NBA Warning Signals Premature

The NBA fired off the first Class of 2010 free agent salvo, one year before the festivities begin, with a warning about a lower salary cap. It’s SOP to issue a forecast in the annual league memo, and it’s obvious where the warning stems from, but these projections seem premature.

Flash back to last year, same time, same memo, could anyone have predicted the economic situation 3, 6, 9, and now 12 months later. No way. I think the same holds true now, its unpredictable. The recession has definitely affected sports more than past economic slow downs, and 2009-10 will be the first full NBA season played since the financial crisis, however in sports flat could be the same as down.

Of the major items that contribute to BRI, the league has all major national TV deals, and teams have most, if not all, local TV deals locked in. While harder to come by, most major league and team sponsorship deals are multi-year contracts, guaranteeing that revenue. Plus, the NBA is not the LPGA, renewals continue to occur. That’s a significant amount of BRI that will increase next year due to annual escalator clauses in long-term deals.

Ticket sales, and related income such as parking and concessions, represent the wild cards. Despite the problems, the NBA posted strong attendance numbers last season, right near the record setting pace of the past few years. Off-season transactions thus far indicate a growing disparity in the league, a few teams getting stronger, many teams choosing to rebuild. Attendance figures should follow that, with the good teams filling the house every night (Cleveland, LA, Orlando, Boston, San Antonio), while bad teams in bad markets see attendance drop (Sacramento, New Jersey, Indiana). It’s the middle of the road teams that will swing revenue, mostly coming down to performance.

A few perennial disasters with renewed hope could give the league hope, and stabilize BRI. Memphis finally has some players to get excited about, the Clippers took the only prize from the draft, while Denver has room to grow after a deep playoff run, and Washington should bounce back from a poor season. Charlotte even has some hope. To put a spin on the negative teams, Indiana, Sac-town, and NJ can’t go much lower, so if they find a way to stay flat, and a few other teams get a lift it should off-set the lower overall ticket prices.

My point here, it’s all hypothetical. The NBA’s projection, my scenarios, Wall Street experts, everyone. Another key component, the NBA CBA is the most convoluted in sports, making it easy to manipulate. Heck, even Larry Bird has a rule named after him. Finding ways to exceed the salary cap are not difficult. If it comes to that, teams will find a way – the Knicks have done it the past decade for players not even on the team, I think they can find a way for Lebron and whoever else they want.

As a league, the NBA should not take to defusing the anticipation of next year’s free agent season. If it plays out well, it could be the tipping point to catapult the NBA to become the prominent league in US sports. It has the potential to be that big. They should go out of there way to make sure the media gives it front page coverage for the whole season and then every day next July, leading into the biggest Opening Night in league history. All the cards are in place, the league should do everything it can to leverage it. Not to mention that stirring the pot with the union for a possible strike/lockout standoff the following off-season could be debilitating.

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