In 2015, there is at least one immutable certainty in the sports business world -- if you're an NBA owner, business is good.
Less than four years ago, as the NBA was going through a summer of lockout and months of arduous negotiations hammering out a new collective bargaining agreement, the song from the NBA owners was one of financial strife, with claims that a third of the teams in the league (at least) were losing money, in large part because of a system of signing and paying players that led to owners being unable to protect themselves from their worst enemy -- themselves.
Despite a salary cap system that kept the salaries of the most marketable players capped at relatively reasonable levels, many owners more than ate up whatever benefit they were getting from muted superstar salaries by overspending on mid-level, highly replaceable, oftentimes journeyman players.
A new CBA didn't completely eradicate bad decisions, but it certainly minimized their impact, and a system which saw the players' percentage of basketball-related income reduced (from 57 percent to 50 percent) was the first in a series of events that have led to a boom period in franchise values.
The latest Forbes annual franchise valuation list for the NBA saw the largest one year increase since the publication began valuing teams in 1998, with the average NBA team seeing a massive 74 percent jump since last season, an average franchise value of $1.1 billion.
An examination of the top ten teams in the league who the importance of market size and the total unimportance of winning. Here are the top ten teams with their valuation:
Los Angeles Lakers $2.6B New York Knicks $2.5B Chicago Bulls $2.0B Boston Celtics $1.7B Los Angeles Clippers $1.6B Brooklyn Nets $1.5B Golden St. Warriors $1.3B Houston Rockets $1.25B Miami Heat $1.175B Dallas Mavericks $1.15B
Assuming we count Golden State as the team for the whole Bay Area (not just Oakland), these are all media markets that are in the top ten nationally, with New York and Los Angeles getting both of their metro teams on the list. The fact that the top two teams on the list have combine for less than 20 wins so far this season, and that five of the top nine teams are below .500 shows you were winning falls on the list of valuation criteria. (Hint: Not high.)
Aside from the new, far more management-friendly labor agreement, there are a handful of other reasons for the huge leap in equity the owners around the league are receiving.
1. New media rights agreement In October, the league signed expanded national media deals with Disney (ESPN /ABC) and Time Warner (TNT) worth $2.66 billion a year, nearly three times the current agreements. The new deals will begin with the 2016-17 season. Many genres of television have been in steady ratings decline in the DVR Era, but NBA games are up 26 percent over the last decade. With live sports being one of the few DVR-proof categories of TV , local rights deals are booming, too. The Atlanta Hawks, Miami Heat and Sacramento Kings all signed new local TV deals in the last six months with rights fees nearly triple their old agreements.
2. Global popularity Of all the U.S. sports, the NBA is clearly head and shoulders above its peer leagues in terms of global appeal and overseas marketing. There were 101 foreign players from 37 countries on opening day rosters this season. Ironically, despite a total lack of players originally from Asia, there are 300 million people regularly playing basketball in China, according to the Chinese Basketball Association. The NBA's international revenues were $350 million last year and have grown at 18% annually. Recently, NBA Commissioner Adam Silver announced that he wants to launch four franchises in Europe.
3. Donald Sterling When the former Clippers owner was captured on an audio recording spewing hateful, racially charged thoughts last summer, little did anyone know that it would serve as the trigger event for the first ten-figure NBA sale of a team. Silver acted swiftly, barring Sterling from the league and demanding that he sell his franchise. Silver's mandate set off an express version of a sales process which, given the market size and the current quality of the team, led to highly aggressive bidding and an eventual $2 billion sale to former Microsoft CEO Steve Ballmer. The hastened process raised the bar for NBA franchise values, and accentuated just how healthy the league is now under its new CBA. So, unwittingly, Sterling's deplorable human fiber helped enrich all 29 of his peers. (It also enriched Sterling himself, whose "punishment" was being forced to sell his team for $2 billion -- a team that he bought for $13 million in the late 70's.)
At this point, the only red flag on NBA franchise values is the looming possibility of another work stoppage. The players and owners can each opt out of the current CBA after the 2016-17 season, and it's a virtual lock that the players and their new executive director Michelle Roberts will look for a bigger piece of this rapidly expanding pie.
But for now, life is good, business is good, and the cash machine that is the NBA is humming along. For owners, it's truly fantastic.
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