Running Head: INDIVIDUAL PROJECT: NBA’s Decline in Profits/Market Shares 1

Individual Project: The National Basketball Association’s Decline in Profit/Market Shares

Erik Smithe

Dr. Petty

Northeastern State University

MKT 4333 CRN 31556

April 9, 2019
Running Head: INDIVIDUAL PROJECT: NBA’s Decline in Profits/Market Shares 2

Table of Contents
Cover Page …………………………………..1
Table of Contents ……………………………2
Executive Summary ………………………... 3 – 4
Introduction ………………………………… 4 – 5
Research Methods and Procedures ………… 5
Data Analysis and Findings …………………5 – 9
Limitations …………………………………..10
Conclusion …………………………………..10 – 11
References …………………………………...12 – 13
Running Head: INDIVIDUAL PROJECT: NBA’s Decline in Profits/Market Shares 3

Executive Summary:
The National Basketball Association (NBA), is currently ranked the 3rd most popular

sport in America, 10th in the world, based on television ratings (Russel). With this information, it

is no surprise that the NBA is projected to be worth between $7.5 - $8 billion. With all this

success, it should be a given that every team within the league is collecting large, consistent

amounts of profit. The reality of the situation would suggest otherwise. Concluding the most

recent NBA season, the league reported that 14 out of its 30 teams gained negative profits and

required profit-sharing tactics from larger teams. These struggling franchises are located in some

of the smallest markets within the industry and are continuously losing support year after year

from their dwindling fan-bases. These fans that continuously change who they watch and root for

are known as “bandwagon fans” and commonly support whichever team has their favorite player

or is performing the best. With the increased revenue that is being funneled into dominating

teams, such as the Golden State Warriors, these wealthier teams can pay their players a much

more enticing salary than small-market teams. With the addition of top tier players, more and

more people tune in to watch these teams instead of their “favorite” team.

A very common practice for players is to participate in is the collaboration of “super-

teams” in an effort to tip the scales in their favor. This practice consists of an irregular amount of

the leagues best players to be on the same franchises roster simultaneously. This creates what

many view as an unfair competitive advantage. Many of the small-market teams, who do not

possess the ranking of players as other teams, have many fans not watch their games because

they feel as though they already know the outcome. This also has a direct impact on a small-

market team’s merchandise sales, as people would prefer a jersey for a winning Warriors team

than a losing Bobcats team.

Recently, it seems that most of the leagues top players have relocated to the West Coast,

residing mostly in California. Many fans who like to follow these players, roughly 50% of

people, live on the East Coast, giving them a four-hour time difference. This greatly impacts the

number of viewers for the West Coast games, because a 6:30 p.m. tip-off time in California

would become a 10:30 p.m. tip-off time in New York. Most working adults are in bed before this

time and are unable to watch the game live. This creates yet another problem for the league by

making difficult decisions that effect the viewership, popularity, and support for their brand.

Introduction:

The National Basketball Association has been one of the United State’s most dominant

professional sports leagues, and has been estimated to be worth approximately $8 billion for the

2018 season, according to Forbes. However, similar to every industry before it, the league is

seeing dramatic drops and losses in revenue within the individual teams, primarily resulting from

lower television audiences around the country. The professional sports market, no matter the

sport, generates revenue through four primary routes: ticket sales, concession stands,

sponsorships from other businesses in various industries, and media broadcasting (television,

radio or streaming) (Berto). The NBA has been able to maintain steady ticket sales since the

sharp decline in 2011/12, from 21.3 million down to 17.1 million, but has rebounded to

maintaining a steady 21.8 million average over the last 3 years. With these stable ticket sales, it

only makes sense that the concession stands are generating their share of revenue for the teams

as well. The league has also announced that it had a 31% increase in money received from

sponsorships for the 2017-18 season, capping off at around $1.12 billion. If all three of these

revenue streams are up over the last 5 years, then why has the NBA reported 47% of its

franchises lost money this past season. The league has reported that nearly half, 14 out of 30, of
Running Head: INDIVIDUAL PROJECT: NBA’s Decline in Profits/Market Shares 5

its teams reported negative profits in the 2018 season. This negative impact falls onto the

declining viewership from television and radio broadcasts around the world. This decline in fans

tuning in to NBA games comes from various explanations, ranging from players trading teams,

market sizes, profit-sharing between larger and smaller franchises, and the collaboration of

“super-teams” making the games “uninteresting to watch”.

Research Methods and Procedures:

The information within this analysis was gathered utilizing exploratory, as well as

secondary data. These sources were found through numerous Internet searches that had relevance

to why the National Basketball Association has seen recent declines in viewership through

televised and radio broadcasted games. The research conducted was not based on any biased or

coerced study or questioning and was completed independently over a span of 3 days, April 9,

2019 – April 11, 2019 by its author, Erik Smithe. All research gathered for the use of this

analysis was not limited to any specific demographics (race, religion, gender), but consisted of

information provided by the National Basketball Association themselves, as well as other

reporting entities such as Forbes, ESPN, and University backed articles/presentations.

