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How will the league stoppage affect TV Ratings?

Low TV ratings could have a serious impact on the league’s finances

2020 NBA All-Star - NBA Commissioner Adam Silver Press Conference Photo by Stacy Revere/Getty Images

The bubble in Orlando has worked well in terms of preventing the spread of the coronavirus among players and coaching staffs. The NBA needs the bubble to work as the league has lost so much money over the last five months. There is a need to get money flowing into the league’s coffers for owners and players alike.

Players have lost money due to COVID and their finances will be in a precarious position. Superstar players such as Chris Paul will be able to get through the crisis without significant impact. This class of players have huge yearly incomes and small losses will not harm them to any great extent.

It is a different situation for the middle class of the NBA. The median income of the average NBA player is $7.7m. This may seem like a lot of money but these players have large financial obligations. There will be players who are living beyond their means. These players need the league to recover financially so that they can continue to be paid.

Owners have also lost money during the league stoppage. There will be owners such as Tillman Fertitta and Jeanie Buss who need basketball games to be played in order to turn a profit. There are owners who need their teams to be financially sustainable; they badly need people to watch games and bring in television revenue.

TV ratings will be incredibly important as the league moves forward. It is probable that fans will not be allowed back into arenas next season. Game day operations account for a significant part of a team’s revenue. Teams are going to need television ratings to remain constant or even increase in order to remain profitable.

Low television ratings will mean that negotiations for the next broadcast deal will be difficult. The NBA will not be able to command such a high price if the league does not have the television ratings to back up their price.

There have been extended work stoppages in the past. There were lockouts in 2011-12 and 1998-99. These events did have an effect on the TV ratings league wide. In the season following the lockout in 2011, there were huge increases in television ratings.

There was a 19% increase in viewers on local broadcast stations. This increase was mirrored nationally; there was a 25% increase in television ratings for TNT in the 2012-13 season. These numbers are an interesting indicator for the league to look at but I am not sure how relevant this example is.

At that point in time, the league’s audience was growing year upon year. It has been a different story over the last few years. Television ratings have tumbled recently. There was a 21% decline in viewership on TNT last season. This is a problem for the NBA that is fairly easy to diagnose.

The improvements in technology has meant that viewing habits have changed for consumers. Fans of the league are now able to stream basketball games on mobile devices and the quality of the stream is very good. The NBA have looked to maximise this market segment by developing League Pass.

However, League Pass costs $40 per month and a consumer can only choose to watch one team. The proposition created by the league is not that great when it is considered that basketball fans can find a stream of every single game on a nightly basis.

Moreover, the viewing habits have changed in other ways. Consumers are less likely to sit down and watch a full game of basketball. People prefer to watch highlights packages on Youtube that have been produced by people like DownToBuck or FreeDawkins. The NBA do not get any revenue from these channels.

The rise of streaming means that consumers are less likely to gather together and watch games together. There is less of desire to pay for cable television channels if users do not use these channels that much.

The change in habits of consumers is the reason why the ratings from 2012-13 will have very little relevance. In that time period, illegal streaming of games was less prevalent and therefore more people watched basketball legally.

The television ratings after the 1998-99 lockout is actually more relevant than the more recent example. There was a small decline in television ratings after the stoppage in the 1998-99 season. The ratings indicated that viewership declined 7% for NBC.

The reason for the decline was due to the Era of Jordan being over. Michael was the most popular athlete in the NBA at the time. His retirement meant that a lot of fans simply stopped watching. The league was in a transitional period where new stars were emerging.

The NBA is in a similar sort of position at the moment. Established draws such as LeBron James and Chris Paul are ageing and are entering the twilight of their career. Russell Westbrook is a draw for fans but he has lost some shine over the last few years due to his failures in the playoffs.

There is a new generation of stars coming through but it will take a few years for these players to truly establish themselves as big names in the NBA. Transitional periods are not good for television ratings and this is something that the league will need to be mindful of.

The effects of low television ratings for the NBA going forward are ominous for the league as a whole. There will be financial unrest among owners in the league if television ratings do not recover. Low ratings could lead to less television revenue in the long run.

NBA teams are expensive to run and owners may seek to renegotiate the CBA so that they receive a larger share of basketball related income. The language in the current CBA means that revenue is 49:51 between the players and owners.

Owners are fine giving up a large share of profits during a boom period. Attitudes will be different if revenues contract. The owners may pressure Adam Silver into redressing the agreement and giving the owners a greater slice of pie.

Any attempt to address the profit sharing mechanism will be fought by the NBPA. The NBPA are content with the current split and will not want to take less money just so that owners can turn a profit. It is the labour of players that creates the television revenue.

In the last CBA, it was agreed that both parties can agree to mutually opt out of the CBA at the end of 2022-23 season. This is a possibility if television ratings and revenue does not return to a normal level. The work stoppage caused by COVID could mean a new CBA is drawn up if the NBA does not return to profitability quickly.