We’ve all seen the huge NBA contracts since the league signed a new TV deal.
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So, how does the NBA make money? Let’s get into the weeds.
Where The Money Comes From
The NBA makes money in 4 main ways (1) TV Rights, (2) Ticket Sales, (3) Sponsorships and (4) selling Merchandise and Other items.
1. TV Rights: First, looking at TV rights, the NBA sells rights at 3 different levels.
– National TV: High profile regular season games and playoff games. The NBA is currently in a 9-year $24bn deal with Disney and Turner Broadcasting. This deal brings in ~$2.7bn each year.
– Local TV: Local TV rights can vary widely from market to market (anywhere from $10mm – $150mm). During the 2019 / 2020 season the NBA made ~$1.5bn by selling Local TV rights.
– Foreign TV: The NBA sells the foreign TV rights, mainly to China and a currently in a 5 year $1.5bn contract which brings in ~300mm each year.
Total: For the 2019 / 2020 season the NBA earned ~$4.5bn in TV Rights which represented ~56% of sales.
2. Ticket Sales: Next, ticket sales.
On average a NBA ticket sells for ~$100; however, this can range widely from market to market. And the average seating capacity is ~18,000. For the 2019 / 2020 season the NBA made ~$1.5bn on ticket sales representing ~19% of total sales.
3. Sponsorships: A few notable deals include:
– Nike Apparel Deal: 8 year, $1bn contract netting the NBA ~$125mm each year.
– Jersey Logo Deals: On average each team receives $10mm each year ($300mm in total for 2019 / 2020 season)
– Other Deals: A variety of other sponsors that pay to have their logos in frequently viewed areas of the court. The brought the NBA ~$500mm for the 2019 / 2020 season.
Total: For the 2019 / 2020 season the NBA earned ~$1bn in Sponsorships which represented ~13% of sales.
4. Merchandise & Other Sales:
– Apparel: Jerseys, shirts, hats,
– NBA 2K: Currently in a year 7 year $1.1.bn contract with Take Two,
– Other Sales: Food, gift shop items and other,
Total: For the 2019 / 2020 season the NBA earned ~$1bn in Merchandise & Other Sales which represented ~13% of sales.
How The Money Is Spent
Now let’s look at how the NBA spends the money it earnings.
The NBA has two main categories of expenses (1) Player Salaries and (2) Operating Expenses.
1. Player Salaries
There are over 500 players in the NBA with yearly salaries ranging from $1mm to $43mm. The salary cap for the 2019 / 2020 season was ~$110mm and most teams wither met or exceeded this cap.
In total the NBA spent ~$3.5bn in player salaries for the 2019 / 2020 season which represented ~44% of total sales.
2. Operating Expenses
These expenses include everything from the costs to operating the arena (such as staff, trainers, concession workers and security). It also includes marketing costs to maintain and grow viewership.
Also, it includes organization costs (which include commissioner salary, refs, etc.). Finally, other expenses such as cost of apparel and food for sale. In total the NBA spent ~$2.6bn in player salaries for the 2019 / 2020 season which represented ~33% of total sales.
How Much Profit Is Earned
Now putting it all together, the NBA makes money in 4 different ways (1) TV Rights, (2) Ticket Sales, (3) Sponsorships and (4) Merchandise and Other Sales. In total, the NBA generated ~$8bn in sales during the 2019 / 2020 season.
The NBA has 2 main categories of expenses (1) Player Salaries and (2) Operating Expenses. For the 2019 / 2020 season, the NBA had ~$6.1bn in total expenses.
This left the NBA with an operating profit of ~$1.9bn. Now lets look at how the operating profit is divided between the teams.
Operating Profit (“EBITDA”) By Team
The chart breaks down the earnings of each team, starting with the most profitable team (GSW) and ending with the least profitable team (Suns).
The reason there is such a wide gap between the profitable teams and least profitable teams is because only a portion of the revenue earned by the NBA is equally shared between the teams, while a majority of the revenue is based on the teams local market.
• Revenue Shared Equally:
o National TV Rights: ~$90mm per team
o Foreign TV Rights: ~10mm per team
o Nike Apparel Deal: ~5mm per team
o NBA 2K Deal: ~5mm per team
• Revenue Based On Market:
o Local TV Rights: From $10mm to $150mm
o Ticket Sales: From $20mm to $150mm
o Majority Of Sponsor Deals
o Majority Of Merchandise Sales
To help narrow the gap, the NBA implemented a mechanism called Revenue Sharing.
• Revenue Sharing: Each of the 30 teams contributes a percentage (50% after accounting for select costs) of their revenues into a pool of funds and that pool is equally distributed back to the 30 teams to help small markets.
Summary of how the NBA makes money. The NBA makes money in 4 main ways:
(1) TV Rights
(2) Ticket Sales
(4) Selling Merchandise and Other items.