Sports are an awe-inspiring spectacle, an escape for millions, a ticket out of poverty for a talented handful and one of the most lucrative industries on earth. The NBA product in particular has become increasingly profitable, with the average net worth of an NBA team surpassing $2 billion for the first time in 2020. This statistic is up a staggering 14% from last year, the most significant increase of all major American sports. The low barrier of entry to play the sport in conjunction with the personal connection the game offers between star players and fans has captured global interest. As NBA basketball begins to sweep across the globe as a primary export of U.S. culture, NBA owners and executives have begun looking to capitalize further on surges in popularity rates through market expansion. However, will the handling of the coronavirus pandemic and a strained economic relationship between the NBA and China be poised to hinder this robust growth?
The NBA’s revenue dropped 10% to $8.3 billion for the 2019-20 season, including tangible losses from the pandemic and China’s abrupt cancellation of NBA media coverage. China backed out due to Houston Rockets general manager Daryl Morey making pro-Hong Kong comments via Twitter. As the season concludes with the crowning of champions Los Angeles Lakers, it is time to assess the discernable financial damage in the present and project any potential future economic downturn for the league. This analysis is critical in dictating the strategic moves of NBA executive personnel and those of the players during offseason free agency.
The costs of the pandemic in regards to the NBA can be broken down into three parts: higher fixed operating costs due to the pandemic, an abundance of opportunity costs and several potential long-term variable costs.
The NBA stated that the cost to run the human resources nightmare of the NBA bubble was over $190 million upfront. This investment had to be made with the knowledge there would be no fan attendance, with fans making up 40% of the league’s annual revenue through ticket purchases and concession spending, in order to satisfy the league’s billion-dollar television contract.
Additionally, viewership ratings were among the worst in league history due to the league’s competition with the NFL as a result of the prior hiatus and much of the league’s biggest markets, such as New York, Chicago and San Francisco, being out of the playoff picture. The 2020 season finals which featured a LeBron James-led Lakers team only received approximately seven million viewers this year, a 50% drop from last year’s finals and the lowest in NBA history since the statistic started being tracked in 1974.
Lastly, the financial burden of the pandemic has been projected to traverse into the 2020-21 NBA season. League sources have already predicted the salary cap to decline anywhere from $3-12 million, which would affect the pockets of NBA owners paying the luxury tax, the roster possibilities of teams and free agency options for players going forward. The league is pushing for the return of NBA basketball on Dec. 22, 2020, to salvage a portion of television revenue from a potentially 72-game regular season and playoffs. However, even if the league was able to circumvent the backlash for such a short player offseason, it would still lose an estimated $4 billion due to the lack of in-person ticket sales, concessions and decreased merchandise selling opportunities.
Moreover, the NBA’s increased reliance on television media revenue as a result of the pandemic has made strained relations with China all the more costly for the league. The Chinese government ceased all media relations with the NBA, terminating agreements to publicize teams, players and sell any league memorabilia, which is estimated to cost the NBA $4.8 billion per year, indefinitely. This figure also includes the loss of a $1.5 billion media negotiation which entailed exclusive rights to stream NBA content all over China. The NBA now has to find a way to compensate for the loss of half a billion Chinese viewers to NBA games, the 300 million active enthusiasts that play recreationally and regularly purchase NBA merchandise and the opportunity to use China’s international sphere of influence to advance the league’s brand. China’s NBA market dwarfs that of the United States and the league has not even scratched the surface of the market’s full consumer potential.
To the average fan, losses of a few hundred million dollars sound like chump change to a billion-dollar enterprise like the NBA. Many may even dismiss the long term implications of the pandemic and the loss of the Chinese basketball market. While the NBA will remain more than solvent, what does this mean for the people that work for the NBA that are not millionaires? The trickle-down economic effect of the league losing revenue affects owners, managers, players, team staff, arena workers, members of the media and more. Many of these staff workers do not have deep pockets like players and executives and rely on their salaries for basic necessities. With all the large sums of money being lost, the financial burden is still most severe on the common man. The NBA is a positive economic stimulus in many parts of the United States that don’t have the benefit of being centers of commerce and industry. Small-market teams that depend on winning games and capturing fan attention through basketball rather than the spectacle of show business and the glamour of historic arenas are hurt disproportionately from the unfortunate happenings of 2020. While the league, the nation and the world at large recover from the pandemic, I hope people can appreciate the tremendous leadership and discipline of the NBA and its players to provide a binding haven of relief for people through basketball despite all odds.