NBA risks hurting its next national TV deals

Let’s say you’re TNT.

You’ve aligned your brand with the world’s hippest sports league at a historic high in product quality. You are thrilled that “The Closer” is advertised along with vibrant nightly discussions over who is the best on-court closer. A couple times a week—more during the most watched weeks of the season–you receive a massive influx of live viewers on whom you foist commercials for your series with mind-numbing regularity.

What’s even better is that you’re getting this great product on the cheap, because the advertising you’re earning easily outpaces the cost of the programming.

Then the league locks out.

Now, not only do you have replace this incredibly valuable and cost-efficient programming with re-runs that (relatively) no one will watch, you have to explain this to your advertisers: companies that paid a pretty penny to align their brand with a hard to reach, web-savvy, DVR-enslaved demographic.

According to Adage, you were able to bump some of those advertisers to the MLB playoffs, but most are simply hung out to dry. This whole lockout business is, by any measure, a major bummer for you (“you” are still TNT). If the lockout lasts all year, and torches 40 Games in 40 Nights and the NBA Playoffs on TNT, you are going to feel like a parent who finds outs his kid isn’t going to college next year because instead of sending in applications he just took a dump in an envelope and sent it off.

Fast forward four years, and you’re negotiating with the NBA over new TV rights. The league, as Derrick Rose and Kevin Durant enter their primes and a bald LeBron James hits the twilight of his best years, is still piping hot. Juwan Howard and Kurt Thomas are somehow still in the league, but otherwise things are good.

As such, the NBA asks for top dollar for the right to broadcast its games. But you remember when you were utterly hosed by a colossally idiotic stalemate between owners and players back in 2011. You may even remember 1999. You consider that players have been restless in the media, agitating about “setting things right in the next CBA,” which comes up in three years.

You wonder if you trust the owners to deliver a full season, or will the league’s ongoing labor strife cause, for the third time in twenty years, a work stoppage?

So you (now you get to be both ESPN/ABC and TNT!) lowball the league (as you did in the 2007 TV deal). The NBA, with few other suitors, takes your money, something like $500 million less per season than the programming is worth. So instead of paying $900 million to provide $1.2 billion in ad revenue, in 2015 you pay the NBA $1.4 billion to provide you with $1.9 billion worth of ad revenues.

OK, you can stop being an acronym now.

This lockout is, roughly speaking, the result of small market owners doing whatever they can to make it easier to profit year-to-year while fielding a strong team. Along with depressed salaries, serious revenue sharing can accomplish some of that goal. The easiest revenue to share is national TV revenue. That’s because then owners in awesome markets don’t have to feel like they are covering the cost of small or weak (or both) markets with their own earnings.

But what if locking out this year, and the damage it does to major TV partners, depresses the value of the league to these broadcasters in the future? If small markets benefit most from national TV deals (that may be debatable because markets that don’t draw a national audience; New Orleans never get on TV), they could be taking at least as much, if not more, money off the table in terms of future TV deals than they can gain by lowering player salaries by seven million dollars per team each year.

When the NBA sells tickets, league pass and NBA TV to its fans, there’s an indirect negotiation at work: either fans say “that’s too much” and the league does or doesn’t adjust, or the cost of being a fan is deemed acceptable by both sides. But TNT, ESPN/ABC and perhaps NBC (can we bring back some weekend hoops on NBC?!) will be negotiating directly with the NBA. And even after a few awesome seasons of riveting storylines and exceptional play, their corporate memories will be far more likely to recall this current lockout than the collective memory of NBA fans will after the “Durant-LeBron Round II” 2015 Finals.

We worry about whether the NBA will turn off the casual fan. (An aside: if a fan is casual, doesn’t that mean he or she is more likely to return to the NBA if the product is still good? They don’t get too bent out of shape about the lockout. That’s the point of being a casual fan, right?). But perhaps the league should be more concerned about hurting broadcast partners with the power to dramatically increase the percentage of league revenues that come from easily shared national TV rights.

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