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Money, money and some more money

Published by Axel on Saturday, February 18, 2017
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After the dark ages that the NBA endured in the 70's, the league saw a very positive trend once the 80's came along, much thanks to the intense rivalry that developed between Magic Johnson and Larry Bird.

In 1983, the Indiana Pacers were sold to current owner Herbert Simon for $11 Million. While that is an astronomical amount of money for us mere mortals, it is in fact the lowest amount of money anyone has spent to be granted ownership of an NBA franchise.

So why anyone would sell a team for so cheap when the league is rolling on an upwards trend, I have no idea, but at the time the Pacers were the worst team in the Eastern Conference and the economy was bad in general. According to the World Bank the annual world GDP growth was down to an - at the time - all time low 0.51% in 1982, the year before the sale. Compared to 6.465% in 1973 that's a big decrease, so perhaps it makes sense somehow.

After reading Forbes magazine's 19th Annual NBA Team Valuations report which was released earlier this week, I feel pretty safe to say that no NBA team will be sold for $11 Million any time soon. To no one's surprise, big market teams like the New York Knicks, the Los Angeles Lakers, the Golden State Warriors and the Chicago Bulls top the list with all of them being valued $2.5 Billion or more. The Knicks had an operating income of $141 Million last year. That's a lot.

Something that actually did come as a surprise was to see that three teams; the Cleveland Cavaliers, the Los Angeles Clippers, and the Oklahoma City Thunder all lost money during the previous season. While all three had huge payrolls and were paying luxury tax, they were also title contenders - the Cavs very much so apparently. The Thunder and the Clippers lost $8.4 Million and $11.8 Million respectively and the Cavaliers lost a whooping $40.2 Million. To post such numbers while having the league's 2nd best attendance average, the league's best player and winning the title is nothing short of impressive.

Still, the Thunder are valued to $1.025 Billion, the Cavaliers to $1.3 Billion and the Clippers to $2 Billion. That's a lot more than the $11 Million mentioned earlier, which today have increased with about $869 Million, as the Pacers currently are valued at $880 Million. Not the highest value in the league, but still better than the New Orleans Pelicans who rank 30th at $750 Million.

So what happened between those years that increased the league value at such a high rate? For starters, Magic Johnson and Magic Bird were followed by a golden era of players in the 90's that brought attention to the NBA all over the world. Michael Jordan, Hakeem Olajuwon, Karl Malone, John Stockton, Scottie Pippen, David Robinson, Shaquille O'Neal, Charles Barkley, Dikembe Mutombo, Patrick Ewing and Clyde Drexler just to name a few. It almost seems unreal that they all played together when you look back it decades later.

Apart from this, the licencing deals that the league made with the broadcast companies increased to some rate, and David Stern's work to give the NBA a better public image really started to make a difference.

Perhaps things went too fast. As a lot of the above mentioned players retired, the league wrote a new collective bargaining agreement with the Players Association which among many other things covered huge increases for player salaries. With so much money and not enough star players to go around, mediocre players could see themselves getting hefty contracts, much like what we saw during the summer of 2016. In turn, the league stagnated a bit during the early 2000's, before more star players and even better TV deals put the league back on the right track.

When Michael Jordan bought the Charlotte Bobcats in 2010, he is said to have paid about $240 Million, a bit south of the average franchise value of $367 Million at the time and more than $1.0 Billion less than today's average franchise value of $1.36 Billion. It looks like Mr. Jordan's reputation as a business man checks out.

With an increase in value of that magnitude, and even more lucrative TV deals in sight, is there a risk that the league could see the same sort of money influx we saw in the early 2000's once again?

Well, the league is again filled with a lot of young talent with players like Giannis Antetokounmpo, Karl-Anthony Towns, Andrew Wiggins, Anthony Davis, Kristaps Porziņģis and Joel Embiid. Heck, Kawhi Leonard is only 25 years old. Among many others, those guys are sure to keep the league interesting for a while. Especially with players being strong enough public brands to almost act as their own franchises nowadays. Yeah, Forbes also released a report stating that LeBron James made $86 Million in earnings last year, followed by Kevin Durant at $62.5 Million and Stephen Curry at $47.1 Million.

One possible threat could be the gaining popularity in streaming services which could maybe make cable broadcasts weak enough to make all this money evaporate into thin air. But the NBA also attracts more and more international players which in turn strengthens the league's international status and brings in a lot more revenue from abroad than before.

With all that being said I think we're in pretty safe hands. Apart from that horrible endorsement deal Adam Silver made to allow advertisements on jerseys, I think he's doing a pretty good job running the league.