deals with the world’s largest shoe and apparel company.When you attend an NBA game, you will notice a number of sponsors and brands located around the arena. In the 2016-17, the NBA generated approximately $861 million in revenue from corporate sponsors. These sponsors include recognizable brands like Statefarm and Anheuser-Busch (BUD) as the official food and beverage brand of the NBA. Included in sponsorships, are naming rights for NBA arenas. For example, the home of the Golden State Warriors, Oracle Arena, is named after the computer technology company.

5)Revenue Sharing

Like the MLB and NFL, the NBA operates with a revenue sharing system. As stated above, revenue from this system is not a part of the basketball-related income. Revenue sharing in the NBA addresses the inequitable circumstances between small and big markets. As a result, all teams pool their annual revenue together and redistribute it from high grossing teams to low grossing ones. By these means, each team will receive revenue equal to the salary cap that year. To receive the full revenue sharing benefits, the revenue structure requires small market teams to generate revenue equal to at least 70% of the league average.The salary cap for the 2017-18 season was $99.093 million, up from 94.143 million the previous season.

6)International Growth

With a growing number of international players and countries represented on NBA rosters, worldwide growth has shined. On the opening night of the 2017-18 season, 108 international players from a record 42 countries and territories on rosters. The announcement indicated the fourth consecutive season that opening-night rosters had at least 100 international players and that all 30 teams had at least one international player. As this number continues to grow, the NBA will look to international markets to promote media broadcasts and merchandise sales. In the near future, we may also see a number of European-based NBA teams.

7)The Bottom Line

Drawing interest domestically and abroad, the NBA has seen its popularity, and revenue streams rapidly increase over the past few years. With the TV deal valued at $24 billion, a $1 billion Nike deal, an increasing number of corporate sponsors and rapid international growth, the average NBA team is now valued at over $1 billion. This also comes at a cost to the fans as average ticket prices and concessions have also increased.