2011 NBA Lockout: National TV Revenue vs Local TV Revenue

NEW YORK, NY - JUNE 30: Commissioner of the NBA, David Stern announces that a lockout will go ahead as NBA labor negotiations break down at Omni Hotel on June 30, 2011 in New York City. The NBA has locked out the players after they were unable to reach a new collective bargaining agreement (CBA). The current CBA is due to expire tonight at midnight. (Photo by Neilson Barnard/Getty Images)

(Correction/Update: due to a negotiated deal that stretches all the way back to the days of the ABA, some of the Nets' calculations below were originally incorrect. The Nets numbers have been corrected to account for this contractual anomaly)

Yesterday we examined some of the possible effects that the NBA's eight year TV contract might be causing in the 
CBA negotiations. One question that arose from the discussion was, how big of an impact does the NBA's national TV deal have on each team's bottom line? Are teams truly getting hurt by the now-unfavorable TV deal, or are they able to easily compliment and even supplant the national TV revenue with their local sources?

Sadly, the answer for the league overall remains hidden, but I think we might be able to turn over at least one more stone.

Here is what we know:

  • Current NBA TV contract: $930 million per year for eight years, or about $31 million allotted per team.
  • The current deal was signed in 2007. Prior to that deal, the NBA had a shorter term deal with the TV networks that paid them approximately 22% less. According to this LA Times story, the previous deal was for $765 million, or about $25.5 million per team (Bobcats joined the league in 2004 and I'm including their existence in all calculations). 
  • In neither the current nor previous contract do we know what the league's aggregate local TV revenue is, because there is no revenue sharing of these dollars.
  • In February, it was reported that the Lakers had just signed a 20 year deal with Time Warner Cable that was for a reported $3 billion, or about $150 million per year. While Time Warner dismissed that number, what they did accede to was that it was the largest local TV contract ever, and so it had to be more than the Lakers' previous deal with Fox Sports West, which was for about $30 million per year. So we'll call it somewhere above $30 million and  below $150 million per year, which likely means that the Lakers' deal dwarfs the national deal contribution. In any event, in the previous deal, the Lakers were receiving $25.5 million from the league and $30 million from Fox Sports West. If we rely on the Forbes calculations, this means that the Lakers derived about 25% of their total revenues (total revenue in 2010: $214 million)  from TV alone, 14% of which was local TV revenue via Fox Sports.
  • If the Lakers represent the high end of the spectrum, do we have any examples of the low end of the spectrum for local TV? Thanks to the work of Deadspin's Tommy Craggs, we do. According to the 2004 income statement of the New Jersey Nets, they had $27.9 million in broadcast revenues. 

Nets2_medium

  • If we assume that this number is the combined amount between national and local TV, we can back into the local number by using the $765 aggregate number plus a very obscure factoid that just so happens to impact the Nets. Using the $25.5 number and subtracting an additional $3.9 million (which is part of one of the greatest sweetheart deals known to man*), we get a national TV contribution of about $21.6 million that goes to the Nets. If we deduct that number from the $27.9 million above, we get a local TV component of about $6.3 million in local TV revenue. If my calculation is correct, then that pitiful local TV deal the Nets had in 2004, which was present when the Nets were actually good, really hamstrung their business operations in comparison to other franchises.  
  • So on one end of the spectrum, we have the Lakers pulling in $30 million in local TV (assuming the same or similar TV deal was still in place in 2004), and on the other, the Nets were pulling in only 21% of that amount.  
Puzzles Pieces to take away:
  • The disparity between the Lakers' and Nets' local TV deals at least in 2004 certainly gives credence to the argument that a more robust revenue sharing plan is needed across the league.
  • The other way to compare the two teams is that by the Lakers having additional capital on hand, they are less likely to feel the squeeze of costs, both player-related and otherwise. The Lakers can endure an economy shock in a way that the Nets cannot.
  • At least for today, before new Nets owner Mikhail Prokhorov really gets his business in gear, the Nets' inability to generate local TV money puts them in greater need of the national TV money, which as we noted yesterday, is capped out and unable to take advantage of increased national interest in the NBA.
  • Jumping ahead to 2010, it is worth noting that the Nets are way, way over-leveraged with debt, while the Lakers are operating with much less. The result is that the Lakers have more flexibility to operate their business, while the Nets have more of their net income tied up in interest expense payments.
  • A final question that is as much philosophical as operational - is it better to give a team like the Nets the tools they need to succeed against a team like LA, or is it better to force them to figure it out for themselves, in a way that the Thunder have?

*The Nets calculation works as follows. They are one of four teams that must pay a portion of their national TV revenues to two former ABA team owners, Ozzie and Daniel Silna. This amount is 1/7 of a team's share and based on a 28 team league. In other words, if you take the 2004 amount of $765 million and divided it by 28, you get $27.3 million. If you take 1/7 of that amount, you get to the $3.9 million number, which is the amount the Nets had to pay the Silna brothers in 2004. This fascinating bit of NBA history is something I'll try to sum up a bit better in a later post.

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(Thanks to Tim S. for prompting the analysis, and thanks to StatRaven for helping with the calculations and back story on the Nets )

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