NBA Revenue Sharing in the new CBA:What Is It? Will It Help Small Market Teams?

NO IT WONT!Thank you for coming.

Still here?

Sigh

Revenue Sharing:First, what are they sharing?

What are they sharing?Over the next 10 years (with an

opt-out in 2017), the owners get 49-51% of all “basketball related income” from the players

What are they sharing?, 2BRI = Basketball Related Income

◦Most of the revenue generated by NBA teams.

◦I.e.: Ticket Sales (regular season, exhibition

and playoffs) Television Contracts (ESPN, TNT, etc.)

~$1-$1.2 billion per year over life of contract Concessions Parking "Temporary" Stadium advertising

What are they sharing?• 2005 CBA: Some of the undistributed funds

from the luxury tax were given to teams in competitively disadvantaged markets.

• 2011 CBA: A new plan approximately triples the amount of money that is revenue-shared. Details of this plan are yet to be finalized.

• Who benefits? Small-market teams. Teams like the Lakers, with their new $3 billion local television contract, will be perennial payers into this system, and teams like Charlotte and Milwaukee will be perennial beneficiaries.

What are they sharing?All teams contribute an annually

fixed percentage, roughly 50 percent, of their total annual revenue, minus expenses such as arena operating costs

Goes into a revenue sharing pool. 

What are they sharing?Each team gets part of that pool equal

to the league’s average team payroll for that season

If a team’s contribution to the pool is less than the league’s average team payroll, then that team is a revenue recipient.

Teams that contribute an amount that exceeds the average team salary fund the revenue given to receiving teams.

What are they sharing?The plan has limits protect high-

revenue teams, such as the Celtics, Chicago Bulls, Los Angeles Lakers, New York Knicks, and Orlando Magic,

No team contributes more than 50 percent of its total profits into the revenue-sharing pool.

Audits are used to determine team revenue (similar to how figure salary cap).

Why is it important?Various sources list that between

20 and 22 teams lost over $400 million the year before the lockout.

8-10 teams made profits of about $150 million

Sharing the losses would mean that each time would only lose $10 million

http://www.nba.com/2011/news/features/steve_aschburner/09/20/revenue-sharing-still-vital/index.html

http://basketball.about.com/od/nba-vs-nbapa/ss/Revenue-Sharing-And-North-Americas-Major-Pro-Sports-Leagues.htm

What is it important?, 2David Stern, the NBA

Commissioner, has repeatedly said people want a competitive league.

It makes sense. If so many people were against the formation of the Miami Heat’s “Super Team”, one can imagine the outcry when one team can afford a $200 million payroll and another a $40 million payroll.

Will it help?HAHAHAHAHA HAHAHAHAHAHA

HAHAHAHAHAHAHAHAHAHAHAHEEEEESIGH

Will it help?Define Help? Wins? Profits? Getting rid of unpopular owners?Helping teams keep popular

players?

Probably YesTo some extent this helps because some

small market teams are having trouble surviving without extra help. The league needs small market teams to thrive, but owning an NBA franchise is so difficult, with the margins razor-thin, the costs high and the economy equally tough.

How bad can it get?◦ “The Kings last season, for instance, left Kenny Thomas,

an end-of-the-bench veteran seeing little playing time, home in Sacramento on road trips to save on hotel costs. Do you think the Knicks -- just as bad as the Kings over the last few seasons -- would ever have to resort to that?” http://www.aolnews.com/2010/01/28/nba-needs-stronger-revenue-sharing/

Probably YesEach team’s total top line revenue

already includes shared national revenue from TV and sponsorship at roughly $30 million for each team.

Teams with high local revenue will contribute the most into the new system as the amount of shared revenue grows from $60 million last season to roughly $200 million when the plan is fully implemented in 2013-14.

Probably Yes2012: Roughly 15 teams will get

an allocation at the end of the year

About $16 million◦Nearly 25% of the salary cap◦Bigger than the $5.8 million they

would get solely on a luxury tax sharing system

Probably notThe plan requires teams to meet

about 70% of league-wide average in total revenue

Each large market teams must get at least 130% of the league-wide average in total revenue

Probably notAlthough the plan was formed by a high

level team like the Celtics, little evidence suggests most teams really want to give to other teams

The TV contracts might not be big enoughMark Cuban:

◦“[The new revenue-sharing plan] certainly helps level the playing field,” Cuban said in an email. “The question is whether it is enough to overcome the growing disparity in media rights fees.”

