clock menu more-arrow no yes

Filed under:

Expansion Should Make Sense for the NBA

New, comments

With reports that the NBA is working on a TV deal that may double the revenue of the current one, the league should seriously consider expansion.

Edited by Tiffany Villigan

The man with a plan?
The man with a plan?
Bob Donnan-USA TODAY Sports

If the NBA ever returns to Seattle, how will it happen?

WHAT SEATTLE PREFERS

If you did a poll of Sonics fans everywhere, which I am doing at the bottom of this article, I believe a large majority would prefer expansion over relocation to acquire an NBA franchise. The same likely holds true for bringing the NHL to Seattle.

The reasons are simple: we wouldn't take part in breaking the hearts of another fan base, the question of history and records would be easier to resolve, and we don't want to inherit another team's salary cap headaches. There are likely other reasons, as well.

As we all know, however, we don't always get what we want and usually haven't for the last several years. The truth is we are not guaranteed to obtain a team by any means, let alone acquiring one in a manner that we prefer. Let's assume for this article, however, that the NBA truly does want to return to Seattle before I'm wearing special underpants.

WOULD THE NBA CONSIDER EXPANSION?

For the moment, the answer is no. Adam Silver has made that clear, stating that there are several struggling franchises whose ships must be righted before expansion would even be considered.

What if the NBA succeeds in stabilizing those franchises? What if Milwaukee finds a way to build an NBA-quality arena? What if Sacramento is able to get one done for the Kings, which looks inevitable at this point?

While we're at it, what if the NBA succeeds in doubling its TV revenue when the next contract is signed?

We've debated this endlessly around here. Some feel the NBA won't expand because of the potential dilution of talent. Some feel that the owners won't want to split up the revenue pie, even if it means an exorbitant expansion fee in their pockets. Some feel that the NBA will warm to the idea after the TV deal is signed.

I THINK THEY SHOULD

I won't try to argue the talent dilution point. Like many of you, I haven't watched the league enough in the last several years to have an informed opinion.

From a revenue point of view, however, I strongly believe that expansion would be firmly in the NBA's best interest. I am certainly not a financial expert, but I will play one in the following table that I created. It is based on two assumptions: first, the table assumes that the NBA agrees to a new 8-year TV deal that is twice the value of the current one; it then assumes that two $1 billion expansion fees are generated.

Current NBA TV Deal (Millions)
Total annual revenue $        930.0
Split between the current 30 teams $          31.0
Split between 32 teams with expansion $          29.1
Revenue decrease per team from expansion $            1.9
Potential TV Deal (Millions)
Total annual revenue $    1,860.0
Split between the current 30 teams $          62.0
Split between 32 teams with expansion $          58.1
Revenue decrease per team from expansion $            3.9
Per Team Cost of Expansion (Millions)
Per team Increase from TV deal without expansion $          31.0
Per team Increase from TV deal with expansion $          27.1
Per team cost of expansion per year $            3.9
Per team cost of expansion for life of new 8-year contract $          31.0
Per Team Revenue From Expansion Fees (Millions)
Expansion fee for two teams at $1 Billion Each $    2,000.0
Money in existing teams' pockets from expansion fees $          66.7
Minus per team cost of expansion $        (31.0)
Net INCREASE from expansion fees for existing owners $          35.7

If I were an owner, there's no way I would agree to expansion under the current TV deal because I would lose nearly $2 million a year. That's a lot of cheddar.

Doubling the current deal, however, would cause the greedy little angel on my shoulder to whisper expansion in my ear. If two expansion teams paid a one-time fee of $1 billion each, that would put nearly $67 million in my bank account. That increase would be reduced to $35.7 million after you deduct the $31 million in TV revenue that I would lose over eight years to the expansion teams.

That's still nearly $36 million in my pockets right now, assuming the bare minimum expansion fee that most would expect. That's a lot of cheddar to gain.

Am I oversimplifying this through my green and gold sunglasses? Of course I am. I don't have all the details at my disposal that tell me just how much trouble some of the teams are in. Nevertheless, I believe the next TV deal will fix many of those problems.

This is why I continue to believe that expansion is the best way to make Seattle whole after the next revenue deal is signed. I just hope that the NBA agrees.