Lockout: The TV Problem

If the NBA is losing cash, their burdensome 2007-signed television deal should get some blame. In 2011, the agreement tilts heavily in favor of broadcasters. And the ink stays binding till 2016, a year in which iPhones will probably float next to their users like domesticated hummingbirds. 

Ad Week reports that ESPN/ABC and TNT would miss out on up to 1.25 billion dollars from a year with no basketball ad money. If the 2011-2012 season actually happens, those channels would collectively pay 930 million dollars for that 1.25 billion return in broadcast revenue, a potential 320 million-dollar gap between what the NBA sells TV content for and what broadcasters make off of it. This is a quite a steal for the TV side considering that broadcasters often overpay for the privilege of attaching themselves to sports. For perspective, networks give the NFL 4 billion dollars in return for 3 billion in ad money. My suspicion is that pro basketball could easily make up the 300 million they claim to be losing–if only the league had a mulligan on TV rights negotiations.

If David Stern signed a bad television contract in 2007, I can certainly see why and how. The NBA was diminishing back then. New stars had struggled to grow in the darkness of Jordan’s ever-enveloping shadow. The Shaq-Kobe drama had breathed temporary life into the league, like puffs down the gullet of a body that wasn’t self-sustaining. Then O’Neal bailed on the duo, leaving the NBA to slowly wither. Big market teams like the Lakers, Celtics, Bulls and Knicks were brands lacking a product, with no signs of future improvement. An eight-year 930 million-dollar-per-year deal? Sold.

Stern’s signing looked even better as the economy got even worse. In 2008, credit froze because mortgage insanity planted massive hidden debts throughout the business world. This storm spurred NBA worker layoffs, but the league seemed fortunate to cling on a 930 million-dollar buoy, every year for the next eight. Unless the economy collapsed society into a post-apocalyptic “sticks and stones” era, the national TV contract was heaven manna.

Changing times. The 2011 economy is sputtering, which is an actual upgrade over 2008 when it was combusting. The NBA has been bullish since that 2007 low-point. Nielsen’s 2010 “State of the Media” report claims the league to be at a post-Jordan popularity high, blessed with “record” ESPN and TNT ratings. This surge coincides with an era of increasingly giant sports TV deals, as detailed in a Sports Business Journal piece titled, “How high can rights fees go?”:

“Veteran sports media executives said they’ve never seen a media rights market as sizzling as the current one, with annual payouts doubling, tripling and even quadrupling previous rights deals.”

Featured in the article is Bill Koenig, the NBA’s executive vice president of business affairs and general counsel. He comments on the phenomenon, plainly stating:

“I don’t think it’s a bubble. It reflects the value of the programming.”

Either way, the NBA finds themselves locked out of profits. Owners are either waiting years to cash in on a bubble market, or waiting till 2016 to cash in on a market that grows for logical reasons (Note: Pro basketball can sign the 2016 deal years before 2016 actually arrives). Money gets left on the table in both scenarios. Now, I believe the NBA is set to net a huge future TV rights contract, but that belief comes with the impression that the league recently ceded millions–possibly billions, to broadcasters.

While I get why the NBA took the 2007 TV deal, it is worth noting that eight-year contracts are not normal for this commissioner. The preceding five-year 2002 contract had been the longest one David Stern had ever signed. Basketball history is littered with brief, flexible two-to-four year television arrangements.

In retrospect, the 2007 deal was too long, too binding. Like the contract given to Ron “Metta” Artest, short-term gain has likely transitioned to enduring albatross. With hindsight goggles, I question the NBA’s 2007 wisdom. But increasingly, I question: Why are we ignoring the huge TV aspect while scrutinizing every other dimension of how or why the league could be losing money?

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Related posts:

  1. 2016: How much TV money will the NBA be making?

Trackbacks

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  7. [...] Over at Hoopspeak, Ethan Sherwood Strauss explains how the NBA has missed the boat on its national television deal (first signed in 2007). Ad Week reports that ESPN/ABC and TNT would miss out on up to 1.25 billion dollars from a year with no basketball ad money. If the 2011-2012 season actually happens, those channels would collectively pay 930 million dollars for that 1.25 billion return in broadcast revenue, a potential 320 million-dollar gap between what the NBA sells TV content for and what broadcasters make off of it. This is a quite a steal for the TV side considering that broadcasters often overpay for the privilege of attaching themselves to sports. For perspective, networks give the NFL 4 billion dollars in return for 3 billion in ad money. My suspicion is that pro basketball could easily make up the 300 million they claim to be losing–if only the league had a mulligan on TV rights negotiations. [...]

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