◦ http://www.sportsbusinessdaily.com/Journal/Issues/2012/01/23/Leagues-and-Governing-Bodies/NBA-revenue.aspx

Revenue Sharing = Profits?

In short, it all comes down to location. There is evidence to suggest that market size matters most in determining a teams’ profitability. Not winning.

As you can see from the chart below, being a small market team like the San Antonio Spurs or the Utah Jazz doesn’t mean that one will not be able to make a profit.

Location, Location…

http://www.businessinsider.com/revenue-sharing-wont-solve-the-nbas-small-market-problems-2011-1#ixzz1ACfYWX9v

Probably not Some teams choose to take a loss based on their market, not on a

team’s hard work and desire to win Tom Ziller of SB Nation: “Think about that: If you want to make money in the NBA, you're

better off sucking in L.A. than being excellent in San Antonio. How is that fair? The odds are stacked against the smaller markets. It's not a matter of needing to be smarter than the big markets to thrive. The smaller markets have to do that to survive. That doesn't make for a healthy NBA.

 And that's where we are today: the NBA has record ratings and great attendance revenue, but by the league's own admission half the teams are struggling to stay solvent. This isn't a matter of half the teams making bad decisions. It's an imbalanced playing field, and merit has a far smaller role than does luck.

 The NBA wants to fix the issue by slashing player salary so that large and small markets alike can make more money. You'll understand why players who watch Donald Sterling rake in cash hand over fist think there's a better way.”

http://www.sbnation.com/nba/2011/1/6/1918713/nba-lockout-revenue-sharing-magic-bullet

Probably not As Darren Rovell points out in his blog, the Sports Biz, in the

NFL, teams share 80% of a pie of roughly 9.5 billion. This breaks down to about $150 million per team. In the NBA, with the new CBA, each team will spilt a pie totaling $140-150 million by the end of the 2013-2014 season! The Yankees alone payout more than $100 million in luxury tax in a single season. ◦ Of course Major League Baseball does not have a salary cap and it

allows a greater window between salary payrolls. This means that in the NBA it is possible for even small markets teams to reach a luxury tax level because they have to keep a certain number of players, have a bare minimum of how much salary they use, and that salary floor is closer to the salary tax level than it is in the MLB.

◦ Still, paying that high of a tax has not harmed the Yankee’s profitability.

◦ What is did was even the competitive playing field out, giving more teams money to spend on a team that they did not have originally because of their market size.

Antitrust ImplicationsOnly the MLB is exempt from

antitrust laws.Recent Cases challenged the

NFL’s right to coordinate activity◦Coordinating activity is necessary for

the NBA to really effectively achieve competitive balance

◦As recent lockout shows, the riffs between owners are too deep to expect coordination

Antitrust ImplicationsOur guest, Prof. Michael McCann,

wrote an article for Harvard’s Journal of Sports & Entertainment Law about how the NBA’s new approach to revenue sharing might affect their antitrust exemptions in the future. (http://harvardjsel.com/wp-content/uploads/2010/04/JSEL-McCann.pdf)

See also: http://espn.go.com/nba/story/_/page/CBA-1111

28/how-new-nba-deal-compares-last-one http://

www.nba.com/2011/news/features/steve_aschburner/09/20/revenue-sharing-still-vital/index.html

http://basketball.about.com/od/nba-vs-nbapa/ss/Revenue-Sharing-And-North-Americas-Major-Pro-Sports-Leagues.htm

http://www.sportsbusinessdaily.com/Journal/Issues/2012/01/23/Leagues-and-Governing-Bodies/NBA-revenue.aspx

http://www.sbnation.com/nba/2011/7/6/2262057/nba-lockout-2011-news-david-stern-collective-bargaining-national-basketball-association

http://harvardjsel.com/wp-content/uploads/2010/04/JSEL-McCann.pdf

http://www.americansportscastersonline.com/abcnbanewdeal.html