More NBA Teams Projected as Profitable

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(from Sports Business Journal, November 12, 2012) The National Basketball Association is reaching higher profits this season than ever before, as a part of the new revamped revenue-sharing system.  Revenue sharing is projected to be $200 million this year among clubs.  Total league revenue for 2012-13 is expected to reach $5 billion, which is up from about $4.2 billion for the lockout-shortened 2011-12 campaign. It is expected that 22 of the league’s 30 teams will make money this year, which is up from 2011-2012 season, where only 8 teams were profitable.

The revamped revenue-sharing system complements the larger, long-standing process in the NBA of teams sharing league-level revenue. This includes money from national television contracts, league-wide sponsorships, and international deals. The intent of the new system is to better aid the league’s smaller-market clubs financially relative to its large-market teams, which have an easier way of  generating higher revenue from local TV and sponsorship deals. “Ultimately, it is about competitive balance,” said Fred Whitfield, President of the Charlotte Bobcats, “revenue sharing helps address the natural disparities between large- and small-market teams. [This] is a step in the right direction as every team strives to field a competitive team year in, year out.”

According to the new, widely expanded revenue-sharing plan, each team puts into a pool roughly 50% of its total annual revenue, minus certain expenses such as arena operating costs. Teams then receive an allocation from the pool that is equal to the average team payroll for the season. So, if a team’s contribution to the pool is less than the league’s average team payroll, that team is considered a revenue recipient. If a team’s contribution to the pool is more than the average team payroll amount, the team is deemed a contributor to the system. Teams are assumed to have achieved certain revenue thresholds based on market size when calculating the full revenue results. Teams that are payers into the revenue-sharing system also are protected to where their contributions to the plan will be no more than 30% of their total operating profits.