The NBA’s parity dilemma

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Out of the 30 NBA markets, the latter half, which consists of teams ranked 16-30 in league value, have won 11 out of 73 NBA championships. That is a small market championship win percentage of 15.1%. If you remove the five championships won by the exceptional and statistical outlier San Antonio Spurs, the small market success percentage drops to a paltry 8.2%. This begs two questions: Does the NBA have a parity problem, and if so, does it affect the league bottom line?  

Franchise values in the NBA have risen six-fold in the last decade due to positive trends in league growth. But certain franchises have always been more valuable than others. Forbes releases reports every year ranking the most valuable franchises. These lists stay rather consistent annually with few anomalies that rise in the ranks due to non-basketball factors. The most notable example of a franchise increasing in value quickly is the Golden State Warriors. The franchise benefited greatly from the Silicon Valley tech boom that created large increases in local consumer purchasing power. This localized economic growth, in combination with brilliant basketball moves and marketing on the part of the franchise front office, has seen the value of the franchise skyrocket from its purchasing price of $450 million in 2010 to $4.3 billion in 2020. This astounding growth in net worth represents an over ten-fold appreciation since 2009, and the team has “proven to be the decade’s best team investment of all the major sports leagues, including the NFL, NBA, MLB, NHL and international soccer, on a percentage basis.” The former small market team from the bay area now ranks third in the league behind the storied New York Knicks and Los Angeles Lakers.  

The Warriors are the league’s Cinderella success story. They are the model that every small market team that ranks in the bottom half of franchise net values strive for. However, when considering that socioeconomic factors outside the NBA and fortunate draft luck played a significant part in their rise, is it fair to set them as the standard? 

While ideally, every team remains competitive and profitable, that is simply not a reality because most sports, including basketball specifically, are a zero-sum game. Somebody has to lose in order for somebody to win. Therefore, to experience something truly amazing such as the 73-9 Golden State Warriors regular season, or a dynastic three-peat like with the 90’s Chicago Bulls or 2000’s Los Angeles Lakers, other teams must struggle to an equal extent. This phenomenon is nothing new, and the league already has policies in place with the hope that team success on the court is cyclical. This is why the teams with the worst regular season records have higher chances to earn top picks in the draft.  

However, free agency and selective media coverage are where big markets in the NBA truly capitalize. While small-market teams such as the Spurs have seen periods of success, it is largely due to flawless asset acquisition, management and development. The Warriors only won two out of their six championships as a small-market franchise, both of those being in different decades. With there being higher regional economic inequity in the United States than ever before, it is even more difficult for small market teams to win a championship. 

Tier one free agents are attracted by winning culture and the amenities of the city they live in, which allow bigger market teams to shortcut rebuilding periods, avoid long playoff droughts and more effectively retain star players. The NBA caters to this as well as the league is often stated to be thriving when its big markets are relevant contenders for the championship. This notion is further fueled by endorsing these big market teams in Christmas Day games, higher amounts of nationally televised events and selective league promotion. 

If the league is understandably incentivized to showcase big market teams to generate maximum revenue, how can small market teams be assisted to even the playing field for championship contention? Or is basketball just averse to true parity due to the star-driven nature of the sport? 

The idea being tossed around to remedy the current parity issue is implementing a larger revenue sharing program. This statute, which in theory could be enforced by the league commissioner, would mandate that all teams in the association make a minimum of $20 million dollars in profit. Small market owners would jump at the idea, but larger markets would oppose the notion due to the capitalist nature of the league. The game is about competition, so should larger markets be forced to help small markets that are still booming? The average net worth of an NBA team has surpassed $2 billion for the first time in 2020, which highlights that the idea of market size disparity is relative and no team is truly struggling.  

The key for small market teams to compete is developing a strong winning basketball culture. Players at their core are competitive and want to win. Small market teams function like smaller corporations or startups. Stars have more magnitude in a smaller market because they are a larger piece of it. This circumstance creates a closer relationship between management and the franchise’s cornerstone players. Loosening regulations in terms of mortgaging future draft picks could give executives a lot more flexibility in putting quality pieces around drafted talent, incentivizing stars to sign extensions with small-market teams.  

Additionally, adjusting the rate of year to year luxury tax escalation proportionally to the size of an NBA market could also help more cash strapped teams. Larry Coon of ESPN explains the concept by stating that the luxury tax “is a mechanism that helps control team spending. While it is commonly referred to as a ‘luxury tax,’ the collective bargaining agreement simply calls it a ‘tax’ or a ‘team payment.’ It is paid by high spending teams – those with a team salary exceeding a predetermined tax level. These teams pay a penalty for each dollar their team salary (with a few exceptions) exceeds the tax level.” This means that for teams between $0 and $4,999,999 over the cap, the tax rate is $1.50 for every dollar over the cap. This value increases with each incremental tax bracket. For teams between $5,000,000 and $9,999,999 over the cap, the tax rate is $1.75 for every dollar over the cap and so on and so forth with higher brackets. The tax also compounds by penalizing teams for being repeat offenders, which are defined as teams that have paid luxury taxes in at least three of the prior four seasons. The bottom line is that the owners have to pay the luxury tax. By creating a system where small market teams pay proportionally lower luxury tax rates, you create an NBA landscape where title contention is not predicated on owner affluence.  

For example in 2012, the small market Oklahoma City Thunder franchise had to ask budding star James Harden to take a pay cut due to being unable to pay the luxury tax. Unwilling to compromise his market value, Harden opted to leave for a bigger market team in the Houston Rockets. The richer an owner is, usually as a result of operating a more affluent franchise, the more that team can splurge over the supposed cap restriction and maintain that compensation structure to maximize their championship windows. Instituting a proportional luxury tax system would remedy this parity problem and give teams an equal propensity to spend and compete. While parity has never been the forte of the NBA, it would not hurt the league to introduce some playoff team variety by merely leveling the playing field to ensure that the biggest plays and championship heroics occur on the court and not in the front office. Upholding homegrown winning basketball culture matters.  

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