There’s a fascinating report at ESPN today about small market NBA teams struggling to make money, even in spite of the massive cash windfall that has come with new national television deals.

The teaser for the piece really says it all – “What happens when 30 NBA owners can’t share $24 billion?” That 24 billion figure comes from the newest television deal the league signed with ESPN and Turner which will pay them that amount over a 9 year period, roughly $2.67 billion per year.

Given that insanely high number going to each team, there might be some skepticism that somehow nine NBA teams lost money last year under the new TV deal, even with revenue sharing. Those teams as reported by ESPN.com feature some you would expect – small market franchises like the Grizzlies and Bucks. However, it also features very successful franchises on the court like the Cavs, Spurs, and Wizards.

The central reason for the difference as cited throughout the ESPN article is what happens with local television revenue. Specifically, the gap in rights deals signed by the likes of the Lakers and Grizzlies specifically creates a canyon that not even the most robust revenue sharing plan can make up.

The range of the revenue spectrum is illustrated by the two teams at the opposite ends: the Lakers and Grizzlies. And it’s stunning.

In the wake of Kobe Bryant’s retirement, the Lakers were devoid of a star player attraction last season for the first time in two decades. To retain their protected draft pick, they tanked the second half of the season, their fourth straight with 27 or fewer wins.

But it was a wonderful season financially. The Lakers finished with a gargantuan $115 million profit as measured by net income even after writing a revenue-sharing check for almost $49 million, according to league accounting. That was the highest net income in the league by nearly $25 million. The biggest factor was the $149 million they took in from massive local media rights deals, primarily with Time Warner.

Four years ago, ESPN The Magazine named the Grizzlies the best franchise in the major sports in its study of 122 franchises, and the team remains highly rated in the annual report. They have molded a strong connection with their fan base behind the “Grit and Grind” marketing campaign and playing style. The Grizzlies have made the playoffs seven straight years and counting.

But it was a tough season financially. After boosting their payroll, the Grizzlies lost nearly $40 million, earning a league-low $9.4 million in local media rights. Their losses were offset by $32 million in revenue sharing, the most in the league. The Grizzlies start a new local TV deal this season that should boost revenue, but as the smallest market in the league by Nielsen rankings, they may continue to have challenges relative to their larger peers.

“National revenues drive up the cap, but local revenues are needed to keep up with player salaries,” one owner explained to ESPN. “If a team can’t generate enough local revenues, they lose money.”

That’s right. The difference in revenue, just from local TV rights, between the Lakers and Grizzlies comes in at $140 million dollars. One. Hundred. Forty. Million.

Another astounding statistic is that the Knicks’ television deal accounted for more money than the six teams at the bottom of the list combined.

The biggest local TV deals also raise the cap level for everyone. The Lakers and Knicks both made more than $100 million from local media deals last season. Only four teams even came within $100 million of the Lakers’ local media revenue. The Knicks alone made $10 million more from TV than the six lowest-earning teams combined.

Maybe this doesn’t come as a shock to you. Huge franchises in huge markets are going to draw huge dollars from their local television deals. On the other hand, teams in small markets are going to have to scratch and claw for every penny in local revenue. While that generally theory isn’t all that surprising, just how wide the gulf is between those franchises at either end of the spectrum is.

The NBA and even these small-market franchises aren’t in serious trouble yet with franchise valuations skyrocketing and existing plans on the table to help even out the income from team to team. And yet, it’s something the league is going to have to consider monitoring, whether it’s increasing the revenue sharing or something else, in order to level the playing field a little bit more. When a team like the Lakers or Knicks can tank and finish out of the playoffs and still make millions upon millions more than successful small market teams, there’s still some kinks in the system that need worked out.

[ESPN ]

About Matt Yoder

Award winning sportswriter at The Comeback and Awful Announcing. The biggest cat in the whole wide world.

  • Dale Moog

    WOW FOX got a sweet deal only paying less than 10 mil for the Grizz. They are a playoff team every year.

  • Bscotch Bscotch

    Thankfully, they did not let Rovell contribute to that article – no wonder it was well-written and lacking in frivolity.

    • Zach Lowe is the best. I am surprised he wasn’t fired.

  • NeedsAShave

    this is the same issue with baseball, too. “small market” teams like pittsburgh, minnesota, tampa, etc just can’t generate the tv and ad revenue that the likes of the NY, LA, and chicago teams can. i suspect hockey is the same. the NFL is a whole different beast, though.

    • CreightonRabs

      The other problem with Pittsburgh is an ownership/front office team which lies to its fans about a commitment to winning. All you have to do is look at similar sized markets such as Milwaukee, Cleveland and Kansas City, where their respective ownership groups have committed to fielding winning teams despite market size and lack of local revenues. Conversely, I don’t see how you can compare the larger marets in a favorable light when you have cellar dwellers like the Mets and White Sox in the two largest media markets in the U.S.

      Hockey really isn’t the same because of the salary cap; how teams manage their rosters and payrolls depend on not only how astute a general manager drafts and develops talent, but also how smart that GM is when it comes to acquiring talent via free agency and trades. Take a look at how Jim Rutherford’s management in the front office, plus the depth through the younger talent who came up through the minors and their surprisingly positive impact in the NHL, helped the Pittsburgh Penguins, a team which 15 years ago was practically on their way to Kansas City, won the last two Stanley Cup Championships.

      That said, there continues to be more of an unfair disparity on many levels in the NBA that makes the league less enjoyable. This story just continues to show how competitive balance in the NBA is seemingly a pipe dream.

  • Karl

    Find me one incentive an owner would have to not make their profitability look as terrible as possible. I’m not saying some teams aren’t struggling (and are probably too small or low-income to sustain an NBA team), but the fact the article shows the Cavs are profitable at the operating level (pre-debt service) shows you should really take these (mostly) billionaire owners pleading poverty with a grain of salt. There are only 30 partner slots available for a piece of the national (and international) media revenues and that scarcity will continue to drive franchise values until growing media revenue begins to decelerate, to say nothing of the value of the increasingly shiny venues these owners also tend to own.

    One easy thing the NBA as an organization could do to help some of these “struggling” teams is being more locally-reflexive to these markets when it comes to scheduling. Going head-to-head with football on weekends Oct-Feb, local NHL teams, local NCAA teams Nov-Mar all hurt local TV ratings as well as general attention to the team. You can’t avoid all of these but the NBA can definitely do better, my local NBA team went head-to-head with the local NHL, local NFL, or local NCAA teams 49 times last year (60% of their schedule), not to mention the 20 dates in 2016-17 where the NBA and NHL teams both had home games.

  • altfactor@hotmail.com

    Maybe it’s time for all local TV and radio revenues to be pooled and equally distributed.