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How much money do NBA franchises make?

The NBA is a money-making machine. If you’re looking at some of these multi-million dollar contracts that players are getting, it’s possible because the NBA franchises and the league itself are generating enough revenue to dish out that money. Where is all that money coming from, and how much are teams making?

How much money do NBA franchises make? A reported figure for the average revenue of an NBA franchise in the 2020-2021 season was approximately $213.5 million. A bulk of the revenue comes from broadcasting rights, merchandise sales, sponsorships, ticket sales, and concession sales, among other sources of revenue. The average revenue of an NBA team in a season has been steadily growing over the last 20 years, although recently the COVID-19 pandemic negatively impacted revenues.

What are the different revenue streams of an NBA franchise?

There are various ways that NBA franchises get their revenue. NBA teams generate revenue from games, by selling tickets as well as concessions, merchandise, and other fees like parking (NBA teams who own the arena also make money from non-basketball events). NBA teams also sign lucrative broadcasting deals with national, international, and local broadcasters, which makes up a big bulk of their income. Various sponsorships and advertising, such as jersey patch sponsors and arena naming rights are also a strong source of revenue. Global merchandise sales are also another revenue stream for NBA franchises, among many others.

How much money goes to players in the form of salary?

The players union (the NBAPA) and the NBA (including the team owners) have an agreement known as the collective bargaining agreement (CBA). The CBA has a vast number of terms and conditions it covers, one of them being the salary structure of players. The NBA has a system in place known as the salary cap, which is the maximum amount that teams can pay their players. It is important to note that it is a soft salary cap, meaning that exceptions allow teams to go over the cap.

The salary cap is determined as a percentage of the total basketball-related income (BRI), which is negotiated with each new CBA agreement. This is because the league and the players agree that the players are instrumental to the league and its revenue, and therefore deserve a sizable portion of the pie. The salary cap is calculated as 44.7% of the projected BRI (as per the latest CBA) and is divided by 30 to determine the salary cap for each team.

Teams are required to spend at least 90% of the designated salary cap, and are allowed exceptions to exceed the salary cap legally. After a certain threshold of exceeding the salary cap, the NBA levies a luxury tax on franchises, who have to pay extra to manage a payroll larger than allowed. Thus, players are getting at minimum a solid 40% from the total BRI (in the situation where teams pay only 90% of the salary cap), and usually stand to receive a lot more than that (also important to note, player salary is not equally distributed, but based on performance, salary cap allowance, and league-set designations and exceptions, among other factors).

What are the valuations of NBA franchises?

Because of the continuous global growth of the NBA, the teams are generally highly valued. Reported figures from reputable institutions such as Forbes suggest that all NBA franchises are valued at $1.5 billion or higher (this information is not made publicly available by teams or the NBA). The highest valued franchises (reported figures by Forbes in 2021) are the New York Knicks, valued at $5.8 billion, the Golden State Warriors, valued at $5.6 billion, and the Los Angeles Lakers, valued at $5.5 billion. These 3 franchises eclipse all other NBA franchises in valuation by around $2 billion each at least. This same Forbes list estimates the value of the Phoenix Suns at $1.8billion, just the 18th most valuable NBA Franchise. With majority owner Robert Sarver about to sell off his stake we are about to get another data point on the value of NBA franchises. Expert estimates expect the total value of the Suns Franchise to exceed $4billion at the time of sale.

How are the discrepancies between smaller and larger franchises managed?

There are indisputable discrepancies that exist between small market and large market teams. A market refers to the geographical area that the team serves; in the NBA, large markets for example include Los Angeles and New York City, while small markets include San Antonio and New Orleans. Large markets have a larger population, and vice versa for small markets.

Large market teams are likely to receive more revenue via broadcasting rights (more people who want to watch the game), ticketing sales (more people who want to attend the game), and merchandise sales (more people means more fans who want to buy team gear), among other sources of revenue. Large market teams can also afford to attract stars while also having the ability to go above the salary cap and pay the luxury tax. Because small markets are at a disadvantage in these regards, it may lead to competitive disparity that negatively impacts the quality and strength of the league.

To battle this, the NBA has a revenue-sharing program. After covering their operational expenses, teams pool in about 50% of their BRI, which is then distributed to all the teams in the pool. To qualify for revenue-sharing, teams must generate at least 70% of the average league revenue. The revenue-sharing program essentially distributes money from the large market teams to the small market teams, creating a more even playing field. While it does not completely negate the discrepancies between the two, it does level the gap considerably.

Owning an NBA franchise is generally a very good endeavor for team owners. Not only are they able to make back their initial investment after a few years of owning the team, they stand to make a huge profit should they decide to sell the team, as the valuation of NBA franchises only continues to increase. It’s why many franchises are highly valued, and team owners aren’t usually looking to sell. Players are also getting big paydays as revenues shoot up across the board, so it seems that everyone wins. But nearly all of the revenue a franchise makes is contributed to by fans, either directly or indirectly; if the product starts to suffer or not satisfy fans, then the revenue will definitely start to shrink.