Even the most casual fans understand that the NBA generates enormous amounts of money. After all, analysts spend almost as much time discussing player salaries and contracts as they do the games themselves. As the result of recent salary cap increases, even average players earn far more than ever.
On top of player salaries, NBA teams also spend a lot of money on travel, personnel, stadium maintenance, and other expenses. So how exactly do NBA teams make money? Let’s look at the four different revenue streams franchises use to remain profitable.
This portion of a team’s income is tied to profits from the stadium where the team plays. This includes things like ticket sales, premium seating, concessions, merchandise, and other in-arena sources of revenue. For teams that own their arenas, the money they make from hosting non-NBA events also contributes to the arena income.
Arena income ties directly to attendance numbers, which are affected by a team’s success. For instance, the Golden State Warriors’ arena income jumped sharply following the first successful season of the Splash Brothers and then again when Kevin Durant signed with the team.
Arenas also generate income through sponsorship deals. Teams with more high-profile players tend to get more lucrative sponsorships.
Market income has a greater reach than arena income, encompassing the city or region where the team plays. The easiest way to think of market size is as the number of people who tune in to watch a team’s home games. A large-market team such as the Los Angeles Lakers generates far more market income than a team like the Oklahoma City Thunder.
Historically, market size was a big factor in an NBA franchise’s profitability. Not only did it predict the amount of revenue, but larger markets also lured bigger name stars, thus fueling the income cycle further. Market disparity still exists today. Yet digital media helps increase the visibility of small-market teams, thus equalizing the playing field to a certain degree.
Brand income stems from a team’s broader appeal in the culture. For instance, a teenager in Wichita, Kansas who buys a LeBron James jersey generates brand income for the Lakers. (Market size is a factor in brand income since high-profile teams tend to have larger fan bases outside of a local market. Having a cool and easily recognizable logo also helps.
Team success is a crucial factor in brand income. The Warriors are a great example here, too. Before their recent successes, Golden State had a relatively small brand influence. By the time their streak of finals appearances concluded, however, few teams could rival their brand income.
The NBA recognizes that not all teams generate the same income. To help create parity between large- and small-market teams, the league enforces revenue sharing. Essentially, this involves all teams pooling their annual revenues in order to redistribute it equally. That way, all teams receive revenue that equals the current salary cap.
Of course, in order to reap the full benefits of revenue sharing, a team must generate at least 70% of the league-average income, according to Investopedia. This task remains difficult for small-market teams like the New Orleans Pelicans.
As recently as 2017, nearly half of all NBA teams actually lost money at the end of the year. Meanwhile, teams like the Knicks, who are currently valued at $4 billion, reports Forbes, continue to rake in huge amounts of money despite their mediocre performance.
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