Data Analysis and Findings:

While the National Basketball Association has been seeing steady increases in overall

revenue generation, the individual teams themselves are an entirely different story. As previously

mentioned in the introductory paragraph, almost half of all NBA teams reported negative

numbers in terms of profit generation for the 2017-18 season. These losses are primarily

connected to the decrease of individuals tuning in to media broadcasts of the games. There are

numerous speculations as to why this might be, but there are three main areas of concentration
Running Head: INDIVIDUAL PROJECT: NBA’s Decline in Profits/Market Shares 6

that all points seem to come back to: star-players joining teams that already posses 2 or more star

players to form “super-teams”, individual market-sizes of each team and the concentration of star

players on the West Coast.

The “super-teams” as they have been called throughout sports history, are not a new

concept. All other sports at one point in time have possessed a period, or more, where one or two

teams have had “stacked” rosters that consisted of multiple of the league’s top players all on one

team. There has been debates between professionals and novelists alike on whether this idea of a

regular season “all-star team” would ruin the leagues competition and have a negative impact on

the league’s profits and ratings. When it comes to the NBA, super-teams are becoming more and

more frequent. The current antagonist in today’s league would have to be given to the Golden

State Warriors, possessing two of the leagues most accurate 3-point shooters in Stephen Curry

and Klay Thompson (the 5th and 10th rated players in the NBA, respectively), Kevin Durant (the

2nd overall rated player in the league), and recently obtaining DeMarcus Cousins (the 24th rated

player). This concentration of superior talent in one team has many fans and critics,

understandably, very upset with the league. When teams with less than average teams, such as

the Brooklyn Nets or Phoenix Suns, are set to play against a team of this caliber, viewership

among the lower ranked team’s fans will decline due to the lack of competition. The graph below

lists the trends among NBA television viewing percentages since 2012, when Lebron James,

Dwayne Wade, and Chris Bosh formed one of the first super teams in the recent history of the

NBA.
Running Head: INDIVIDUAL PROJECT: NBA’s Decline in Profits/Market Shares 7

Lebron James, the top ranked player of the NBA, returned to the Cavaliers, his original team, in

2015. As shown in the chart above, there was a dramatic increase of viewership that year, with

another decline in viewership the following year; the year Kevin Durant went to the Golden State

Warriors. This loss of fans viewing these games has a direct impact on revenues to the league,

primarily effecting the smaller markets with underperforming franchises.

14 of the NBA’s 30 teams saw a negative total in revenue generated this past season, with

9 of those teams remaining negative after the league implemented their profit-share plan

(Windhorst). Profit-sharing is a common concept that the NBA implements to “spread the

wealth” between larger franchises with hefty markets and smaller franchises with smaller

markets.
Running Head: INDIVIDUAL PROJECT: NBA’s Decline in Profits/Market Shares 8

Many individuals argue that these smaller teams should invest into their own “super-teams” and

recruit top players to play for them, however, teams in these markets are already struggling to

maintain the leagues ever-rising salary caps to keep the players they already have. In an ESPN

report, they argue that, “The expanding profitability gap could warp competitive balance: If big-

market teams can earn fat profits even while paying the luxury tax, [fines paid for exceeding

salary caps], they could in theory hoard more stars”. This circles back to the concept of super-

teams. Large-market teams (Golden State, Lakers, Celtics) possess most of the revenue created

for the NBA, allowing them to attract more big-name players to join their rosters. These superior

athletes will increase those teams win/loss ratios, creating for larger fan bases and more revenue.

This creates a cyclical chain of events that small-market teams like Charlotte, Memphis, and

Utah cannot compete with (Mullany). These small-markets will continue to become smaller and
Running Head: INDIVIDUAL PROJECT: NBA’s Decline in Profits/Market Shares 9

smaller because of the lack of competition that their teams possess against brand-name teams.

This also translates to the neutral viewers, those basketball fans that do not watch games

ritualistically or do not prefer one team over another. These individuals are unlikely to watch

games that are projected to be “blow-outs”, hurting both the leagues profits and the media

stations broadcasting them.

