Local TV Revenue Disparity Causes Nearly Half of NBA Franchises to Still Lose Money*

Zach Lowe and Brian Windhorst dropped what I think qualifies as a bombshell this morning, after discovering a secret NBA memo that revealed that 14 of the 30 NBA franchises lost money this past season before revenue sharing, and nine lost money even after getting those checks. This is a stunning revelation because national TV rights fees for Turner and ESPN more than tripled this past season; the disparity lies in local television.

It won’t surprise you to learn that big market teams are the haves while small market teams are the have-nots. The key illustration of that comes in a comparison between the Lakers and the Grizzlies. In Los Angeles, things are wonderful financially despite several years of on-court ineptitude:

"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. 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."

Meanwhile in Memphis, where the team has been a perennial contender, the ledger is bleak:

"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. "

Of course, there are some caveats to all this. As Lowe and Windhorst note, a lot of teams own their arenas, and any revenue that comes from holding concerts or conventions or monster truck rallies or whatever else is not included in these books.

Further, franchise valuations have skyrocketed. They noted that the Rockets were purchased by Les Alexander in 1993 for $85 million and sold recently for $2.2 billion. That’s nearly a quarter of a century, though. A more recent example: The 76ers were sold in 2011 for $280 million. What would they fetch now? Probably somewhere in the neighborhood of $2 billion, and this insane growth has happened in just six years.

It’s worth reading the whole piece on ESPN to see the respective opinions of unnamed owners, and you won’t be astonished to learn that ones in big markets have different interests than those in smaller ones. It will be worth monitoring this dynamic over the next few years to see if it goes from simmering resentment to a full-fledged war in the ownership ranks.