The NBA season gets started Tuesday night with a trio of games highlighted by a clash between the Derrick Rose-led Chicago Bulls and the two-time defending champion Miami Heat. Las Vegas has the Heat favored to win a third straight title with the Oklahoma City Thunder, Los Angeles Clippers and Bulls among the next set of favorites. The NBA has been on a roll in recent years thanks to a bevy of stars, success by big market franchises and the international appeal of the game. Total revenues for the league were expected to approach a record $5 billion last season. Here are the business stories we are tracking this season.
The four-time MVP is story 1a, 1b and 1c in today’s NBA. We have not seen the focus on one player in the NBA since Michael Jordan hung up his high tops for a second time in 1998 after his second three-peat with the Bulls. ESPN The Magazine devoted its entire NBA preview issue to all-things LeBron and it is hard to blame them. The immediate questions are whether James can lead the Heat to another title and win a fifth MVP (the record is six by Kareem Abdul-Jabbar, while Jordan and Bill Russell each won five).
The bigger long-term question is where James will be playing next year. He is expected to exercise his early termination option in his contract to make him a free agent in the summer of 2014, setting up The Decision 2.0. Three years after James’ departure from Cleveland, the franchise value of the Cavaliers is down 9% and the value of the Heat is up 71%. James said he will not address his free agency during the season, but the Heat, followed by the Cavs are expected to be the leaders in the race for his services.
The NBA’s current contract with partners ABC/ESPN and TNT runs through the 2015-2016 season and is worth $930 million a year on average, but negotiations on an extension are expected to be completed over the next 12 months. Look for the NBA to double its annual take with the craving for sports programming rights at an all-time high. The addition of NBC Sports Network and Fox Sports 1 as national entities bumps up the number of players bidding on the rights packages. TV ratings were down last season, but they hit 10-year highs the previous year. The 10.4 rating for the 2013 NBA Finals was the second highest in the past decade.
David Stern’s Retirement
Commissioner Stern will retire in February after 30 years in the NBA’s top spot. The league has exploded under his watch. When he took over, CBS was paying $22 million a year for broadcast rights to games and the playoffs (outside of the Finals) were shown on tape-delay. NBA teams were worth about $400 million collectively in 1984 and now are worth more than $15 billion. Long-time deputy Adam Silver will take the reins, and he is expected to be the driving force in the next round of TV deals. Silver has been an integral part of just about every major NBA decision in recent years, including the settlement of the 2011 lockout.
Billionaire Mikhail Prokhorov is channeling another 11-figure net worth NBA owner with his spending spree this summer. Paul Allen racked up $81 million in luxury tax bills over two seasons between 2002 and 2004 in his quest for the Portland Trail Blazers to win an NBA title with outsized payrolls unsupported by the team’s revenues. Allen spent $157 million in player costs and taxes for the 2002-03 season and the team lost $85 million by Forbes’ count. The Nets’ luxury tax alone is expected to be north of $80 million this year with the addition of Kevin Garnett, Paul Pierce and Jason Terry. Total players costs, including the tax, will clock in around $185 million leading to aloss of more than $50 million for Prokhorov. The Los Angeles Lakers had the NBA’s highest luxury tax bill last year at $29.3 million.
The NBA’s oldest arena, Madison Square Garden, just finished a three-year, $1 billion renovation that will further boost revenues for the NBA’s most valuable team. The signature features are two bridges with seating that run parallel to the floor and are located high off the ground. The Sacramento Kings, who play in the antiquated Sleep Train Arena, are on target to open their new arena for the 2016-17 season after a decade long fight to secure a new venue. Stern, who helped orchestrate the building’s approval earlier in the year after a tug-of-war for the team with Seattle, will be on hand at the Kings’ home opener Wednesday night. The only other teams playing in arenas opened before 1990 are the Detroit Pistons and Milwaukee Bucks. Both teams are looking for new venues.
Several teams, including the Philadelphia 76ers, Utah Jazz, Phoenix Suns and Orlando Magic, stripped down their rosters with hopes of landing one of multiple elite prizes of the 2014 draft led by Canadian Andrew Wiggins (check out the highlights here to see why everyone is wiggy for Wiggins). One GM admitted in an ESPN piece that his team was tanking. The payoff from landing a huge talent can be massive in the NBA. The Cavs went from one of the NBA’s least valuable teams to the top 10 after drafting James.