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 A More Ideal NBA CBA, Part X - REVENUE SHARING

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Should the NBA mandate that teams share local revenues?
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No
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PostSubject: A More Ideal NBA CBA, Part X - REVENUE SHARING   Thu Mar 17, 2011 9:07 pm

Revenue Sharing
The concept of revenue sharing is to have all members of an organization give a certain amount of money and drop it in a pot. Then all the members receive and equal share of the pie. The purpose of revenue sharing is to negate some of the advantages of a large market team which tends to receive more revenues than a team in a smaller markets. The MLB, NFL, and NHL employ some form of NBA sharing

MLB Revenue Sharing:
All 30 teams in Major League Baseball contribute 31% of their local revenues into a general fund. These local revenues include regional TV deals (Comcast SportsNet/Fox Sports Net/YES, etc), season ticket sales, and local sponsorships. At the end of the year, each team gets 1/30th of the total amount of money put into this fund.

NFL Revenue Sharing:
The majority of the NFL's revenue comes from television contracts with ESPN, NBC, CBS, and FOX, since unlike the NBA and MLB, every NFL game is played on a major broadcast network or on ESPN at worst. All of this money is shared equally among the 32 teams in the league. The profits from NFL licensed products from a Vikings pennant to an Albert Haynesworth jersey are also divided equally among NFL teams.

In addition, ticket revenues of all seats with the exception of luxury boxes are divided in a 60-40 fashion, with the home team keeping 60% of the revenue for one game, and the visiting team getting 40% of the revenue for that same game.

NHL Revenue Sharing
The model of the NHL's revenue sharing model is a bit tricky. Here, the top 10 revenue making NHL teams will contribute a fund which is then given to teams that ranked in the bottom half in revenues AND also are in a market of less than 2.5 million people as defined by the NHL. The total revenues include these:

  • Local TV and radio contracts (Fox SportsNet/Comcast SportsNet)
  • National TV money (Versus/TSN/NBC)
  • Ticket sales
  • Suite Sales
  • Sponsorships
The one problem with the NHL's revenue sharing method is that there are perennially underperforming teams in large markets and also have low revenues. The NY Islanders of Nassau County, NY is the poster child team in this category because the team plays in the New York City area, but do not get very good revenues, mostly due to the fact that the team is a perennial loser, and they also happen to have a pretty bad lease.

NBA Revenue Sharing - It DOES EXIST!
It is commonly believed that the NBA doesn't have revenue sharing. That is not true. Here are the revenues that are already shared:

  • Luxury Tax - Teams that go above a certain amount above the current soft cap must pay a dollar to the league for each dollar spent above this limit. This tax limit is commonly believed to be the "real cap" because most NBA teams are above the soft cap as it is, which is driven by high spending teams spending more money forcing other teams to pay more in order to keep players.. After luxury tax teams pay their "penalty", this money is divided equally among teams that did not have a payroll going above the tax limit.
  • National TV money - The revenues created by the TV contracts with Disney, TNT, NBA League Pass, the broadband packages, and other international are divided equally among the NBA teams.
  • NBA Licensed products - Profits from the sales of jerseys, pennants, t-shirts, and thongs licensed by the NBA are shared among the 30 teams. So when you buy your Kobe or Pau jersey, it does feed the Celtics' employees' families too. When you buy the LeBron jersey in Little Havana, it also helps Antawn's family out in poor Ohio.
  • Escrow money - NBA players' paychecks typically have 8-10% of their salary withheld in an escrow account to ensure that the players' share of revenues will not exceed a certain percentage. If the combined players' salaries does go over their percentage in a CBA, then a portion of the escrow money is divided equally among the 30 NBA teams up to the point where the players end up with their portion of revenues. It is possible that the players' money in escrow may be entirely returned to the league.
  • NBA Revenue Assistance Program - It's essentially welfare for teams that are not doing very well at all financially. Not much is known about it.
What is not shared in the NBA

  • Local TV and radio money - Deals in large cities' local sport affiliates will be much more lucrative than those in smaller areas. In the NFL, this is moot because every team's games are on national TV, but in MLB, a portion of this is shared. In the NHL, there is some sharing of this money.
  • Ticket sales - Season ticket and single game proceeds are not shared.
  • Suites - they are not shared. Sharing this may be complicated given that a high proportion of NBA arenas also have other major tenants from the WNBA, NHL, and AHL and many suite contracts allow the holder to go to any event in the arena for the year regardless of what it is.
  • Sponsorships among individual teams - The Lakers can get McDonald's, Wells Fargo, Seven Eleven, Pollo Campero, and Korean Air to pay millions a month. The Clippers can only get Waffle House and the Kogi Korean Taco Trucks to pay them $10,000 a year. The Wizards can only get Ben's Chili Bowl which is is just one iconic DC restaurant to give a free post game meal to the team and coaches. I'm exaggerating here, but bigger and better performing teams can get more sponsorships than teams that can't perform consistently well.
So as you can see, these three revenue streams can vary widely from teams in big metro areas to teams in smaller metro areas.

