The NBA is a professional basketball league in North America and it is very popular around the world. The NBA league consists of 30 teams and it is the men’s premier professional basketball league in the world. Moreover, the NBA has a reputation for being the most innovative of the major professional North American sports leagues as they earn money from various sources. Therefore, NBA team owners have an interest in sports magazines, TV channels, and many more. There is lots of money in this league so you will see tech billionaires, successful female executives, real estate moguls, and successful people from other professions owning NBA franchise teams.
Lots of people think it’s crazy to spend billions or hundreds of millions on an NBA team. But the truth is; the popularity of this sport and league is growing every day and franchises can earn money from television rights, merchandising ticket sales, and more. So if you are wondering how NBA franchises earn money and how much owners make then keep reading the article.
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How NBA Franchises Make Money
NBA is not a public company; therefore NBA does not release detailed financial reports to the public. However, according to Forbes, total revenue across the organization reached $8.76 billion in the 2018-19 seasons. The 30 teams of the NBA league had an average valuation of $2.12 billion each in the 2018-19 seasons. There are many ways NBA teams make money and below are four main revenue streams.
The NBA teams earn a lot of money from the stadium where the team plays. The income generates from ticket sales, premium seating, concessions, merchandise, and other in-arena sources of revenue. Moreover, they can also earn money from hosting non-NBA events in the Arena. Arenas also generate income through sponsorship deals. Teams with more high-profile players get more lucrative sponsorships.
NBA teams earn more money from the market income than the arena income. Though, the market income depends on the city or region where the team plays. The size of the market defines by the number of people who tune in to watch a team’s home games. A team with a large market will generate more income compared to teams with a small market size. Historically, market size plays a very important role in an NBA franchise’s profitability. Moreover, the large market also attracts the bigger name stars of this sport.
This is another aspect of the game that contributes to the income of the team. For instance, a teenager in Wichita, Kansas who buys a LeBron James jersey generates brand income for the Lakers. Here, market size also plays an important role as a big market means star players. Team success also plays a key role in brand value and income. In the last season, the Warriors are a great example. Before their recent success Warriors had a relatively small brand influence. But, after their streak of finals appearances the scenario had changed.
Not every team in the NBA generates the same income. Therefore, the NBA authority enforces revenue sharing to help create parity between large- and small-market teams. According to this rule, all teams have to pull their annual revenues to redistribute them equally. It means all teams receive revenue that equals the current salary cap. However, if a team wants to enjoy the advantage of profit-sharing then the team has to generate at least 70% of the league-average income.
Amount Of Money NBA Owners Make
Daniel Gilbert is the youngest NBA franchise owner and he is the owner of the Cleveland Cavaliers. Daniel Gilbert is a billionaire and most of his money comes from the real estate sector. He is also the co-founder of Quicken Loans, the largest home mortgage lender in the U.S. Cleveland Cavaliers worth over $1 billion despite the fact that LeBron James left the team. The team was also able to generate high revenue from ticket sales in the negative impact of a LeBron departure. Daniel Gilbert makes $500 million in profit after the team’s recent valuation.
Steve Ballmer was the CEO of Microsoft; in fact, he was the 30th employee of Microsoft. He purchased the Los Angeles Clippers for a jaw-dropping $2 billion. He worked hard to make the Los Angeles Clippers a premier basketball team. The purchase of Steve Ballmer caused ripples in the league as more teams increased in valuation. The Clippers earned revenue of $258 million with revenue per fan of $23. This team has a wins to player cost ratio of 82.
Richard DeVos bought the Orlando Magic in 1991. He spends $85 million on the team. Another identity of Richard DeVos is; he is the founder of Amway. He generated a profit worth $1.1 billion from the investment in Orlando Magic. Player expenses at Orland are at $108 million. Last season, the team earned gate receipts of $35 million. The value of the team reached $1.3 billion after earning revenues of $223 million. The revenue per fan is $40 for Orlando Magic.
Michael Jordan is the all-time greatest of the NBA. There is nothing new to say about Michael Jordan. He won six championships and five MVP awards as an NBA player. His success in NBA has helped him book a place on the Forbes list with a $1.9 billion net worth. Michael Jordan spent $180 million for majority ownership of the NBA team, Hornets. The team was rebranded to its original name in 2014 and is now worth over $1.3 billion. Hornets is the 28th most valuable franchise in the league. Since Michael Jordan becomes the owner of this team; its value increased by 757%.
Mark Cuban is the owner of Mavericks. Mavericks have a loyal fan base that contributed greatly to its rise in the league. Mark Cuban’s deep understanding of sports and entertainment helps Mavericks to build a strong fan base. Mark Cuban acquired a majority stake in the Mavericks for $280 million in 2000. Mark Cuban stated that he loves basketball therefore he becomes a part of a team. He never thinks of it as an investment. After becoming the owner, Mark Cuban strengthened the team with some star players. The star players helped Mavericks win the league in 2011. The league win gave a boost on the profit of Mark Cuban.
Magalie D. is a Diploma holder in Public Administration & Management from McGill University of Canada. She shares management tips here in MGTBlog when she has nothing to do and gets some free time after working in a multinational company at Toronto.