Like other major sports leagues, television comprises a key part of the NBA’s business strategy. When television first made the transition from luxury item to ubiquitous staple of everyday life, some professional sports team owners balked at broadcasting their games. After all, why on Earth would you give the product away to people sitting at home instead of charging them to attend the game? Eventually, team owners figured out that a) they could reach scores of TV viewers for every ticket-buying fan, and b) that makes it more than worth it to sell to the middlemen (i.e., advertisers) instead of to the fans directly. Add the hassles of going to a game– time spent getting there and back, finding an expensive offsite place to park, probably encountering an aggressive drunk or two at the stadium or arena—and within a few years it had become clear that watching games on TV would be the primary way that most fans would consume what sports leagues were selling.
Second Fiddle on the Sporting Landscape
In North America, the NBA flourishes but does not dominate. Revenues are about half those of the highest-grossing sports league in the world, the National Football League, not that the two leagues are necessarily in competition. Still, one of the largest differences between the leagues is the origin of their disparate revenue. The NFL’s television contracts are famously lucrative, and are signed exclusively with national networks. Most NBA games are televised only locally. The league broadcasts 152 regular-season games nationally per year, plus 90 or so playoff games, between broadcast partners TNT (a Time Warner Inc (TWX) subsidiary) and Walt Disney Company’s (DIS) ESPN.
Which accounts for most of the NBA’s revenue. Last year, TNT and ESPN re-upped their contracts to an estimated $2.6 billion per season. Even with a total of 400-odd active players making an average of close to $5 million annually, national TV contracts generate enough revenue to cover salaries and then some. However, those national contracts still leave 1078 regular-season games unaccounted for. Filling in that gap, local TV contracts can gross between $120 million and $150 million annually.
There’s another major contributor to NBA revenue, and unlike the others, this one corresponds to something tangible. Merchandise accounts for well over a billion dollars annually, with jersey sales alone topping $900 million. That’s a serendipitous function of the sport itself: colorful tank tops can double as casual or workout wear, whereas football jerseys are impractical on the street. (The same goes for baseball button-ups, and hockey jerseys for that matter. And the less said about the feasibility of wearing an authentic NASCAR fire suit while doing everyday activities, the better.)
You Make Your Money Going In
As the NBA’s popularity increases, team values grow far out of proportion. NBA teams aren’t sold that frequently, but when they are, records break every time. Over the last decade, the average sale price of a team has tripled. Granted, that’s largely due to a single outlier: the 2014 sale of the Los Angeles Clippers, who went for an unprecedented $2 billion. Even discounting that sale, the remaining prices show that NBA owners and prospective owners clearly expect revenues to augment even further in the next few years.
The NBA has moved past Major League Baseball as the second-most popular sport in the United States. That will happen when World Series games take 4 hours to play and feature interminable breaks in what’s generously referred to as “the action”. But with average TV ratings under 4.0, pro basketball still has plenty of room to grow domestically. That’s to say nothing of the growth potential overseas. The NBA doesn’t disclose all its revenue by country, but the league did take in $150 million in China in 2012.
The Bottom Line
Basketball games are quick, often clocking in at barely over 2 hours. They’re accessible, with an average of 7 games a night televised during the regular season (and available via the NBA’s League Pass TV package, which millions of people buy at $200 per season). And as pure entertainment goes, they’re about as incredible an athletic spectacle as one could want. With the NBA enjoying an effective worldwide monopoly on elite pro basketball, future growth is all but a given.