Sources: NBA Possibly Exploring Expansion to Seattle and Louisville

NBA commissioner Adam Silver has said repeatedly and emphatically that expansion is not being considered right now. That doesn't mean it isn't being heavily talked about behind closed doors, however, and some evidence of that discussion is beginning to surface.

Let's start with a surprisingly public statement made by a gentleman who is trying to bring the NBA to Kentucky. His name is J. Bruce Miller. He is said to be a longtime personal friend of David Stern's and has been trying for years to bring a revival of the ABA's Kentucky Colonels to the City of Louisville. Bizjournals.com recently did a piece on his efforts.

After the most recent Silver press conference, in which he once again pooh-poohed expansion as a near-term option, the operators of the Bring the NBA to Louisville Facebook page asked Miller to write a message to their followers to communicate whether expansion is still a realistic possibility.

He did so in a comment on their page.  It's quite a long letter that we encourage you to read yourself, but here are some key excerpts (emphasis ours):

Because I remain in constant (near daily) contact with representatives of the League, certain team management individuals and potential majority owners for a Louisville/Kentucky franchise, the Webmasters have asked me to comment on Adam Silver's comment to the effect that there are no present plans for expansion.

That is absolutely correct. The reason for it is as simple as it is understandable. The litigation surrounding Sterling and his wife regarding her putative sale of the Clippers to Mr. Ballmer is on-going. The 'disruption' this Sterling 'event' has caused to the League is monumental.

Therefore, all attention of the League offices remains on 2 items: Sterling's litigation AND continuing discussions concerning the renewal of the national television contract.

As I've repeatedly said, ONCE the League gets control of the Sterling situation either by Sterling losing and the sale carrying forth OR by Sterling winning and the League (itself) moving forward as per Silver "...with our own proceedings." --- then the time will come to focus on the television rights negotiation which will also involve the potential expansion to Seattle and another city (most likely to be Louisville).

Taken by itself, one could look at this letter as unsubstantiated positive spin designed to keep the fire burning in Louisville. There is more evidence than this, though.

A league source who asked to remain anonymous has told Sonics Rising that "there's a good chance, not definitively so, but good that Seattle and another expansion city will be added to the next TV contract. The Seattle market is bigger than most think. Lot of untapped revenue we are losing out on there" (emphasis ours).

Sonics Rising also reached out to officials in Louisville but were told they had no comment at this time.

If the gentleman from Kentucky and this league insider are correct, the NBA not only wants to return to a lucrative market, whose absence is costing it significant money, but is seriously considering expansion as an alternative to do so.

Three things need to happen before this can come to fruition: Seattle must get the proposed SoDo arena to a shovel-ready condition, the situation with the Clippers must be resolved, and the new TV deal must be inked with sufficient extra revenue to warrant expansion.

THE TV CONTRACT

The NBA would like to earn a cool $2 billion annually from its broadcast partners, according to sources.

With Major League Baseball locked into a contract through 2020 for its television and digital media rights, the NFL bottled up through the 2022 season, NBC shoring up the Olympics through the 2032 Summer Games, and all of the major college conferences snug in their own deals save the Big Ten Conference, the NBA is the one outstanding major sports brand that is due for a new contract before the turn of the decade. Sports content being a driving financial force in television and the burgeoning digital and mobile media markets, this puts the NBA in a fortuitous position to score big.

Most relevant, the league has seen viewership ratings climb back to levels not seen since its 1990s heydays. This year's playoffs, including what many have thought was the best first round in league history, had the best ratings in three years. Turner Sports stated that this past regular season was its third most-watched and highest-rated of all time.

"The league is ascendant and the interest in the NBA at least during our tenure is at an all-time high. Ratings are kind of back to (Michael) Jordan levels." ~  ESPN president John Skipper to Sports Illustrated

This sets the scene for the NBA to make it rain with its new windfall. During negotiations for its current contract, the NBA was coming off of its record-lowest Finals, the 2007 showdown between the San Antonio Spurs and the Cleveland Cavaliers. The negotiated contract provided a very modest 20% increase over the previous one. Now, with strong ratings in the league's pocket and a thirst for content, the new contract is expected to be quite a bit more impressive.

