According to Forbes, who release their NBA franchise valuations every year, the average value for an NBA franchise in 2022 was $2.86 billion. For a total worth of the NBA in 2022, that would equal the total value of NBA franchises (30 teams x $2,860,000,000 = $8,580,000,000) plus the value of the NBA itself. The most valuable franchise is the Golden State Warriors ($7.1 billion) while the least valuable franchise is the New Orleans Pelicans ($1.6 billion). The NBA hit a record-high $10 billion in revenue in the 2021-2022 NBA season.
How do NBA teams make their money?
NBA franchises have multiple revenue streams. A big source of revenue comes from home games: ticket sales, concession sales, merchandise sales, and other revenue generated from fans coming to watch the team at the stadium. Gameday revenue makes up about 15-20% of a team’s basketball revenue.
The biggest revenue stream for NBA franchises are broadcasting rights, mainly TV deals. These span local networks, regional networks, national networks, and international networks. This is the biggest piece of the pie for most teams, and is the main reason that the league has seen an influx of money over the last decade.
Sponsorships, partnerships, and advertising are also big parts of a franchise’s revenue. From jersey sponsors to arena naming rights and more, sponsorships and partnerships are becoming an increasingly vital stream for franchises, especially when ticket revenue collapsed during the COVID-19 pandemic.
Teams also receive some money from the revenue sharing program (redistribution of basketball-related income among all teams) and luxury tax distributions (teams who operate below the luxury tax threshold collect the payments from luxury tax offenders). These payments are set up to bridge some of the disparity between bigger teams and smaller teams.
What are the main expenses for an NBA team?
The biggest expenses for NBA teams go towards player salaries. As per the collective bargaining agreement between the NBA and the NBA Players Association, players are entitled to 44.74% of the total basketball-related income in the form of salary (known as the salary cap). Teams need to pay the players at least 90% of the salary cap, and routinely pay more than the salary cap allows (the salary cap exceptions are quite detailed). If teams go well beyond the salary cap, they also need to pay an additional penalty known as the luxury tax. Thus, at least 40-50% of a team’s revenue will go towards paying their players.
Other expenses include paying general managers, executives, coaching staff, and other employees of the organization. Operational expenses include travel and accommodation for the team and rent and utilities for facilities. The team also needs to fulfill external contracts as well as marketing and admin expenses. There are dozens of other expenses that franchises incur as part of running a sports team.
Why do NBA franchises values vary?
The range between the highest-valued NBA franchise (the Golden State Warriors, at $7.1 billion) and the least-valued NBA franchise (the New Orleans Pelicans, at $1.6 billion) is around $5.5 billion. That is a little less than the average value of 2 NBA franchises. What is the reason for such a vast gulf between the valuable franchises and the less valuable franchises?
There are a few reasons, and it comes down to these organizations’ abilities to attract and generate revenue. A team like the Golden State Warriors are operating in a bigger TV market (around 2.65 million viewers) than a team like the New Orleans Pelicans (around 664K viewers). That’s nearly a 4-times difference; therefore, the Pelicans will get a less lucrative local TV deal than the Warriors. The population of the two markets exist at a similar ratio; therefore, the Pelicans cannot appeal to a wider local audience to attend games and buy merchandise in the way the Warriors can. Bigger markets also have more lure for free agents, who then bring in more attention and more revenue to the franchise.
The franchise’s basketball success also makes a difference in franchise value. A team that is a playoff contender or has a big star will find it easier to fill up seats than a struggling team with no stars. They are also more likely to negotiate more lucrative TV deals, sponsorships, and partnerships.
For example, the Milwaukee Bucks play in one the smallest NBA markets (less than 1 million TV viewers), but they have the 15th-most valuable NBA franchise ($2.3 billion); that is likely due to their championship win in 2021 and recent dominance in the Eastern Conference, as well as a superstar in Giannis Antetokounmpo.
This phenomenon isn’t as damaging to big market teams as it is helpful to small market teams. The New York Knicks have been unsuccessful in the last decade with no superstar to boot, but are still the 2nd-most valuable franchise at $6.1 billion. That is likely due to having the biggest TV market in the US as well as being located in the most populous US city.
Franchise valuations will often see the same teams at the top and the same teams towards the bottom every year. Market size and basketball success play a big role. While the NBA does ensure more parity with their revenue sharing program as well as the salary cap, its up to franchises to work with what their given to ensure continued financial success of their organization.
The NBA recently hit $10 billion in revenue in the past season, and as of now every single franchise is worth $1.5 billion or more. On the financial level, it seems like the NBA is trending in the right direction. The question is, what’s next? How will the NBA maintain its current financial success and ensure further growth, and how will that impact the basketball and the fan experience the NBA has to offer?