The NBA's Revenue Outlook: Opportunities & challenges in the road to recovery
Updated: Feb 3
The National Basketball Association, just like other sport organizations around the globe, saw an impact in revenues caused by the Covid-19 pandemic. Prior to that, the league was able to grow revenues each year from the 2012/2013 season as shown in the following graph with data from Statista:
However, as reported by Joseph Pompliano in his Huddle Up newsletter:
The NBA’s revenue dropped 10% to $8.3 billion for the 2019-20 season.
$800 million was lost in gate receipts.
$400 million was lost in sponsorship and merchandise.
$200 million was lost as a “net negative impact” from the aftermath of Daryl Morey’s tweet promoting Hong Kong freedom in 2019.
Now, while $8.3 billion is a fantastic revenue figure to hit despite the circumstances, the NBA is looking for ways to return to the path of positive growth. In addition, the biggest gap obviously comes from gate revenues, but the outlook is not positive, as it seems teams will not be able to allow fans into the arena for the upcoming season.
So what is the outlook for the other sources of revenue for the NBA?
The NBA Sponsorship Revenue & Patch Deals per Team
Prior to Covid -19, the evolution of NBA sponsorship revenue (2010-2020) had also experienced spectacular growth, increasing +159% in 10 years:
As you can see from the graph above, the biggest “leap” during that time came in the 2017/2018 season when, in an effort to increase the number of businesses associated with the league, the NBA first allowed its teams to sell 2-1/2 by 2-1/2-inch ad patches on uniforms. Depending on market size, the league’s patch sponsorship deals range from $2 million to $20 million per season. Overall, this generated more than $150 million in incremental sponsorship revenue, largely from new brands. In fact, more than 20 patch sponsors were doing business with NBA teams for the first time. As Amy Brooks (NBA CIO) was quoted saying:
“We knew our games are being broadcast globally, and this is a way to create incentives for global brands. It is why we have 20 of the 30 patch partners of global brands.”
Similarly, BSE Global (the Nets’ parent company) CEO John Abbamondi said at the time:
“This is not only a unique marketing asset for a brand in terms of the scale and scope of the reach in terms of billions of impressions not only across the U.S. but around the world.”
The initiative certainly drove “tremendous” demand for some teams due to the NBA opening up global marketing and in some cases, brands have enjoyed great recognition both at a national and regional level within the United States. Based on the information provided by Sports Business Daily, we have prepared the following tables which gather information on each NBA team's sponsor, the value of the deal and the degree of recognition among fans within the United States.
Many of these deals were renewed prior to the beginning of the 2021-2022 season and what was surprising to see was the capacity of the league to increase significantly the value of some of these deals. Proof of this is the recent agreement between the Brooklyn Nets & Webull (reportedly worth $30 million per season) or the Lakers being able to close a deal with Bibigo for $20 million. These seems to validate the trust that brands have on the NBA going forward, especially at the global level.
From a general perspective, the league is also closing sponsorship deals that align with the overall mission of the league (vs the individual agreements we have specified above). For instance, the NBA is recognized for embracing tech related initiatives in the world of sport at early stages (Augmented reality, blockchain, crypto, etc.) so it does not come as a surprise to see their agreement with Coinbase, which makes the platform its first ever crypto related partner or with Google in a deal that, as reported on Sports Pro Media, will see both brands working on together on improving the fan experience:
Google and the NBA will work on developing new digital fan engagement tools, with technologies such as 3D and augmented reality (AR) being integrated into joint activations
Broadcasting, NBA League Pass and Merchandising: The international opportunity
In terms of broadcasting, comparing all major American sport leagues, the NBA is the one with highest earnings from international broadcasting rights although there is still a wide gap with the main soccer leagues (English Premier League, La Liga and Serie A):
Moreover, the league has seen spectacular growth in its NBA League Pass viewership, thanks to the increasing presence of successful international players. During the 2018/2019 season, international viewership rose 15% and watch time in NBA League Pass rose by 16%. Some examples of the significant increase of NBA League Pass viewership thanks to the presence of an NBA superstar in a given team are:
Serbia: +400% (Nikola Jokic)
Slovenia: +185% (Luka Doncic)
UK: +30% increase which was driven by LA Lakers acquiring Lebron James
On the other hand, the top markets for NBA League Pass are:
In fact, prior to the start of the 2020/2021 season, the NBA announced a new set of features it developed for NBA League Pass in an effort to take fan engagement initiatives to a new level. These include, among others:
Alternative streams for select games.
Interactive game overlays.
Ability to download matches for offline viewing.
Sideline Stream (which was a a successful trait tested during the games in "The Bubble"), with different angles such as Rail Cam or Courtside Cam.
Moreover, fans in the USA will be able to see betting odds during games, which is a move that "radically breaks" with the approach the NBA has traditionally had towards gambling.