"I like the NBA's position and I think they are due for a very, very substantial catch-up just to get up to the market level. ... There's a buzz about the NBA. It's probably the most international of U.S. sports leagues in terms of its appeal." ~ Eric Dresser of Dresser Sports Media to AdAge.com.

The current contract nets the league an average $930 million annually, roughly a split of $485 million from Disney, parent of ESPN and ABC, and $445 million from Turner, which showcases 52 regular-season and a number of playoff games on the TNT cable network. With the NFL gaining a 70% annual increase in its current deal, and MLB gaining over 100%, the NBA is expected to more than double its current contract. That could garner the NBA $15 billion to $16 billion with an anticipated eight-year length, putting it second behind the NFL's $43 billion combined, eight-year rights deals with four networks.

"The number of sports channels is increasing at a rate far exceeding the amount of live content that will garner solid ratings, meaning that limited inventory and a multitude of bidders inevitably will increase rights fees." ~ Andy Billings, Director, University of Alabama Sports Communication program

The NBA is obligated to negotiate first with its existing partners, Disney and Turner. While the thought of opening the contract to bid is an enticing one -- many more content providers would welcome and pay for the opportunity -- the increased pressure to close the deals before it gets to that point could provide the NBA with everything it wants. Disney and Turner are confident they can remain in the basketball business.

Rumors persist that the league may create a package of games to sell to a third party, perhaps a mobile content provider of some sort. There is also buzz that they might split up the broadcast of the Finals, either shared between two (or more) partners each year or alternating years between partners. This could either increase value to the partners or perhaps increase the total contract value as a counter to maintain the current Finals structure.

Whether doubling the current contract or climbing above the $2 billion annual mark, what does a very lucrative new contract get the NBA? Many owners believe it will increase their team valuations.

"Whether local or national, [these providers] will drive NBA valuations far higher than they are now. If we do this right, it's not inconceivable that every NBA franchise will be worth more than $1 billion within ten years." ~ Mark Cuban, Dallas Mavericks owner

Then there is the following tweet to take into account.

In Clippers sale bid book, Bank of America projects NBA's new national TV deal will give each team $90M a year vs $30M now.

— darren rovell (@darrenrovell) July 23, 2014

As the players receive 50% of all revenue per the current collective bargaining agreement, a doubled media rights contract can increase salaries and the salary cap overall. As the CBA is up for renegotiation in 2017, a number of players are opting for short-term contracts now to set them up to strike it big with the influx of new media revenue.

The league's Board of Governors discussed the television and media rights at its latest meeting on July 15th. While a tentative agreement is anticipated by many in the next month, there is no firm date on when to expect the new contract.

THE LOUISVILLE POSSIBILITY

The idea of Louisville as a potential expansion partner isn't one that we've thought much about until now. We had no idea that it was a serious option. We've talked about Vegas, Kansas City, and various others. So how did this city in the Bluegrass State become (apparently) a major contender to land a new franchise?

ABA Heritage

Louisville has a proud heritage of professional basketball that was established by the Kentucky Colonels of the American Basketball Association. In spite of having won an ABA championship, the NBA elected not to include the franchise in the merger with the ABA. Check out the following excerpts from the Colonels' page at Remembertheaba.com:

The Kentucky Colonels were one of the ABA's most exciting teams and they still evoke sentimental feelings from their loyal Louisville fans. During the early years of the ABA, the Colonels were known more for their eye-catching green uniforms, their unique dog mascot, and their bizarre promotions than championship basketball. In 1968, they put the first female professional basketball player on the court in a real game (if only briefly). But as the years went on, the Colonels became a dominant ABA team. In fact, many observers believe that the later Colonels teams, anchored by Artis Gilmore in the middle, would have dominated most NBA teams. By the time the ABA folded in 1976, the Colonels had won the most regular season games in ABA history.

