These are slam-dunk days for NBA owners. We saw it in a big way when the league extended its TV deals with ESPN /ABC
and TNT in October 2014 to the tune of $24 billion over nine years,
which was triple the previous annual rate. Now, other properties are
ramping up their commitment to the league. Commissioner Adam Silver has
spearheaded a bevy of new sponsor signings with deals at twice or even
up to four times the previous amounts with companies clamoring to get a
piece of the U.S. sports league with the best global prospects.
PepsiCo PEP -1.05% replaced Coca-Cola KO +0.00% as the league’s official beverage partner after 28 years. Anheuser-Busch InBev extended its partnership with the NBA another four years in December. Tissot signed on in October as the league’s first ever official timekeeper for a contract worth a reported $200 million over six years. Verizon replaced Sprint in November in a deal worth more than $400 million over three years. It is a marketing and content relationship, with NBA programming available on Verizon’s go90 mobile video service.
In June, Nike NKE -3.39% re-affirmed its dominance of the basketball market by signing a deal to take over rights from Adidas to outfit NBA teams starting with the 2017-18 season. The eight-year contract is worth more than $1 billion annually, up from the $400 million that Adidas was paying.
The story is the same on the local TV front. The New York Knicks and the Atlanta Hawks started new contracts this year. The Dallas Mavericks inked an extension in the fall with Fox Sports Southwest worth more than $50 million a year. The Orlando Magic and Cleveland Cavaliers both begin new local TV deals with the 2016-17 season. As many as 10 teams are expected to sign new deals or reset their existing TV contracts by the end of the 2017-18 season at big increases.
The result: The average NBA franchise is now worth $1.25 billion, up
13% over last year on the heels of a 74% gain the previous year after
the national media deals were completed.
The New York Knicks reclaim the top spot from the Los Angeles Lakers after a one-year hiatus, thanks to a new cable deal and the highest premium-seating revenue in the league at almost $90 million. The split of the media and sports assets of Madison Square Garden Company in September precipitated a new media rights deal for the Knicks with the MSG regional sports network. The 20-year pact kicks off this season and is worth $100 million in the first year. We value the Knicks at $3 billion, up 20% and fourth most among U.S. sports franchises behind only the Dallas Cowboys ($4 billion), New England Patriots ($3.2 billion) and New York Yankees ($3.2 billion).
The last two seasons rank among the three worst in Lakers history, and the 2015-16 season, which doubles as Kobe Bryant’s retirement tour, is shaping up even worse. Even so, the Lakers are the NBA’s most profitable team thanks to the club’s 20-year, $3.6 billion deal with Time Warner Cable TWC -2.29% SportsNet LA. Ratings are off 65% for Lakers’ games during the past two seasons with Bryant sidelined by injuries for most games. The average audience size of 92,000 viewers per game ranked fifth last season, down from first for 2012-13. Operating profits, in the sense of earnings before interest, taxes, depreciation and amortization, were an NBA-record $133 million last season by our count. The Lakers are now worth $2.7 billion.
Rounding out the top five are the Chicago Bulls ($2.3 billion), Boston Celtics ($2.1 billion) and Los Angeles Clippers ($2 billion). Thirteen teams are worth at least $1 billion, up from just three two years ago.
The league’s 30 teams generated $5.2 billion in revenue last season and $900 million in operating profit (earnings before interest, taxes, depreciation and amortization). Both are records. The NBA’s 2011 collective bargaining agreement, which enhanced revenue sharing for poorer small market teams and cut player costs, means that every team except one—billionaire Mikhail Prokhorov’s Brooklyn Nets—turned an operating profit last season.
Commissioner Silver has said that one-third of teams are losing money, but he was referring to net income based on GAAP, which is how the league and its players association track profitability. Our profit estimates measure EBITDA. We also include non-basketball revenue and expenses in cases where the team or a related entity operate its arena.
The Nets are in the red on a cash flow basis by our count thanks to a $20 million luxury tax for its league-high $92 million payroll, but that didn’t stop Prokhorov—through his Onexim Sports & Entertainment—from paying in December a grossed-up value of $1.7 billion for the 20% of the Nets and 55% of the Barclays Center from developer Bruce Ratner that he didn’t already own. The Nets were valued at $365 million when Prokhorov first invested in 2010.
The Hawks are the only team where a majority stake was sold over the past 12 months. Tony Ressler, who co-founded investment managers Ares Management and Apollo Management, led a group who bid $730 million for the Hawks in April. Ressler also must relinquish arena revenue to pay off $112 million in bonds on Philips Arena, and he agreed to fund a new practice facility, which will cost more than $30 million.
The Hawks are a club on the upswing after years of dysfunctional ownership. The new Fox Sports TV deal kicked off this season and is worth triple the prior pact on an annual basis. Atlanta Mayor Kasim Reed is backing a renovation of up to $250 million of Philips Arena that would include public funding. The team reached the Eastern Conference finals last year and is led by Coach of the Year Mike Budenholzer. Attendance jumped a league-leading 21% at Philips last year and the number of season ticket holders is up to 9,000 from 3,000. We value the team at $825 million.