SHOULD THE NBA ALLOW MORE REVENUE SHARING OF TICKET, LOCAL SPONSORSHIP, LOCAL MEDIA, AND SUITE REVENUE?
I believe that some form of this should be done, even if Jerry Buss tells Ted Leonsis to spend his money like Dan Snyder if he wants to win (my way of saying that the Lakers prevent a hard cap from happening). I don't want total communism where each team gets 1/30th of all of these revenues, but there is a huge disparity that would fold some teams sooner rather than later. I believe the MLB revenue sharing system is the most equitable way to divide the money given the confines of a har dcap. Have the teams drop 30% of their local revenues, which include gate receipts, local media deals, sponsorships and suites into a pot, and at the end of the season, all the teams get an equal share of that pie.
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PostSubject: Re: A More Ideal NBA CBA, Part X - REVENUE SHARING   Thu Mar 17, 2011 9:54 pm

Here is a list of the NBA cities' markets from largest to smallest based on the size of the combined statistical area in the US. If a team isn't in a combined statistical area, it is placed into a metropolitan area. For Toronto, the metro area is used.


Team(s) Combined Statistical Area (if
not avail. Metro Area)
Population Amount in 2009
New Jersey Nets and New York Knicks New York/Newark/Bridgeport 22,232,494
Los Angeles Clippers and Los Angeles Lakers Los Angeles/Long
Beach/Riversider
17,820,893
Chicago Bulls Chicago/Naperville/Michigan City 9,804,845
Washington Wizards Washington,
DC/Baltimore/Northern Virginia
8,440,617
Boston Celtics Boston/Worcester/Manchester 7,609,358
Golden State Warriors San Jose/San Francisco/Oakland 7,427,757
Dallas Mavericks Dallas/Fort Worth 6,805,275
Philadelphia 76ers Philadelphia/Camden/Vineland 6,533,122
Houston Rockets Houston/Baytown/Huntsville 5,968,586
Atlanta Hawks Atlanta/Sandy Springs/Gainesville 5,831,778
Toronto Raptors Toronto Metropolitan Area
(equivalent in Canada)*
5,634,500
Miami Heat Miami/Ft Lauderdale/Pompano
Beach Metro Area (no combined area)
5,547,051
Detroit Pistons Detroit/Warren/Flint 5,327,764
Phoenix Suns Phoenix/Mesa/Scottsdale Metro
Area (no combined area)
4,364,094
Minneapolis Timberwolves Minneapolis/St. Paul/St. Cloud 3,604,460
Denver Nuggets Denver/Aurora/Boulder 3,110,436
Cleveland Cavaliers Cleveland/Akron/Elyria 2,891,988
Orlando Magic Orlando/Deltona/Daytona Beach 2,747,614
Sacramento Kings Sacramento/Arden-Arcade/Yuba
City
2,436,109
Charlotte Bobcats Charlotte/Gastonia/Salisbury 2,389,763
Portland Trail Blazers Portland/Vancouver,OR/Beaverton Metro Area (no combined area) 2,241,841
San Antonio Spurs San Antonio Metro Area (no
combined area)
2,072,128
Indiana Pacers Indianapolis/Anderson/Columbus,
IN
2,064,870
Milwaukee Bucks Milwaukee/Racine/Waukesha 1,760,268
Utah Jazz Salt Lake City/Ogden/Clearfield 1,743,364
Memphis Grizzlies Memphis Metro Area (no combined area) 1,305,946
Oklahoma City Thunder Oklahoma City/Shawnee 1,297,552
New Orleans Hornets New Orleans/Metairie/Bogalusa 1,235,650

The 10 largest markets the NBA has are in layman's terms:
1. New York City
2. Los Angeles
3. Chicago
4. Washington/Baltimore
5. Boston
6. San Francisco Bay Area
7. Dallas
8. Philadelphia
9. Houston
10. Atlanta

Contrary to what many are saying, the Toronto area is pretty big as you can see and definitely more than large enough to support an NBA team.
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