How The NBA Became A $10 Billion Annual Business

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Friends,

The National Basketball Association (NBA) is in a unique place right now.

On one hand, the league is a juggernaut, generating $10 billion in annual revenue and roughly $3 billion in profit. They have superstars like LeBron James and Stephen Curry dominating social media, and their international growth has been impressive.

Big Four American Sports Leagues By Revenue

• NFL: $19 billion

• MLB: $10.8 billion

• NBA: $10 billion

• NHL: $5.7 billion

On the other hand, viewership is still well below the Michael Jordan years. Superstars have been sitting out 35% of regular season games due to load management, and the league is reportedly having trouble selling its media rights package for $75 billion.

So, what does the future of the NBA look like? Should fans be concerned with regional sports networks going bankrupt? Will player salaries start to decline? What is going to happen to team valuations? Is the new midseason tournament a good idea?

Well, the 2023-24 NBA season tips off Tuesday night. So today, we’ll look at the state of the league’s business, including its negotiations for a new TV rights package, record-breaking franchise valuations, the league’s highest-paid superstars, and more.

Ps. This newsletter is also available via podcast on Apple and Spotify. Enjoy!

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NBA Revenue Keeps Going Higher

The NBA brings in over $10 billion in annual revenue with nearly $3 billion in profit.

That makes the world’s biggest basketball league also one of the world’s most profitable sports leagues. For example, the NBA ($10 billion) brings in less annual revenue than the NFL ($19 billion) but significantly more than the Premier League ($7 billion), La Liga ($5.4 billion), Serie A ($2.6 billion), and Formula 1 ($2.5 billion).

Roughly 25% of this revenue comes from the league’s 9-year, $24 billion television rights deal with ESPN and TNT ($2.6 billion annually). The NBA also makes a lot of money on sponsorships, bringing in $1.66 billion in sponsorship revenue for the 2022-23 season — a +1.3% YoY increase from $1.6 billion for the 2021-22 season. And the rest of the $10 billion in annual revenue comes from merchandise, tickets, and more.

NBA Revenue Categories

• Ticket Sales (A record 22.2 million tickets were sold last year)

• Broadcast rights (NBA has a $24 billion deal with ESPN & TNT)

• Sponsorships (NBA has an 8-year, $1 billion contract with Nike)

• Merchandise Sales (NBA players get ~43% of jersey sale revenue)

• Concessions (Avg. price for a hot dog at an NBA arena is $6.10)

• Digital Properties (The NBA owns & operates NBA League Pass, NBA.com, etc.)

• Video Games (The NBA has a 7-year, $1.1 billion licensing deal for NBA 2k)

The expansion of NBA revenue streams over the years has also had a material impact on valuations, with the average NBA team now worth $2.86 billion (+15% from 2022).

2022-23 NBA Team Values With 1-Year Change (H/T Forbes)

1. Golden State Warriors: $7 billion (+25%)

2. New York Knicks: $6.1 billion (+5%)

3. Los Angeles Lakers: $5.9 billion (+7%)

4. Chicago Bulls: $4.1 billion (+12%)

5. Boston Celtics: $4 billion (+13%)

6. Los Angeles Clippers: $3.9 billion (+18%)

7. Brooklyn Nets: $3.5 billion (+9%)

8. Dallas Mavericks: $3.3 billion (+22%)

9. Houston Rockets: $3.2 billion (+16%)

10. Philadelphia 76ers: $3.15 billion (+29%)

11. Toronto Raptors: $3.1 billion (+25%)

12. Miami Heat: $3 billion (+30%)

13. Phoenix Suns: $2.7 billion (+50%)

14. Washington Wizards: $2.5 billion (+30%)

15. Milwaukee Bucks: $2.3 billion (+21%)

16. Portland Trail Blazers: $2.1 billion (+2%)

17. Cleveland Cavaliers: $2.05 billion (+24%)

18. Sacramento Kings: $2.03 billion (+2%)

19. Utah Jazz: $2.025 billion (+16%)

20. San Antonio Spurs: $2 billion (+1%)

21. Atlanta Hawks: $1.975 billion (+18%)

22. Denver Nuggets: $1.93 billion (+12%)

23. Detroit Pistons: $1.9 billion (+20%)

24. Oklahoma City Thunder: $1.875 billion (+15%)

25. Orlando Magic: $1.85 billion (+13%)

26. Indiana Pacers: $1.8 billion (+8%)

27. Charlotte Hornets: $1.7 billion (+8%)

28. Minnesota Timberwolves: $1.67 billion (+8%)

29. Memphis Grizzlies: $1.65 billion (+10%)

30. New Orleans Pelicans: $1.6 billion (+5%)

And these valuations don’t even account for the recent surge in NBA sales, with Mat Ishbia buying the Phoenix Suns for $4 billion, Michael Jordan selling the Charlotte Hornets for $3 billion, and Jimmy Haslam (who also owns the NFL’s Cleveland Browns) buying 25% of the Milwaukee Bucks at a team valuation of $3.2 billion.

