The National Basketball Association (NBA) has never been more popular. Taking that to the next step, the NBA has never brought in more money with ticket sales, broadcast rights fees, and sponsorships.
Despite the good times, 14 of the league’s teams lost money in 2016-17. According to an ESPN report, based on confidential financial information obtained from the NBA, the Orlando Magic was one of those teams.
Supplemental payments to those teams still left 9 teams in the red. The Magic was one of those teams as well.
Rising salaries are obviously the most significant expense for any team, but the larger markets can absorb a higher payroll with far more lucrative local broadcast revenue arrangements. The salary cap is now up to $99 million this year.
For example, the Los Angeles Lakers, who have had abysmal seasons the last two years, bring in $148 million in local broadcast revenue. Their payroll is covered – and then some – even before the first ticket is sold. The New York Knicks, who have also lost big in the recent past, have $105 million coming in through their broadcast deal.
On the other hand, he Memphis Grizzlies earn only $9.4 million in local broadcast rights. Even the Golden State Warriors had a low-end deal with a $30 million package.
The Magic is on the lower end of the scale as well. In addition, teams share in the NBA’s national television deal that is worth $2.66 billion each year.
“National revenues drive the (salary) cap, but local revenues are needed to keep up with player salaries,” one owner told ESPN. “If a team can’t generate enough local revenues, they lose money.”
Some of the larger market teams are required to contribute some of their vast earnings into a pool that helps small market teams. Revenue sharing either mitigates losses or helps a club turn a profit. After operating losses, somewhat offset by the revenue sharing payments, Orlando still lost money.
It doesn’t help that the Magic’s TV ratings dropped somewhere around 50 percent last season. Heavy free agent spending, high expectations and a 29-53 record will do that.
Fortunately for Rich DeVos and team ownership, attendance was outstanding for such a low-performing team. Their average of 17,753 was the third highest mark over the past 10 years.
In addition to Orlando, the Washington Wizards, Detroit Pistons, Brooklyn Nets, Memphis Grizzlies, Atlanta Hawks and Milwaukee Bucks lost money even after revenue sharing. To show the NBA may need to tweak its formula, the Cleveland Cavaliers and San Antonio Spurs, two of the league’s most successful teams, wound up in the red after they had to contribute funds to the revenue sharing pool.
Among the 14 teams with operating losses, the Indiana Pacers, Charlotte Hornets and Portland Trail Blazers finished in the black after revenue sharing.
An ominous sign for Orlando and other teams in the same predicament is that all of the clubs who finished in the red after revenue sharing are in the Eastern Conference. Among the top 10 players in the league, only LeBron James plays in the East, which will not help TV ratings for fellow conference teams.
Magic CEO Alex Martins, President of Basketball Operations Jeff Weltman, General Manager John Hammond, and Coach Frank Vogel have the answer. They will simply need to develop the talent they have into a product that entertains both before a live audience and on television.
No, it is not as easy as waving pixie dust during a time out, but these guys know that if they handle the basketball end of things, the business side will follow accordingly.