The Nets and Hawks transactions reflect the bifurcation of franchise values in recent years, with big market teams carrying significant premiums, particularly the largest markets like Los Angeles, where Steve Ballmer paid $2 billion for the Clippers in 2014. The top five teams are now worth $2.3 billion on average or three-and-a-half times the bottom five teams. Five years ago the multiple was only two times as much.
New arenas are coming for Sacramento, Milwaukee and Golden State, which is why the values of each of these teams rose faster than the league average.
While the domestic NBA story is strong, many of the league’s future growth opportunities are overseas. There were 100 players from 37 countries on opening day with all 30 teams rostering an international player. NBA programming is available in 215 countries and territories and the league is constantly looking at ways to monetize its property outside the U.S.
The NBA started a deal with Chinese internet company Tencent in July to provide live games and other programming. The pact, worth $500 million guaranteed over five years, also has a revenue sharing component worth up to $200 million. China has more than 300 million participants in basketball, according to the NBA.
Sal Galatioto, the president of leading sports finance and advisory firm Galatioto Sports Partners, says, “I’ve been getting a lot of inquiries from prospective buyers outside the U.S. who are interested in investing in NBA franchises.”
One red flag on the NBA’s upward trajectory is a potential labor war with the players. Both owners and players have the right until December 15 to opt out of the current collective bargaining agreement following the 2016-17 season.
The owners love the current deal, which reduced the share of basketball-related income that goes to the players from 57% to roughly 51% under the 2011 agreement. The players: not so much. They feel like they made sacrifices when the NBA was crying poor, and now profits and franchise values are soaring. Half the teams lost money on an operating basis in the last year before the new CBA, compared to one last season. Someone buying a team now knows they don’t need to plow more money in to support losses. Franchise values have more than tripled from an average of $369 million to $1.25 billion.
Average player salaries haven’t budged much since the 2011 CBA from around $5 million, but they are expected to top $6 million this year once the numbers are crunched. Salaries are poised to soar even more with the NBA’s new economic windfall. The current salary cap is $70 million, but it is projected to jump to $108 million for 2017-18 with an average salary north of $8 million. The league’s 10 highest-paid players will earn a combined $391 million in salary and endorsements this season.
The rhetoric between the two sides has been dialed down and Silver is optimistic a middle ground can be found. “I am encouraged by the fact that we have already begun direct discussions with the Players Association, and where there’s a will, there’s a way,” he said last week ahead of an NBA game at the O2 Arena in London.
NBA partners and fans around the world certainly hope so.
PepsiCo PEP -1.05% replaced Coca-Cola KO +0.00% as the league’s official beverage partner after 28 years. Anheuser-Busch InBev extended its partnership with the NBA another four years in December. Tissot signed on in October as the league’s first ever official timekeeper for a contract worth a reported $200 million over six years. Verizon replaced Sprint in November in a deal worth more than $400 million over three years. It is a marketing and content relationship, with NBA programming available on Verizon’s go90 mobile video service.
In June, Nike NKE -3.39% re-affirmed its dominance of the basketball market by signing a deal to take over rights from Adidas to outfit NBA teams starting with the 2017-18 season. The eight-year contract is worth more than $1 billion annually, up from the $400 million that Adidas was paying.
The story is the same on the local TV front. The New York Knicks and the Atlanta Hawks started new contracts this year. The Dallas Mavericks inked an extension in the fall with Fox Sports Southwest worth more than $50 million a year. The Orlando Magic and Cleveland Cavaliers both begin new local TV deals with the 2016-17 season. As many as 10 teams are expected to sign new deals or reset their existing TV contracts by the end of the 2017-18 season at big increases.
Stephen Curry ranks among the NBA’s biggest global superstars.
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The New York Knicks reclaim the top spot from the Los Angeles Lakers after a one-year hiatus, thanks to a new cable deal and the highest premium-seating revenue in the league at almost $90 million. The split of the media and sports assets of Madison Square Garden Company in September precipitated a new media rights deal for the Knicks with the MSG regional sports network. The 20-year pact kicks off this season and is worth $100 million in the first year. We value the Knicks at $3 billion, up 20% and fourth most among U.S. sports franchises behind only the Dallas Cowboys ($4 billion), New England Patriots ($3.2 billion) and New York Yankees ($3.2 billion).
The last two seasons rank among the three worst in Lakers history, and the 2015-16 season, which doubles as Kobe Bryant’s retirement tour, is shaping up even worse. Even so, the Lakers are the NBA’s most profitable team thanks to the club’s 20-year, $3.6 billion deal with Time Warner Cable TWC -2.29% SportsNet LA. Ratings are off 65% for Lakers’ games during the past two seasons with Bryant sidelined by injuries for most games. The average audience size of 92,000 viewers per game ranked fifth last season, down from first for 2012-13. Operating profits, in the sense of earnings before interest, taxes, depreciation and amortization, were an NBA-record $133 million last season by our count. The Lakers are now worth $2.7 billion.
