The NBA and current media rights holders Disney (ESPN’s parent company) and Time Warner Inc. (TNT’s parent company) have reached a long-term deal to continue their broadcast relationship. The impending media rights deal is expected to total $24 billion over nine years. The new contract is far more profitable for the NBA than originally speculated and will reward the league with a nearly three-fold increase over its existing deal.
The NBA’s present media rights deal with ESPN and TNT, which pays the NBA $930 million a year, expires at the end of the 2015-2016 season. The new arrangement will pay out approximately $2.66 billion annually and kick in at the beginning of the 2016-2017 season. The increase is certain to trigger far-ranging consequences for the league’s makeup and its relationship with primary stakeholders.
One of the most intriguing aspects of the new accord is a groundbreaking decision to introduce a new live streaming service that would be available to cord-cutters. ESPN would host the new digital package, potentially in conjunction with a wireless provider such as Verizon, and offer a stable of games for consumers who do not have pay-TV subscriptions. This is a marked shift in strategy by the sports juggernaut, which previously catered its services exclusively to paid television customers. ESPN has always derived its hefty profits from the pay-TV market and has fiercely advocated for preserving the traditional bundling pay-TV model. While the NBA and ESPN both own streaming services, it remains unclear how the new service would differ from these existing products other than decoupling pay-TV subscriptions from streaming content.
NBA observers have long speculated that the new media rights deal would be far more profitable, leading to a well-documented boom in the valuation of NBA franchise values. Former Microsoft CEO Steve Ballmer acquired the Los Angeles Clippers for a remarkable $2 billion while small-market teams such as the Sacramento Kings and the Milwaukee Bucks sold for record amounts. The league is likely to see continued record sale prices as even large-market stalwarts such as the Brooklyn Nets’ Mikhail Prokhorov take pitches from prospective owners offering huge payouts.
However, the new rights deal will also have a substantial impact on how the NBA’s players are paid and the structure of a future Collective Bargaining Agreement (CBA). Both the salary cap and player salary structures are calculated as a share of Basketball Related Income (BRI) which factors in the amount of media rights fees flowing into the league’s coffers. As a result of an inevitable increase in BRI, the league’s salary cap and player salaries will similarly surge.
Such proportionate increases in labor costs are not likely to concern Commissioner Adam Silver and the NBA brass. However, what will keep them up at night is the potential break with labor and the National Basketball Player’s Association (NBPA) that will ensue given the expansion in BRI. The NBPA agreed to significant reductions in players’ share of BRI within the current CBA. This has caused consternation among the league’s players who feel shortchanged by the owners as they enjoy unparalleled profits. The NBPA and new Executive Director Michele Roberts will be hard-pressed to buy arguments about the dwindling financial viability of the league and individual franchises. As a result, the NBPA is certain to leverage this deluge of new BRI in an effort to increase the players’ share when the current CBA allows either the players or the owners to opt out after the 2016-2017 season.
The new media rights deal is obviously a huge boon for the NBA and brings the league historic levels of revenue. However, the league will also face its fair share of hurdles as the impact of this deal is felt across the aforementioned stakeholders involved. A labor impasse is probable, as the NBPA will almost certainly break from the current CBA to negotiate for a larger share of BRI. The NBA and ESPN will also have to edify its new digital streaming package and structure it in a manner that makes it both financially viable and attractive to a cord-cutting demographic target. All that being said, the NBA’s agreement with ESPN and TNT is yet another hit in the astonishingly successful start to the Adam Silver era.