How do NBA Teams make money? Let us look at a few different revenue streams franchises use to remain profitable.
Almost everyone knows that the NBA generates huge revenue every year. Additionally, fans are always curious to know the economic stature of their favourite franchise.
The average team value crept up to $2.2 billion, from $2.1 billion last year, a 4% increase even though it was a pandemic. So how exactly do the NBA teams make money to stay afloat and increase in value?
New NBA team values via @Forbes:
— Kurt Badenhausen (@kbadenhausen) February 10, 2021
A complete NBA Revenue Breakdown:
This may seem like a lot to take in, so let us do an NBA revenue breakdown to simplify it for you. A team’s total revenue is basically made up of four factors: Sport, Arena, Market, and Brand.
To help create equality between large- and small-market teams, the league implements revenue sharing. Basically, this means all teams pool in their annual revenues in order to redistribute it equally. That way, all teams receive revenue that equals the current salary cap.
This portion of a team’s revenue is tied to profits from the stadium where the team plays. It includes ticket sales, premium seating, concessions, merchandise, etc. For teams that own their arenas, they make money from hosting non-NBA events as well. For example, if Madison Square Garden hosts a concert, the NY Knicks get a cut as well.
Market size is the number of people who tune in to watch a team’s home games. As a result, Lakers have a higher market income than, say, New Orleans Pelicans. Market size is a big factor in an NBA franchise’s profitability.
Additionally, larger markets also attracted bigger free agents, thus fuelling the income cycle further. However, with highlights and digital media available, let us hope the difference in market revenue between large and small markets decreases.
Brand revenue comes from a team’s broader appeal in the culture. For instance, a teenager outside of LA who buys a LeBron jersey generates brand income for the Lakers. Market size is a big reason for brand revenue since big market teams tend to have larger fan bases outside their town. Having a cool and easily recognizable logo also helps.
Additionally, team success plays a crucial part in brand income. For example, the Warriors. Before their recent successes, Golden State had a relatively small brand influence. However, now everyone knows about GSW and young kids want to be the new Steph Curry.
The above mentioned is a simple NBA revenue breakdown and how NBA teams make money.
How do NBA owners make money?
Owning an NBA franchise is often an emotional investment. For some investors, like Dallas Mavericks owner Mark Cuban, owning an NBA franchise can be very profitable. But that’s not always the case.
A simple answer would be that NBA teams and owners make money from a combination of ticket sales, suite sales, naming rights, and local TV and radio deals. Additionally, they also have leaguewide media, merchandising, and sponsorship revenues.
Additionally, not every team is valuable all the time. For example, the Cleveland Cavaliers lost money on an operating basis. They declined by about 4% in value to $1.28 billion when they lost LeBron James to the La Lakers.
Although the future is uncertain, any resolution to the pandemic will undoubtedly help with how NBA teams make money. Hopefully, normalcy returns with fans in the stands to support their favorite NBA team.