The NBA regular season finally begins Christmas Day with a slate of five games: Oklahoma City vs. Orlando, the Golden State Warriors vs. the Los Angeles Clippers, the Boston Celtics vs. the New York Knicks, the Chicago Bulls vs. the Los Angeles Lakers, and, in a rematch of last year’s finals, the Miami Heat will meet up with the Dallas Mavericks.
So all is back to normal in professional basketball? Not quite. And it's just not the lockout-shortened season will feature 66 games instead of the usual 80-plus.
TV and TV technology are changing the league's revenue streams. And the NBA will have to catch up, if it wants to capitalize on its potential.
Start with the least obvious: Fans are less inclined to go to an actual game.
Oh, they still show up. Over the past decade, the top attracting team (which changes from year to year) has averaged between 20,000 and 22,000 attendees per game. But except for the top-tier seats, they're less willing to pay for the experience, because it's better watching games at home.
“The gate revenues have been flat and falling since 2006,” says Kenneth Wilbur, a marketing professor at Duke University’s Fuqua School of Business. So “teams are altering their mix of ticket prices.... Court seat prices are rising just as fast as they ever have. But in the second or third tier of seats in the arena, you get a better view at home. Those prices have been falling in a lot of NBA cities.”
If teams are seeing smaller gate revenues, their TV profits continue to grow. The NBA has a $485 million annual contract with ABC/ESPN, as well as a $445 million deal with TNT. That works out to about $31 million for each of the league's 30 teams, a deal that wasn’t affected by the games lost during the lockout. Both contracts go through the 2015/16 season.
That's a healthy development, for the most part. The NBA is coming off a strong ratings performance to cap last season. The league finals between the Miami Heat and the Dallas Mavericks netted an average 17.3 million viewers per game. Game 6, in which the Mavericks bested LeBron James and company to win the title, was seen by nearly 24 million people. It was the most watched Game 6 since 2000, and it led to ABC having its best summer week in over a decade.
But there are drawbacks. For one, a reliance on TV revenues disproportionately benefits large market teams, who have a broader viewer base and can sign lucrative local TV contracts (in addition to the shared revenues from the ABC and TNT deals). This past February, for instance, the Los Angeles Lakers signed a 20-year, $3 billion deal with Time Warner Cable, allowing two new L.A. area channels to broadcast Lakers games. Teams playing in smaller markets, like Charlotte, Cleveland, and Sacramento, don’t have the local viewership to support such a contract, which means they miss out on that extra revenue.
What’s more, given equal salaries, big name players will prefer to play in a large market over a smaller one. The bigger stage offers more in terms of endorsement money, increased fame, and, often, better teammates, Mr. Wilbur says. “So the small markets lose out even more on ticket sales, and they’re already not buying in on TV revenue. It makes it harder and harder to compete.”
This “small market” issue was a driving force behind the league’s lockout. Several owners of teams in smaller cities wanted a larger proportion of revenues to be distributed among all teams, at the expense of player salaries. That’s exactly what they got in the lockout’s resolution, an agreement that cuts $300 million annually from players’ salaries and puts it back into the league, with the hopes that even the poorest teams will be able to partake in revenues.
Finally, the NBA isn’t using television – its future chief revenue stream – to its best advantage. In recent years, high-definition technology has become so widespread that 60 percent of American households have access to it, via TV, the Internet, or both, Wilbur says. Yet the NBA doesn’t have all of its games available in HD. Compare that to the National Football League, by far the most-watched pro sports league in the country, which has all of its games available in HD in one form or another.
“The NFL is letting the consumer choose how they want to consume the games,” he says. “It might sound like a small thing, but it’s a huge difference when you’ve got HD football competing with standard definition basketball.”
“I don’t think someone would stop following the NBA because of it, but they miss out on the potential to gain new fans, especially kids,” Wilbur adds. “That’s when your allegiances form. The NBA is missing out on that opportunity.”
However, one part of the NBA viewer experience is much friendlier than the NFL’s: The NBA has a much more relaxed hold on its game footage, allowing fans to create their own highlight reels and share them online. The NFL’s highlights are much more tightly controlled. “The NBA is much more friendly in that regard, and they’re not giving up much revenue because of it,” Wilbur says.