Ethan Sherwood Strauss of HoopSpeak is on an interesting line of NBA lockout inquiry, wondering how big a role in the league's financial predicament the association's current long-term national TV deal plays. Strauss notes that while most TV networks broadcast major sports as loss leaders -- the nets collectively pay the NFL $4 billion for rights and sell ad space during NFL broadcasts for just $3 billion -- the NBA actually earns the networks (ABC, ESPN and TNT) more in ad revenue than the NBA receives for rights.
Strauss teases out that the networks expect to earn $1.25 billion in ad revenue for the NBA in 2011-12, should the season happen. The current TV deal, in place through 2016, pays the NBA $900 million per year. So while the NFL, for example, is earning about a third more than its ad spots are worth, the NBA undersold its TV rights by about -- as of right now and based on the numbers Strauss has pulled together -- a third.
J.A. Sherman of SB Nation's Welcome To Loud City runs through the situation and presents a clean thesis:
In essence, the very thing that the league thought (and probably was) its saving grace in 2008 has become the anchor which is going to crush it over the next five years: the fixed revenue stream from its TV deal.
Sherman notes that growing the game increases expenses, but such a major revenue stream -- this national TV deal, which makes up almost a quarter of league income -- will hold steady until 2016. It's a massive problem.
If the NBA's TV deal were break-even -- in other words, if ABC, ESPN and TNT sold their NBA ad inventory for exactly what the networks paid the NBA for broadcast rights -- the NBA, by its own estimates, would not be losing money right now. The NBA estimates $300 million in 2010-11 losses. The NBA's TV deal is undersold by $300 million for next season. Yikes.
Of course, this is water under the bridge. It's not clear that the NBA can re-open its broadcast deal -- what would be the incentive for the networks, additional years on the contract? But as owners argue that player salaries are the poison, keep in mind that the NBA has a big-time TV issue contributing to the problem.