Nearly half of the 30 NBA teams in the league lost money last season, despite a $24 billion TV deal. A revenue-sharing program, designed to force the big-market teams to share with the small-market teams, only helped a handful of those teams finish in the black. Nine NBA teams lost money even after revenue-sharing assistance.
ESPN professionals cited league documents, which showed that the Washington Wizards, Atlanta Hawks, Detroit Pistons, Brooklyn Nets, Cleveland Cavaliers, Memphis Grizzlies, Orlando Magic, San Antonio Spurs and Milwaukee Bucks all lost money based on net income. Net income includes both the luxury tax payment and revenue sharing income.
Other experts note that if operating income was used as the yardstick instead of net income, only 10 teams instead of 14 lost money before revenue sharing took place. Operating income does not include various debts.
In addition, the players union points out that some teams may employ tactics to paint a less profitable picture. The union cites the Nets, a team that technically lost money, whose financial records do not its parent organization’s earnings.
This problem with the disparity of profits within the NBA will be discussed during the league’s Board of Governor’s meeting in September.
Opinions vary widely on how to proceed. National revenues including the recent $24 billion TV deal drive up the salary cap. However, franchises need local revenues to meet the players’ salaries.
Small-market teams believe that they should receive more money in the revenue-sharing system. A few owners think that the system should allow all franchises to make money in the end.
Large-market teams believe they have been more than generous. In fact, some of these owners believe that markets that have benefited from revenue-sharing for several years in a row should be weaned from future assistance.
Some have suggested expanding the league, which would generate a large fee that would not get passed down to the players. Others have suggested that small-market franchises relocate.
The strange fact about teams and profits is that a winning record does not necessarily equal top revenues. Consider the Lakers who finished the year with $115 million in profit after giving away $49 million in revenue sharing. As far as performance, the Lakers had finished four seasons with fewer than 27 wins after losing their star player to retirement.
On the flip side, the Grizzlies have made the playoffs for seven years in a row. However, once they met payroll increases, the team lost about $40 million. Even with a $32 million boost from the revenue sharing program, they were still in the red.
Why does profitability matter? Some owners state that the growing gap between the large-market franchises and the small-market teams could potentially skew talent disparities. Wealthier teams could potentially attract and retain more star players. In addition, smart small-market teams may be making good business decisions but fail to have the revenue to show for it, while poorly run big-market teams would still retain large profits.