Another important concept to recognize when it comes to televised games is the time

difference between the East/West Coasts (4 hours). With a majority of these all-star players and

teams being located on the coasts, it raises new obstacles that are costing the league and media

stations millions in lost viewership and revenue. In an article written by AwfulAnnouncing, an

independent sports-based site, they discuss this issue as having a significant impact on East

Coast viewers. Because the largest brands in the National Basketball league are currently in

California, it leaves those near the Atlantic left to wonder the outcomes of many important

games until the next morning’s news update. Roughly 50% of the US population operates on

Eastern Standard Time, causing the 6 p.m. Pacific tip-off times for the Laker’s game to start at

10 p.m. for those that live in New York (Weber). With most NBA games being held on

weeknights, it leaves a large hole in the potential ratings for broadcasting stations. While this is

not only a problem within the NBA, the relevance of the super-teams become more and more

apparent. On the opposite end, if the games were to start any sooner, people on the West Coast

would not be home from work in time to watch the first half. While this problem does not have

any immediate solutions that would make most people happy, it seems that the East Coast fans

will have to go for an extra cup of coffee in the morning, given that the most popular

teams/players are on the West Coast.

Limitations:

The analysis of this topic, the National Basketball League’s declining profits/market

share, possess many outside and secondary sources. The limitations on this research was a lack

of specific questions such as survey results of questions like, “Does the concept of “super-teams”

within the NBA affect your desire to watch professional games?”. This topic lacked in efficient

evidence of proper sampling that could translate into more credible theories. There was little

information available about the perception of the themes of this research regarding where people

reside geographically and how this effects their interest in the league. The statistics pulled were

consistent across multiple resources pertaining to teams receiving negative profits related to their

market shares, however, the speculations of specifically why this phenomenon is connected to

super-teams and is supported by only critics views and has not been properly sampled.

Conclusion:

The National Basketball League has been a staple in the American sports industry and,

with increasing overall profits every year from media contracts and merchandising, shows no

signs of going anywhere soon. The problem for the league, instead, lies in their inability to

properly balance the league to support undervalued markets. The NBA focuses their efforts on

giving their support to big, brand-name teams; and why would they not? These teams are the

ones providing the most revenue for the league and, more often than not, possesses the biggest

names in the game. The problem in this line of thinking is that it neglects other, smaller markets

and has already lead to nearly half of the NBA teams losing money in the past year. Players

moving locations to partner with other amazing players has been viewed by many to be an, “easy

route to an NBA title”, leaving many to wonder if integrity and commitment is a thing of the

past. With these players being stockpiled by already thriving teams, it has a direct impact on
Running Head: INDIVIDUAL PROJECT: NBA’s Decline in Profits/Market Shares 11

teams that relied on those star-players as their main source of revenue. This process allows small

markets to only get smaller and may eventually lead to many teams dissolving.

There is no easy way of correcting this trend without the league enforcing many new

rules for players and franchises. The larger team’s ability to grow, expand, and take away players

from other teams by offering higher pay for their work is the essence of capitalism. While every

individual has their own opinions towards this issue, it appears that there will be no action taken

to address this issue soon. The NBA will likely continue to practice their profit-sharing model

until they are forced to correct the issue.

References

Berto, S. “The Economics of The National Basketball Association.” Berkely.edu, 2017,

are.berkeley.edu/~sberto/nba.pdf.

Communications, Forbes Corporate. “Forbes Releases 21st Annual NBA Team Valuations.”

Forbes, Forbes Magazine, 6 Feb. 2019, www.forbes.com/sites/forbespr/2019/02/06/forbes-

releases-21st-annual-nba-team-valuations/#78108c3011a7.

IEG Sponsorship Report. “Sponsorship Spending On The NBA Totals $1.12 Billion In 2017-

2018 Season.” Sponsorship Spending On The NBA Totals $1.12 Billion In 2017-2018

Season, 2018, www.sponsorship.com/Report/2018/05/14/Sponsorship-Spending-On-The-

NBA-Totals-$1-12-nbsp;.aspx.

Mullany, Alex. “5 Reasons Why Super Teams Ruin the Integrity of the NBA.” Sports News,

Sportskeeda, 20 Mar. 2019, www.sportskeeda.com/basketball/5-reasons-why-super-teams-

ruin-integrity-nba/2.

Russell, Bill. “Top 10 Most Popular Sports in America (TV Ratings) [2019 Update].”

Sporteology, 23 Mar. 2019, sporteology.net/top-10-most-popular-sports-in-america/.

Weber, Jim, et al. “NBA Finals Schedule Keeps Getting Harder on East Coast Viewers.” Awful

Announcing, 2 June 2016, awfulannouncing.com/2016/nba-finals-schedule-keeps-getting-

harder-on-east-coast-viewers.html.

Windhorst, Brian, and Zach Lowe. “A Confidential Report Shows Nearly Half the NBA Lost

Money Last Season. Now What?” ESPN, ESPN Internet Ventures, 19 Sept. 2017,
Running Head: INDIVIDUAL PROJECT: NBA’s Decline in Profits/Market Shares 13

www.espn.com/nba/story/_/id/20747413/a-confidential-report-shows-nearly-half-nba-lost-

money-last-season-now-what.