ESPN (DIS) released confidential NBA financial records indicating 9 of the league’s 30 teams lost money during the 2016-2017 NBA season; despite the teams combining to generate $530 million in net income. While the league has a $24 billion TV contact that is equally shared amongst its 30 franchises; each team negotiates their own local media rights deals, giving a significant financial edge to the teams in the largest markets (The Lakers received $149 million from Time Warner (TWX) for ’16-’17 season, while the Grizzlies received a league low $9.4 million). With total league revenues determining the salary cap (and floor), local revenues keep teams profitable, and that has small market owners concerned. If the large market teams can pay significant luxury tax penalties while remaining profitable, they can theoretically hoard stars and alter the competitive balance within the league.
Howie Long-Short: There is no need to pass around a collection basket for NBA owners. For starters, the net income figures used in this report only reflect “basketball operations”. Several teams own their own arenas. Non-basketball related revenues generated are not included in the calculations. More importantly, the value of these franchises continues to rise with each sale. Leslie Alexander just sold the Rockets for $2.2 billion, 15x (after inflation) what he paid for them just 25 years ago. It is important to remember that no one loses money owning a professional sports franchise.
Fan Marino: The small market owners are worried about the size of local media rights deals altering the league’s competitive balance? What competitive balance? 4 teams have a chance to win the 2017-2018 NBA Championship (BOS, CLE, GSW, SAS). While we are talking about competitive balance, you want the worst team to have the #1 pick. Lessening those odds to prevent tanking is a bad idea.