14 NBA teams are reportedly losing money. Here’s why that does and doesn't matter.
Nearly half the league “lost” money last year, but it’s more complicated than that.
Fourteen of the 30 NBA teams reported that they lost money last year, according to a bombshell ESPN report that obtained league financial records. After factoring in league revenue sharing, nine of those teams still reported finishing underwater monetarily.
The sprawling piece examines several different hot-button issues that are rising from the league’s financial state, and it’s worth reading in full.
But what does this mean for fans of the 14 teams, or especially the nine, that have reported losses?
As reported, the teams that were listed as being in the red are: Atlanta, Brooklyn, Charlotte, Detroit, Indiana, Memphis, Milwaukee, Minnesota, New Orleans, Orlando, Phoenix, Portland, Sacramento, and Washington.
The league’s revenue sharing model is complicated, based on teams coming ahead or behind revenue expectations. After revenue sharing, seven teams still reported an operating loss, while two more were added due to their contributions to the revenue share: the Cavaliers and the Spurs.
But “losing money” is a much more complicated thing for NBA teams than for you or I. This isn’t a faulty air conditioner that uses electricity inefficiently. For an NBA team, in fact, losing money can still benefit a team’s owner.
What does it mean if my team is losing money?
The team spent more in a year — on player contracts, team employee salaries, costs, promotions, travel, and a hundred other categories — than it made. That includes ticket sales, national television money, local television deals, advertising and sponsorship rights, merchandise profits, and so on. Eventually, the league’s revenue sharing factors in, too — on one side or the other, depending on your team’s profitability.
Will my team that lost money go bankrupt?
No, no, no. There are no teams in danger of doing that. Any sports owner or ownership group is prepared to eat yearly costs as a cost of doing business.
Will my owner sell the team because he’s losing money?
Most likely, no. Or yes! But not for the reasons you think.
The value of a franchise isn’t tied to their yearly budgets, and that’s why the Houston Rockets just sold for a league-record $2.2 billion. Right now, NBA franchises are experiencing a valuation boom. We may see several owners incentivized to sell because of that — because it would be highly profitable for them to do so.
Even if a team is losing money, don’t mistake that for thinking that the owners are.
Are there other ways my owner can make up this money?
Absolutely. These documents obtained by ESPN are strictly focused on basketball operations. Many owners or ownership groups that own these NBA teams also own the arenas in which they play. Revenue generated through concerts and other non-basketball events aren’t included in these figures.
Some teams who are losing money on the basketball teams gain it all back in other areas. (The National Basketball Player’s Association clearly believes that might be a problem and exercised their right to audit several teams two years ago.)
Does it matter that my team is losing money then?
It does matter. And it matters that big market teams, especially bad ones, aren’t losing money.
As ESPN highlighted in their financial reveal, the Los Angeles Lakers made $115.4 million this season. They made nine digits of income without Kobe Bryant, in a fourth straight season with fewer than 30 wins, when the team was unapologetically tanking.
If the Lakers can make money even in the worst circumstances, then penalties like the luxury tax shouldn’t hurt them. The luxury tax is supposed to prevent teams from spending over the cap to acquire talent, but Los Angeles can do that much more freely than a team like Memphis or New Orleans.
There’s already an inherent advantage to be a large market team, especially in extremely marketable cities like Los Angeles or New York. If market size remains the biggest factor in a team’s profitability — not team success or smart business decisions — then small market teams will constantly remain handicapped in attempts to add talent.
That means Golden State can not only sign Kevin Durant, but that they can keep that team together when Draymond Green and Klay Thompson reach free agency, despite paying several hundred million dollars of the luxury tax.
And it meant that Oklahoma City, fearful of that same luxury tax that is more punitive in their market without the same revenue streams that the Bay Area provides, traded James Harden preemptively.
Is there any way to fix this?
Small market owners are pushing for a larger revenue sharing program, and perhaps even a guaranteed profit margin each year. (ESPN says one owner recently pitched the idea that “all teams should be guaranteed $20 million in profit.”)
This is partially self-serving — of course it is. But more money taken away from big market teams and reallocated to small market teams would conceivably increase competition for talent and prevent small market teams from paying a premium they don’t have the internal revenue to afford.
Still, big market teams will promptly argue that it isn’t their responsibility to prop up the smaller markets, especially when none are truly suffering. The NBA is booming. Every owner can afford a year-end budget sheet in the red when their franchise’s evaluation keeps rising regardless. There’s no team in dire straights or anywhere close.
In conclusion, the NBA is doing fine. Business and popularity are booming, while interest in the league remains year-round — all while the NFL stagnates. The success of the NBA is helping every market, small or big or anything in between, and that’s why no one is suggesting anything but minor changes to the status quo.
Still, even in the league’s prosperity, it does seem like the gap between the top teams and the bottom ones is growing. Without any fixes, that will eventually crack, and the league’s talent will continue to naturally gravitate towards the top.