The Truth About Expansion
With the NBA looking at labor peace for what could be close to the next decade, there has been a renewed conversation about expanding the league. The new collective bargaining agreement does contain language about expansion, which always fuels the fire of debate on the subject, but to be fair, every labor deal has had similar language in it. This is more or less in case the league decides it’s good for business.
NBA Commissioner Adam Silver is asked about this concept virtually every time he speaks, especially as the NBA holds games outside of its normal markets, and his answer is usually the same.
“While we have no immediate plans to expand in the NBA, one of the things that we look at is whether expanding would be additive to the league as a whole,” Silver said this week in Mexico.
There are many that believe with the labor deal done, the NBA would re-open the idea of selling off a few new franchises. League sources have been adamant for years that the NBA learned its lessons from the last round of expansion and franchise relocations and there is not much of an appetite for it.
The prevailing comment from those sources is that selling off new expansion franchises does not add as much new value to the league as many thought it would the last go around and that those new teams were often a drag on the league as they built up the economic support needed to really fuel profitability.
For example, the Memphis Grizzlies were a tremendous money loser up until a few years ago. They were not alone.
Most insiders that talk about this topic say it takes a franchise roughly ten years to really get on solid footing in a new market, and neither the new labor deal or the current TV deal will be around in ten years.
Many of the more frugal owners understand that taking in an expansion fee, even one that could cross the billion-dollar mark, is basically a loan against future earnings. That does not mean there are not some owners that would have interest in a cash infusion while the game is growing and revenue is pouring in. Expansion fees would be divided among the current owners, so a billion-dollar fee would equate to more than $33 million to each owner. That’s not an insignificant number.
Silver has said the NBA will likely reopen the idea of expansion in the coming months to see if it makes business and operational sense. It’s a complicated process on a number of fronts. Is there enough talent to populate two more teams, especially with the current system more designed to keeping star players with their current teams?
While fielding bodies for a roster wouldn’t be difficult, it’s finding the stars that power success that is tough for the current 30 teams. How do more mouths at the talent table work?
The NBA has also just turned the revenue corner thanks to the new television rights and apparel deals recently agreed to. Revenue sharing is still evolving to balance the haves and have-nots—how does an expansion team factor into that?
There are some markets that would love to have the NBA. Seattle is the prime target in any expansion discussion, but there is also Las Vegas, Louisville and Kansas City that are routinely talked about as expansion destinations if the NBA decides to listen. Vancouver is also back on the radar, although it is deemed an unlikely destination at this point. And those are just the situations that are talked about frequently—it’s hardly a complete list of everyone who would surface if the NBA got serious about expansion.
Silver talked about a philosophical issue in expansion in March at the annual South by Southwest conference in Austin, Texas saying:
“We are 30 partners right now. Thirty teams. Each of those teams own 1/30th of all the global opportunities of the NBA. So the issue becomes, if you expand, do you want to sell one of those interests off to a new group of partners?”
The answer to that questions continues to be “no” every time the subject comes up, however, Silver continues to say the NBA has to continue to be open-minded and explore options, even if the end answer is “No.”
It is fun to speculate about expansion, however, it’s a very complicated problem that does not have an easy answer. The NBA game is as popular as it’s been in decades. There is money pouring in from all over the place and that’s has inflated the value of owning one of the NBA’s 30 teams. With the idea of a new team or teams fetching a billion or more dollars apiece, though, it’s something to look at, for sure. Still, that doesn’t mean that the NBA has arrived at a conclusion on the topic, either way.
For now, at least, it does seem like the NBA is going to at least look at the idea and that will make the topic of expansion all the more common.
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