But there is one thing that could stop this upward momentum: television deals.

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RSN Failures And The NBA’s Current Media Rights Negotiations

The NBA definitely has some super favorable tailwinds. In fact, I often say that if I had to buy stock in one professional sports league solely based on the goal of capital appreciation over the next decade, it would probably be the NBA.

That’s because they have globally recognized superstars. The league is deploying the same playbook that made China a multi-billion-dollar market in Africa and India. And Commissioner Adam Silver understands the media landscape better than anyone.

Funny story — when YouTube became popular, many of the major sports leagues and teams sued them for copyright infringement. But Adam Silver (deputy NBA commissioner at the time) was against it and ultimately ended up being right.

“There was a conga line of companies that were suing YouTube, and (the NBA) had a meeting with lawyers, and Adam Silver presided over the meeting,” NBA SVP of Global Digital Strategy Melissa Brenner recounted at Variety’s Sports and Entertainment Summit. “The lawyers were pretty aggressive in wanting to sue YouTube, and (asked Silver), ‘Should we join?’”

“Silver responded, according to Brenner: “Look, this is where the world is going. At a certain point, if we’re not there, does it mean we don’t exist to this new fan that’s growing up on YouTube?”

Still, that doesn’t mean there aren’t negatives. Take media rights, for instance. Not only are regional sports networks across the country missing seven-figure payments and filing for bankruptcy, but recent reports suggest the NBA isn’t getting nearly as much interest in a $75 billion media rights package (3x current price) as many thought.

These two factors — local media rights dropping and national media rights not going up as much as predicted — could limit growth for the NBA in the short term. That would have a downstream impact on team valuations, player salaries, and more.

But it’s not like these things would drop in value; they just wouldn’t go as high as fast.

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NBA Salaries Keep Going Higher And Higher

It’s no secret NBA players make a lot of money. LeBron James leads the way with $127.6 million in earnings — the only NBA player to make more off-the-court than on it — and the top 15 highest-paid NBA players will make over $1 billion this year.

Virtually all NBA deals are guaranteed, and 42 NBA players will earn at least $30 million in salary this year — significantly more than any other sports league.

NBA players earn more money on average than every other US professional sports league primarily because of two reasons: 1) the number of players and 2) the CBA.

Average Annual Salary By Sports League

• NBA: $8.3 million

• MLB: $4.0 million

• NFL: $3.2 million

• NHL: $2.6 million

The CBA is particularly interesting because it was extended this past offseason.

The simplest way to explain the CBA is that all basketball-related income (media rights, tickets, merchandise, etc.) is put into a bucket, and that money is split 50/50, with 50% of the money going toward player salaries and 50% going to the owners.

The NBA Players Association also secured a few new things this past year.

• Increased Veteran Extensions: Contract extensions for veterans can be up to 140% of a player’s previous salary, up from 120% in the prior CBA.

• Licensing Revenue Added To Basketball-Related Income (BRI): Licensing revenue the NBA earns will now be added to the shared pool of BRI.

But that means they also had to give something up, like adding a midseason tournament.

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The NBA Adds A Soccer-Style In-Season Tournament

The NBA is launching an in-season tournament this year. All 30 teams will compete in a European soccer-style tournament with the semifinals and championship taking place in Las Vegas. Players will also take home cash prizes between $50,000 and $500,000 depending on where they finish.

Prize Pool Breakdown Per Player

• Championship: $500,000

• Second-place: $200,000

• Losing semifinalists: $100,000

• Losing quarterfinalists: $50,000

The idea is that this tournament will bring excitement to a long regular season — the NBA gets 1.6 million average viewers during the regular season vs. 5.5 million for the playoffs — while also getting buy-in from the players because of the cash prizes.

But more importantly, it gives the NBA another valuable asset in media negotiations.

Take the NFL, for example. Commissioner Roger Goodell and the league’s 32 owners have done a great job negotiating TV deals across various partners (Fox, CBS, ESPN, Amazon, Peacock, etc.). By spreading the rights across several different networks, not only is the NFL able to increase revenue ($10 billion annually is more than any other sports league), but it also decreases their dependence on cable.

So, my guess is that Adam Silver and the NBA will do something similar this year.

Sure, ESPN and TNT will still be in the mix. But The Wall Street Journal is already reporting that the league wants to get Amazon, Apple, and others involved, and that’s how they will ultimately 2-3x their media rights revenue overnight.

If you enjoyed this breakdown, please consider sharing it with your friends.

I hope everyone has a great day. We’ll talk on Wednesday.

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Huddle Up is a 3x weekly newsletter that breaks down the business and money behind sports. If you are not already a subscriber, sign up and join 100,000+ others who receive it directly in their inbox each week.

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