The multi-billion dollar industry of the NBA shares their profits with the teams and players. Kevin Hua from AtlasTrend looks at how the profits are split, and why Lebron James could actually be underpaid because of this structure.
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The NBA has recently signed significant sponsorship agreements with the likes of NIKE for NBA jerseys as well as Rakuten to broadcast NBA games in Japan. Drawing on its record popularity globally, revenues have exploded for the league that is being shared amongst the league, team owners and the players.
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Key points:
How does the NBA revenue sharing model actually work?
- Majority of the NBA’s revenue comes from their TV and broadcasting contracts such as from ESPN and Turner
- The NBA also generates revenues from national advertisers, licensing and merchandise deals
- Split amongst the 30 NBA teams and adjusts for the size of the markets
- Individual teams generate revenues from ticket sales, luxury suites, stadium advertising, merchandise, local advertising and sponsorships
- Each team agreed to split total revenues on a 50/50 basis with the players
- The players receive revenues through their salaries and a salary cap structure
A system where everyone benefits?
- Not really, the large market teams and the best players make the most money
- Players are subject to more restrictive labour practices via salary cap and maximum salaries for individual players
- A player such as Lebron James could command significantly more than his current ‘maximum’ salary of US$31 million in a free, open market but is restricted from doing so under the NBA collective bargaining agreement
What are the investment implications for investors?
- Superstars like Lebron James earns the majority of their income from sponsorship and media deals
- Corporate sponsorship becomes a significant part of the NBA eco-system – such as NIKE
- NIKE has built a pillar of its athletic leisure empire off the NBA through its sponsorship of the NBA jerseys, sneakers deals with star players
- Latest deal with Rakuten is their attempt to tap into the NBA’s popularity
- We believe this connection to a sport is partly what underpins the long-term investment story in NIKE
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