It was clear to everyone that the Colonels had the talent and the fan support to join the NBA for the 1976-77 season. However, during the merger negotiations in June 1976, the NBA made it clear that it would accept only four ABA teams, not five. With Denver, San Antonio, New York and Indiana being the clear front-runners to make the cut, John Y. Brown decided that it was better to fold the team for cash, instead of continuing to fight. To the great disappointment of long-time Colonels fans, Kentucky was left out of the merger and the Colonel's players were placed in a special dispersal draft of ABA players (along with players from the Spirits of St. Louis). Artis Gilmore went to the Chicago Bulls (as the number one pick), Maurice Lucas went to the Portland Trail Blazers, Bird Averittt went to the Buffalo Braves, Wil Jones went to the Pacers, Jan Van Breda Kolff went to the Nets, and Louie Dampier went to the Spurs.

The Effort to Revive the Colonels

According to the Bizjournals.com piece on Miller, the effort to bring the NBA to Lousville started almost immediately after the ABA folded. In the last 30 years, Miller has attempted to relocate the Houston Rockets, the Memphis Grizzlies, and the New Orleans Hornets to his city. In his latest effort, he has turned to ... wait for it ... a group of hedge fund managers to comprise the ownership group. From the Bizjournals.com piece,

Miller declined to identify the fund or the interested members, but he said several people with ties to it already own professional sports teams. He described the entity as "one of the largest hedge fund financial operations in the country," and he said it represents "an awful lot of extremely wealthy people." Miller added that he has a non-disclosure agreement with the fund, and he has been charged with identifying other potential investors in what would be a regional effort.

In addition to the money men, there has also been a grassroots effort, similar to that for the Sonics. You can follow that movement through the Bring the NBA to Louisville Facebook page and the NBA to Louisville Twitter account.

The Arena

This is probably the most important factor of all if the Colonels are to return. Louisville already has an NBA-ready arena, the KFC Yum! Center (Can you imagine Marv Albert saying that?), located in the heart of downtown Louisville. The arena can hold as many as 22,090 for basketball, which would make it the largest arena in the league (not counting standing room). It has 72 suites on two levels and is equipped with state-of-the-art video systems, including LED displays within the seating bowl and a professional grade LED scoreboard.

The arena broke ground in 2006, opened in October of 2010, and has been the home of the Louisville Cardinals men's and women's basketball teams since then. It also held the 2012 NCAA Championship rounds two and three. It was financed by a mixture of taxes, a contribution from the city, advertising and suite revenues. While the original plan called for it to include a 425-room hotel, that idea was later scrapped and replaced with an outside plaza.

The arena has the capacity for hockey, but it would have to be done in a horseshoe pattern, similar to the Barclays Center, the new home of the New York Islanders. While not ideal, it's shown to be acceptable to the NHL. The arena will hold its first ever NBA game -- a tryout for the building, perhaps -- this preseason. The Miami Heat and New Orleans Pelicans are scheduled to play there October 4, 2014.

The KFC Yum! Center was ranked as one of the top 20 entertainment venues in the world by Venues Today Magazine. It is owned by the Louisville Arena Authority and operated by AEG.

CONCLUSION

Based on these factors, it is our belief that expansion is at least being considered by the NBA, despite Silver's public stance, with Seattle being the front runner. We also believe that relocation is still a possibility, given the uncertainty surrounding a new arena in Milwaukee.

However, we can not guarantee that any of this will happen. We don't know how the TV deal will turn out. We don't know how the Clippers situation will turn out. We don't know the depth of owner support for expansion. There are many unanswered questions.

There is one thing we can say with absolute confidence, though: None of these options will be worth a hill of beans if we don't get our own house in order. Let's get the EIS/SEPA done. Let's get final approval of the arena after that. Then let's see what happens.

Potential Seattle NBA investor Chris Hansen could not be reached for comment on this story.