Basketball and business: The revenue generation of NBA teams

The NBA was established in 1946, much later than the other sports leagues, and it took years for it to catch up to more seasoned rivals in football and baseball.

It was the first league to transform the all-star game into a three-day weekend packed with activities and the first to generate a sizable percentage of its revenue from merchandise.

The NBA is also the first league to intentionally cultivate its most marketable players into global media celebrities, which has helped the league gain appeal abroad. Each inhabited continent receives NBA broadcasts. When the 2019–20 NBA season began, 108 out of 450 players on rosters were from countries other than the United States, representing 38 different nations, as opposed to the nearly entirely American rosters of the 1970s.

The NBA thrives in North America but does not rule. Although the two leagues are not always in competition, their revenues are around half those of the National Football League, the highest-grossing sports league in the world.

The NBA’s diversified revenue source, which includes broadcast, merchandise, sponsorships, and tickets, is still one of the sports’ biggest disparities. The NBA has gained popularity in the United States, surpassing Major League Baseball to become the country’s second-most popular sport. However, pro basketball still has a lot of room to develop domestically given the low average TV ratings of 4.0.

Revenue from NBA television

TV plays a significant role in the NBA’s business strategy, just like it does in other major sports leagues. As long as they don’t pay for their cable provider or TV service, many NBA fans find watching TV to be an appealing alternative. Streaming TV shows and the widespread usage of DVRs have increased the popularity of streaming TV, but live athletic events continue to be popular.

Numerous fans choose to watch NBA games at home instead of attending a live event because of the high cost of tickets, parking, and food. This is a major factor in the NBA’s rising advertising revenue and broadcast contracts over the years.

The NBA televised 277 regular-season games nationwide in 2017–18, plus about 90 playoff games, in contrast to the NFL, whose television deals are renowned for being lucrative and negotiated only with national networks. NBA TV broadcast 106 regular-season games during the 2017–18 season, followed by ABC (17), Disney’s (DIS) ESPN (87), and Warner Media’s (TWX) TNT (67).

Most of the NBA’s income comes from television. TNT and ESPN extended their contracts, totaling an estimated $24 billion, for the 2016–17 season. The NBA will make about $2.6 billion a year thanks to the nine-year agreement. National TV contracts bring in enough money to cover salaries and then some, despite the fact that the 400 or so current players collectively earn an average of close to $6.7 million per year (as of 2019–20).

Nearly 1,000 regular-season games under those national contracts have not yet been completed. Local TV deals can (as of 2017) bring in between $9.4 million and $149 million per team annually, filling in the gap.

NBA Deals on Products

Another significant source of NBA revenue is one that, unlike the others, has a direct correlation to material goods. For the first time in the NBA’s history, teams wore ads on their jerseys during the 2017–2018 season. Merchandise generates well over a billion dollars annually.

Jersey Patch Earnings: Since the start of the program in 2016, teams have received an average of $9.3 million in revenue from the jersey patches. The NBA expanded the initiative in early 2019 as a result of its early success. The NBA had thus far generated more than $150 million in additional income.

The Walt Disney Company, Rakuten, a Japanese e-commerce business, and General Electric are a few of the marketers. The clubs also gain; the Golden State Warriors, for instance, receive an estimated $20 million yearly from Rakuten.

Sponsorships: The sponsorship division of the NBA’s merchandise industry is tied to this division. A $524 million facility, the Fiserv Forum, which the Milwaukee Bucks opened in 2018 as an illustration, has created plenty of opportunities for sponsorships, first-class seating, and more.

The NBA and Adidas parted ways in June 2015, and the NBA then agreed to an eight-year, $1 billion deal with Nike (NKE). This was an overall 245% annual increase over the prior agreement.

NBA’s Ticketing Industry

It might surprise you to learn that the NBA’s primary source of income is not ticket sales. It frequently falls short of some of the other revenue sources discussed before. That is not to imply, however, that ticketing makes no contribution at all. For the 2018–19 season, teams experienced an average of between slightly less than 15,000 and slightly more than 20,000 people each home game, according to ESPN.

The revenue from ticket sales quickly grows given that they typically cost close to $74 (during the 2018–19 season). Concessions and other revenues are included in extra basketball-related income (BRI), in addition to ticket purchases.

International Revenue

For many years, the NBA has been growing overseas, and China in particular has become a significant source of revenue. An annual revenue of $500 million is thought to be produced in China. The $1.5 billion agreement for Tencent to be the NBA’s sole digital partner is included in that revenue. Tencent is a leading provider of technology in China.

Greater global appeal attracts more foreign investors as well. For instance, Alibaba (BABA) Joe Tsai reportedly paid $1.15 billion for a 49% share in the Brooklyn Nets last year.

The NBA’s move to relax its marketing regulations regarding the placement of advertising logos on jerseys is also related to the foreign revenue stream. As a result, numerous foreign businesses can now partner with the NBA to promote their products through the Jersey Patch program and other marketing initiatives. The strategic expansion into China and around the world is expected to contribute an increasing amount to the NBA’s overall revenue in the years to come.