The NBA’s Business Model

How the NBA makes money

While the MLB's popularity wanes, safety issues plague the NFL, and the WNBA is still nascent and growing, the National Basketball Association (NBA) continues to shine. Contributing to its growth, the NBA has focused on expanding basketball viewership overseas to Europe and China. 

On the world stage, basketball is one of the most popular sports, trailing only soccer. With expanding viewership, revenue in the NBA has significantly grown. In fact, during the 2019-20 season, the 30 NBA teams have generated $8.3 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 in 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.

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 that deliver the game to viewers' homes, and merchandising rights from jersey and apparel sales. Not included in BRI are proceeds toward 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.

For more information, check out How the NFL Makes Money.

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, the NBA 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 agreed to pay a combined $2.6 billion to the NBA annually. Putting this in perspective, the previous deal signed in 2007 cost both networks $930 million each year. 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.

Ticket Sales and Concessions

While not a primary revenue stream, ticket sales remain an important way for teams to make money. The Philadelphia 76ers, who continually have some of the highest attendance rates in the league, had an average attendance of 20,628 people at home games in the 2019-20 season. 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 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. According to Chicago sports business firm Team Sports Marketing, the FCI for an NBA game during the 2019-2020 season was $430.25.

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. 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 season, the NBA generated approximately $861 million in revenue from corporate sponsors. These sponsors include recognizable brands like Statefarm and Anheuser-Busch as the official food and beverage brand of the NBA. Included in sponsorships, are naming rights for NBA arenas. For example, the rights to the new home of the Golden State Warriors, Chase Center, were bought by American bank JPMorgan Chase.

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 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 2020-21 season will be $109.14 million per team, the same level as the previous year.

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 2019-20 season, 108 international players from 38 countries and territories were active on team rosters. 2019-20 was the sixth straight season with at least 100 active international players. Eleven international players are current or former NBA All-Stars, and the two-time NBA MVP, Giannis Antetokounmpo, hails from Greece.

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. 

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 a TV deal valued at $24 billion, a $1 billion Nike deal, an increasing number of corporate sponsors, rapid international growth, and an average NBA team value over $1 billion, the NBA is firmly entrenched among the biggest and most valuable leagues in all of world sports.

Article Sources
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