Finally, approximately 45% of the NBA’s total merchandise revenue is generated outside of the U.S. and Canada, according to an NBA spokesman. This means there is still opportunity to increase international revenues. This however, will need to be tied to getting the game closer to fans outside of the United States. So we will not be surprised if the league decides to play games in new markets or even consider playing NBA playoff games outside North America, in similar fashion to what Serie A or La Liga are doing by playing official tournament games in international markets.
Engaging the younger audience: The eSports Opportunity with NBA2K
As Adam SIlver recognized, though, the long term challenge of the NBA relies in its ability to reach the younger audiences:
“It’s well-known that on one hand we’re celebrated by some because we have such a young fan base, but that young fan base is disconnecting from pay television in record numbers, and by disconnecting, not just simply not subscribing to cable or so-called cutting the cord, they’re not watching traditional paid television the way they used to. They’re watching over-the-top streaming services. They’re watching screens, but it’s not essentially pay TV. So the good news for the league is that, when we look at all other data points, particularly what we see in social media, what we see in terms of distribution of highlights and general chatter around our games, we’ve never been more popular. But we haven’t found a way to connect those young fans to our broadcast through whatever platform they’re going to be delivered.”
Younger audiences are not as engaged to live games anymore, and are usually engaging to multiple screens during games. Hence the emergence of new business models such as Buzzer, which we covered in The Ballketing Letter #10, which look to capitalize on the trend where these segments only watch critical moments of a game.
Buzzer, which is a mobile sports streaming platform founded by Bo Han, former director of live content at Twitter, basically enables you to watch fragments of live games for a very small amount ($0.99 USD). Through its range of personalized notifications, the app can:
Connect your account with Twitter and get notifications based on who you follow.
Explicitly mark the competitions or teams of your interest, including your fantasy sports.
It can connect to your current paid OTT subscriptions for example and if you cannot watch the sport live, you can access specific moments of the game free of charge.
The realm of opportunity to reach this segment seems to be eSports. The NBA is aware of the positive projections around eSport viewers worldwide, which can be summarized in the following graph.
The NBA 2K has seen massive growth during the 2020 season. As Brendan Donohue, Managing Director for the NBA 2K league, was quoted saying in this Forbes article:
“Just looking apples to apples just our broadcasts on Twitch is up nearly 70% year over year and then on top of that we added numerous distributors around the world, including ESPN 2.”
As a result, sponsorship revenue for NBA 2K is growing, as the league currently has 14 partners associated with the league. These brands recognize the potential to engage with an audience that is younger and highly passionate about this particular competition:
“Our average fan plays 30 hours a week, video games, so this is an incredibly passionate fan base.”
In addition, eSports and the NBA 2K league seem to be a fantastic vehicle for international expansion, as proven by the fact that this season the NBA 2K League welcomed their first international expansion team, the Gen.G Tigers of Shanghai and held tryouts in London, Hong Kong and Seoul. As Mr. Donohue explains in the Forbes article:
“There's so much greenfield in front of us, in terms of international expansion and growing the game globally. We're looking to continue to get international players that we know are out there.It's absolutely a part of our plan to have a European division, and have a Asia Pacific division...it's really more a question of when, not if.”
How is the NBA approaching the future of the business?
“New revenue streams are critical. This is going to be one to two years of digging out and figuring out credits and value adds. The more new and innovative thinking we can apply to creating new value for partners, the better off we’ll be. One of the benefits of this as an industry is that we’ll come out of it with new opportunities, because we’ve all been forced to rethink what everything looks like.”
It will be interesting to see how the NBA evolves to come out of this particular situation.
In some forums, it has been reported that the NBA is considering adding new teams to the league, in an effort to bring more investment towards it. This though, is an idea that Adam Silver is initially rejecting, as reported in this Sportico event:
"The main driver for expansion should be the ability to grow the pie, and not necessarily to sell equity to bring in cash now as opposed to generating the money later.”
One of the things that stands out from the league though, is the apparent alignment between ownership, players and league officials. Commissioner Adam Silver has done a fantastic job over the last few months in aligning with all three stakeholders towards a common objective. Evidence of this was the decision to resume the NBA season in the bubble, avoiding cancelling the remaining of the season after George Floyd´s death and deciding, in alignment with all stakeholders, on an official date to start the 2020/2021 season to mitigate the impact on revenues.
Taking this apparent alignment into account, the solid business foundations of the NBA and their willingness to embrace innovation and technology across all areas of the game, it seems the organization has all the elements needed to face this challenge successfully and recover from the impact suffered during the 2020.
We will look to bring you any relevant updates on the evolution of the NBA´s revenues or the strategies they implement to get back on track to the spectacular growth trends they had shown up until this year.
Meanwhile, keep safe.