BA and revenue sharing

About a hour after I posted my weekly Pick-and-Pop column yesterday morning (thanks guys, nice timing), ESPN posted this story based on a “confidential report” of NBA finances, which asserts that 14 teams (nearly half of the 30-team association) reported financial losses last season, and that nine teams (including the Grizzlies) lost money even after factoring in league revenue sharing.

The NBA shares national/international broadcast rights and other non-local revenues, but there are imbalances, obviously, in other revenues (local/regional broadcast, gate receipts) based on markets.

(A “luxury tax” system allows teams to overspend but pay a penalty to do so.) This presents a greater problem for smaller markets as salaries have escalated in recent seasons, despite all teams sharing equally in league-wide $24 billion television deal.

The Grizzlies are the case study in ESPN’s story in large part because, last season, they had the league’s lowest local broadcast revenue, with the Los Angeles Lakers at the opposite end of the spectrum, garnering $149 million via local broadcast.

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.

If the Grizzlies are in the red despite seven straight playoff seasons, keeping salaries below the NBA’s luxury tax level, and getting significant revenue sharing, this is concerning.

The NBA’s revenue sharing system is a back-end response to the shared costs embedded in the league’s salary rules.

But there’s one aspect to all of this that the ESPN piece doesn’t address: That the financial dynamic between large and small markets relative to costs and revenues pulls in both directions.

But because salary rules are essentially tied to a proportion of average team revenues, the presence of smaller markets also has the opposite effect.

In the absence of these smaller markets, bigger markets might pay less in revenue sharing, but would also pay more in labor costs.