Rounding out the top five are the Chicago Bulls ($2.3 billion), Boston Celtics ($2.1 billion) and Los Angeles Clippers ($2 billion). Thirteen teams are worth at least $1 billion, up from just three two years ago.
The league’s 30 teams generated $5.2 billion in revenue last season and $900 million in operating profit (earnings before interest, taxes, depreciation and amortization). Both are records. The NBA’s 2011 collective bargaining agreement, which enhanced revenue sharing for poorer small market teams and cut player costs, means that every team except one—billionaire Mikhail Prokhorov’s Brooklyn Nets—turned an operating profit last season.
Commissioner Silver has said that one-third of teams are losing money, but he was referring to net income based on GAAP, which is how the league and its players association track profitability. Our profit estimates measure EBITDA. We also include non-basketball revenue and expenses in cases where the team or a related entity operate its arena.
The Nets are in the red on a cash flow basis by our count thanks to a $20 million luxury tax for its league-high $92 million payroll, but that didn’t stop Prokhorov—through his Onexim Sports & Entertainment—from paying in December a grossed-up value of $1.7 billion for the 20% of the Nets and 55% of the Barclays Center from developer Bruce Ratner that he didn’t already own. The Nets were valued at $365 million when Prokhorov first invested in 2010.
The Hawks are the only team where a majority stake was sold over the past 12 months. Tony Ressler, who co-founded investment managers Ares Management and Apollo Management, led a group who bid $730 million for the Hawks in April. Ressler also must relinquish arena revenue to pay off $112 million in bonds on Philips Arena, and he agreed to fund a new practice facility, which will cost more than $30 million.
The Hawks are a club on the upswing after years of dysfunctional ownership. The new Fox Sports TV deal kicked off this season and is worth triple the prior pact on an annual basis. Atlanta Mayor Kasim Reed is backing a renovation of up to $250 million of Philips Arena that would include public funding. The team reached the Eastern Conference finals last year and is led by Coach of the Year Mike Budenholzer. Attendance jumped a league-leading 21% at Philips last year and the number of season ticket holders is up to 9,000 from 3,000. We value the team at $825 million.
The Nets and Hawks transactions reflect the bifurcation of franchise values in recent years, with big market teams carrying significant premiums, particularly the largest markets like Los Angeles, where Steve Ballmer paid $2 billion for the Clippers in 2014. The top five teams are now worth $2.3 billion on average or three-and-a-half times the bottom five teams. Five years ago the multiple was only two times as much.
New arenas are coming for Sacramento, Milwaukee and Golden State, which is why the values of each of these teams rose faster than the league average.
While the domestic NBA story is strong, many of the league’s future growth opportunities are overseas. There were 100 players from 37 countries on opening day with all 30 teams rostering an international player. NBA programming is available in 215 countries and territories and the league is constantly looking at ways to monetize its property outside the U.S.
The NBA started a deal with Chinese internet company Tencent in July to provide live games and other programming. The pact, worth $500 million guaranteed over five years, also has a revenue sharing component worth up to $200 million. China has more than 300 million participants in basketball, according to the NBA.
Sal Galatioto, the president of leading sports finance and advisory firm Galatioto Sports Partners, says, “I’ve been getting a lot of inquiries from prospective buyers outside the U.S. who are interested in investing in NBA franchises.”
One red flag on the NBA’s upward trajectory is a potential labor war with the players. Both owners and players have the right until December 15 to opt out of the current collective bargaining agreement following the 2016-17 season.
The owners love the current deal, which reduced the share of basketball-related income that goes to the players from 57% to roughly 51% under the 2011 agreement. The players: not so much. They feel like they made sacrifices when the NBA was crying poor, and now profits and franchise values are soaring. Half the teams lost money on an operating basis in the last year before the new CBA, compared to one last season. Someone buying a team now knows they don’t need to plow more money in to support losses. Franchise values have more than tripled from an average of $369 million to $1.25 billion.
Average player salaries haven’t budged much since the 2011 CBA from around $5 million, but they are expected to top $6 million this year once the numbers are crunched. Salaries are poised to soar even more with the NBA’s new economic windfall. The current salary cap is $70 million, but it is projected to jump to $108 million for 2017-18 with an average salary north of $8 million. The league’s 10 highest-paid players will earn a combined $391 million in salary and endorsements this season.
The rhetoric between the two sides has been dialed down and Silver is optimistic a middle ground can be found. “I am encouraged by the fact that we have already begun direct discussions with the Players Association, and where there’s a will, there’s a way,” he said last week ahead of an NBA game at the O2 Arena in London.
NBA partners and fans around the world certainly hope so.
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