Jon M. Huntsman School of Business

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Thursday, October 20, 2011

Why the NBA will lose this season

For the past five years, I was the Vice-President of Marketing for the Utah Jazz. This position gave me insight into the finances of not only the Jazz, but the NBA as a whole. With that perspective, let me tell you why this lockout isn’t going to get solved any time soon.
Eric D. Schulz
Enough has been written about the negotiations over the split of BRI (Basketball Related Income). In the last Collective Bargaining Agreement, players received 57% of BRI, and as a result, 24 of the 30 NBA franchises lost money. Let me put that into perspective.

On a good night, an average NBA team – selling out their arena – takes in about $1 million in ticket revenue. The teams in the larger cities – New York, LA, Chicago, Boston, Dallas, Miami – make almost double that. So for a 43 game home schedule, a team makes about $43 million or so in revenue.

Teams also make money from sponsorship sales, selling their TV / Radio rights, and to a lesser extent, food and beverage (depending upon their deal with their arena). For the average NBA team, there’s another $25 million or so from these sources. Again, the larger city teams make about double or triple that amount.

The final source of revenue is from the NBA itself. Teams split evenly 30 ways the revenue from the league TV / Broadcasting deals (about $10 million per team), and also NBA licensing (another $6 million).

So, add it all up, and the “average” NBA team takes in about $84 million a season. The Lakers, Knicks, Bulls, Celtics, Mavericks, Heat – they take in about $150 million each.

Now let’s look at the expense side. Player salaries top the list. Last season, the top team payrolls belonged to the Lakers $95 million; Orlando $90 million; Dallas $86 million; and Boston $83 million. The median team salaries paid was around $67 million.

Add on to that the expenses for the coaching staff (about $5 million); travel ($2 million); front office ($5 million); marketing ($1 million); taxes ($5 million) and general expenses ($1 million). The “average” NBA team, their expense side totals around $86 million.

So the “average” NBA team loses about $2 million per season. But if the team payroll is over $67 million – and 13 teams exceeded that level last season – you can see there isn’t much room left for profit – UNLESS you are one of the “haves” – Lakers, Boston, Chicago, New York, Miami – where you make significantly more than everyone else. And for teams that have large sections of empty seats every night – who are only taking in $500,000 per game in revenue – you can see how their losses pile up much faster.

Now, you can say that the reason player salaries are out-of-whack is because of stupid owners handing them out – and that is absolutely true. Nobody put a gun to their head. Kobe Bryant is scheduled to make $25 million this season; Tim Duncan and Kevin Garnett $21 million each. In the grand scheme, those salaries are fine – because THEY put butts in the seats. Fans pay to see them play. Where it gets messed up is when big contracts get handed to players who DON’T put butts in the seats – Rashard Lewis at $22 million; Gilbert Arenas $19 million; Elton Brand $17 million – to name but a few.

Under the current system, the only penalty for acquiring a roster full of all-stars and overpaying them is a dollar-for-dollar “tax” for teams that exceed the luxury tax limit – which last year was around $77 million. But if you are one of the “haves” like LA, Boston, New York – which have far greater revenues than the average team – it’s just a cost of doing business – and leads to a league where the have-nots can no longer compete with the haves.

The All-Star aggregation that began in earnest three years ago when Boston acquired Kevin Garnett, and accelerated last season when players started making their own teams – Miami with LeBron, Bosh and Wade; the Knicks with Amare Stoudamire, Carmelo Anthony and rumored to be joining them soon, Chris Paul – has further exacerbated the problem. The big cities already had an advantage with their large wallets; now players are picking their own teams in those cities, and the rest of the 20 or so other NBA teams are out of luck. Utah’s trade of Deron Williams to New Jersey was the beginning of the slippery slope. Deron had big-city dreams, and Utah had no chance of keeping him when his contract expired after next season, so rather than letting him walk, they traded him for “potential”, NBA speak for “I just got robbed, but I have to sell this to the fans so that they’ll keep on paying”.

So, the owners are putting it onto the players to save themselves FROM themselves. Cut the players guaranteed dollars from the BRI, add in a “hard” salary cap, and in theory, it will level the playing field for everyone. The NBA cites the NFL as an example of success, where every team has the ability to compete for a championship. Not so in the NBA. You can pretty much pick the Conference Finals before you play a single game --- in the West, Lakers and Dallas. In the East, Miami and either Boston or Chicago. Notice the trend here? They are all “haves”.

For the vast majority of NBA teams, they are far better off losing this season and fixing the system than they are by playing it. They still have to pay their coaches and front office, but most of the other expenses go away. For a team losing $20 million, the prospect of not playing this season and only losing $10 million is a breath of fresh air. That’s why you better enjoy this NFL season, and find a good college team to root for in basketball. Come January, that will be your basketball for 2012.

Eric D. Schulz is the Co-Director of Strategic Marketing and Brand Management at the Jon M Huntsman School of Business at Utah State University. Prior to joining the University, he spent five years as Vice-President of Marketing for the Utah Jazz (NBA); he previously was VP of Marketing with the XFL Football League, and served as a General Manager in minor league baseball. He can be reached at


  1. I think it's laughable. It would serve the players right for them to start their own league. Major pay-cut. Reminds me of the Pro Football 2 that was a horrendous failure. Personally, I could care less if the overpaid cry babies missed a couple of seasons. I feel the worst for the support people (Non-owners and non-players) that depend on the NBA for their jobs and livelyhood.

  2. I'll agree the system needs changing, but Miami is NOT a major city like NY, BOS, Chicago. It's the same size as Cleveland. Moreover, Boston was terrible a few years ago and will be soon again. Chicago has 1 great player who they drafted. Carlos Boozer is overrated and not worth the money they paid him, meaning a small market team could have done what the Bulls did. Money didn't create that team. That said I'll agree with most of what he says (mind you I'm a Celtics fan). It needs tweaking and some overhaul, but you can't force players to stay in a market unless you get rid of free agency. That will never happen.

  3. Very interesting, nice to have an insiders perspective on the lockout. From the speech about "haves" and rhetoric of "have-nots," Occupy Wall Street lives in the NBA right now. Once again, branding is the key winning piece. Stats make up for a majority of a player's brand, but the additional branding is what puts them into the "haves" category. We see it with employees too now, where people move every few years. Everyone has to have their own brand now to remain employable and it's the same with players...even high stats players that are great on paper.