NBA 2006-07 Tip-Off: Rebounding Into a Global Business
By Rick Horrow | Special to CBS SportsLine.com
The Sports Professor Rick Horrow, in conjunction with promotional partner Northern Trust, provides a business snapshot of NBA issues coinciding with the tip-off of the 2006-07 season.
As the NBA began its 2006-07 season on Halloween Night, it celebrated the 89 years and 16 NBA titles of coaching and basketball legend Red Auerbach. When he began his head coaching career with the Boston Celtics (for $10,000 in 1950), the league was nearly an asterisk on the American sports scene. Now, NBA deals have approached $4 billion, retail sales exceed $3 billion, and the average franchise value now approximates $326 million.
In fact, it no doubt amused Red that the greatest headline grabbing controversy of September involved Dallas Mavericks owner Mark Cuban asking University of Texas-Arlington Physics Department Chair Jim Horwitz to study the differences between the new “composite synthetic” Spalding ball and the old leather one. Clearly, the NBA has come a long way from the brink of labor abyss. It is important to look at three key areas: (1) the overall business health of the NBA; (2) latest NBA marketing trends; and (3) the globalization of the NBA.
Overall Business Health of the NBA
The NBA seems to be succeeding with the combination of revenue sharing and salary cap (though the cap is much “softer” than the NFL variety). The cap for this season will be $53.135 million, and the luxury tax level will be $65.42 million. The salary “floor” is set at $39.85 million (or 75 percent of the cap). The Dallas Mavericks and Philadelphia 76ers are expected to pay some tax this season, and the New York Knicks continue to be way over – with a payroll expected at $109 million this year (down from $125 million, but still significant).
The league is in its “final arena cycle” in solidifying existing markets. Next Tuesday, November 7, Sacramento County voters will decide whether to approve a quarter-cent sales tax to finance a new $542 million arena for the Kings. On that same day, Seattle voters will consider Initiative 91, requiring the city to “receive a return at or above fair market value for any future investment in KeyArena or any other future facility in the city.” This vote appears to have less of a long-term regional impact on keeping the Seattle SuperSonics in the region, though recently approved new owner Clay Bennett continues to emphasize the 12-month timetable in order to complete a facility by the end of the existing lease in 2010.
Other deals have been recently finished as well. The Orlando Magic celebrates its new $380 million arena financing plan – the Magic will pay $50 million in cash toward construction; the new facility is part of a larger $1 billion arena/Citrus Bowl/performing arts center development plan. Also, the New Jersey Nets and the Sports Authority finalized a fallback plan to allow that team to remain at Continental Airlines Arena through 2013 – insurance in case the Brooklyn Atlantic Yards project hits snags. Finally, the New Orleans Hornets reached a one-year lease extension option with Oklahoma City – coupled with a $3.8 million rent settlement from last year. All of this newfound stability has driven franchise values continuously upward. Memphis Grizzlies owner Michael Heisley agreed to sell 70 percent of his team to a group led by former Duke and NBA player Brian Davis – creating a $350 million overall franchise value. League average franchise values have increased over nine percent in the last two years.
Latest NBA Marketing Trends
As has been the case for the past quarter century, the future of the NBA rides heavily with its superstars. This off-season, key players wrapped up their long-term deals with respective clubs – though not as long as they could have. San Antonio Spurs forward Tim Duncan began the three-year deal precedent in 2000 (opting away from a long-term seven-year deal). These new “entrepreneurial superstars” are taking a shot at an even higher upside after a shorter-term period. Heat guard Dwyane Wade signed a three-year extension with a fourth year option – worth $44 million (though passing up a potential $80 million) payday. LeBron James opted for the shorter deal, though Denver Nuggets superstar Carmelo Anthony preferred the security of a five-year arrangement. Regardless of the extra year or so, major superstars remain committed to their teams over the long-term – key to mega marketing efforts in each local market.
Corporate America remains enthused about the league as well. Last week, adidas launched its biggest ever basketball campaign – attempting to capitalize on its $400 million, 11-year sponsorship with the NBA. Turner Television has effectively sold out its Fall ad inventory with long-term sponsors such as T-Mobile, Southwest Airlines, and Hyundai joining new pre-game sponsor Autotrader.com as NBA television partners.
The Globalization of the NBA
The numbers are staggering. Last year’s NBA Finals aired in 205 countries. More than half of the visitors to NBA.com come from overseas; 25 percent of NBA jersey sales are in foreign countries. David Stern correctly points out that “the globalization issue is just a business reality.”
Last year, 82 NBA players – about 20 percent – were foreign born. This year’s first round draft included six foreign players of the 30 chosen – including Toronto’s first pick Andrea Bargnani who last played at Benetton Treviso in Italy. The league continues to expand its reach. The NBA Europe Live tour this Summer included the Clippers, Spurs, Suns, and 76ers – with games played in Barcelona, Lyon, Moscow, Rome, Cologne, and Paris. The FIBA World Championships drew substantial increases in television ratings to a record 150 broadcast countries – with the championship held in Japan on September 3.
