The NBA announced on Monday that it had struck a nine-year, $24 billion media-rights deal with ESPN and Turner Sports. This isn’t just any TV deal. This one will have far-reaching effects on everything from how teams are put together to how you consume professional basketball.
First, some context: ESPN and Turner will combine to pay the NBA around $2.6 billion annually under the terms of the new deal, which won’t take effect until the 2016–17 season. Under the current deal, which was signed in 2007, ESPN and Turner paid the $930 million annually, so the new deal represents a 180 percent increase in the amount of money flowing into the league’s coffers. By comparison, when the $930 million deal was signed in 2007, it represented only a 21 percent increase from the previous one. No matter how you slice it, the NBA will be making a hell of a lot of money through the 2024–25 season.
It has been widely understood for the last year or two that the new deal would tilt the pinball machine; the only question was how big the numbers would be. Ratings across television have been declining for a variety of reasons: DVRs, internet streaming, more channels, cord cutting. But ratings for live sports have remained largely immune to this trend, staying flat or even rising in some cases. It has often been said that live sports are the last bits of appointment TV around, and television networks are paying megabucks for it.
The new deal also came up for negotiation at an opportune time for the league. The NBA’s is basically the only major sports media-rights package up for negotiation until 2020, besides media rights for the Big Ten. Deals for all other college conferences—as well as for the NFL, MLB, NHL, World Cup, Olympics, March Madness, and others—extend through at least 2020. For television networks looking to buy valuable live sports rights, the NBA was more or less the only game in town.
Though the agreement was reached today, there are still another two seasons of basketball left to be played under the old media deal. In fact, according to the current contract, the window wasn’t even open yet for the NBA to negotiate with any network other than Turner or ESPN. When asked about other networks at the press conference announcing the move, NBA commissioner Adam Silver said the league had “discussions” with other networks, but that those “discussions” never deepened into “negotiations.”
While the new deal is huge and encompasses a range of media rights, the most important takeaway is that things basically stay the same. The NBA will still be seen exclusively on ABC, ESPN, and TNT; the All-Star Game will still be on TNT; the NBA Finals will still be on ABC; etc. But while the deal broadly remains the same, there were a number of very important decisions made.
The NBA didn’t negotiate outside of Turner and ESPN: With the launch of Fox Sports 1 over a year ago from the vasty depths of Rupert Murdoch’s pockets, the expectation was that the network would make a big push to try and poach NBA games from ESPN and Turner. This put pressure on ESPN and Turner to get the deal done while they still held exclusive negotiating rights, and likely resulted in the two networks paying a premium to prevent the package from hitting the open market.
Turner Sports still controls the NBA’s digital properties: Turner Sports has operated the NBA’s digital properties for as long as they have existed [Correction: Turner only began managing the NBA’s digital properties after the signing of the last media deal, in 2007. That was the first time the NBA negotiated digital rights into a media deal]. Turner currently runs NBA.com, NBA Mobile, NBA TV, and NBA League Pass, and will continue to do so. This runs counter to the recent trend of leagues clawing back digital operations that they’d originally outsourced. In the early 2000s most sports leagues decided they didn’t have the expertise to deal with digital and mobile, so they let somebody else pay them to do it. But as this revenue stream has grown, so has the leagues’ desire to bring digital back into the fold. This will not be the case in the NBA.
More nationally televised games: Under the current deal, corporate siblings ESPN and ABC broadcast 90 regular-season games while TNT broadcasts 52. Under terms of the new contract, ESPN/ABC will get an additional 10 games, and TNT will get another 12, meaning that 164 of the NBA’s 1,230 regular season games (13.33 percent) will be nationally televised. While this represents increased exposure for the league, it also represents an enormous challenge. As it stands, the league’s national-television scheduling process is a shit sandwich.
The national TV schedule is released before the season begins, and it always prioritizes the big-name teams—Lakers, Knicks, Bulls—and big-name players over attractive basketball. Last season, both the Knicks and Lakers were on national television the maximum of 25 times, even though the Lakers were terrible and the Knicks missed the playoffs in the awful East. Everybody knew those teams would be bad when the national games were announced, yet here they were on everyone’s TV set nonetheless. While the Knicks and the Lakers are the two most popular NBA teams, the league won’t convert many casual fans into hardcore ones by subjecting them to the stylings of Jodie Meeks and Kendall Marshall.
While the big-name teams were on TV all the time, playoff teams Washington and Toronto combined for only one nationally televised game, and the exciting-as-all-hell Phoenix Suns got only one. The additional games will allow for the lesser-seen teams to get some much needed airtime, but it also bumps up against an unfortunate reality: There are only so many good NBA games that can be scheduled. If the league continues to prioritize market size over the quality of play, and if it continues initiatives that make the games themselves shittier—as the NBA did recently when it expanded the All-Star break without expanding the length of the season, thus increasing back-to-backs—the quality of national TV broadcasts will decline.
Increased flex scheduling: One way the NBA will combat the above problems is by increasing flex scheduling. Currently, its ability to flex is limited. There are often only two games on the Thursday schedule for TNT’s doubleheader, and ABC’s Sunday afternoon matchup is the only game on at that time as well. If a dud is scheduled into either of those two slots, there is no way of getting out of it.
At the press conference announcing the new deal, Adam Silver made a distinction between game exclusivity and window exclusivity. Under terms of the old deal, many nationally televised games had “window exclusivity,” meaning they were the only games scheduled during a particular window. But under the new deal, those games will only have “game exclusivity,” meaning other games can be broadcast on local television at the same time. This will allow the NBA to swap in an attractive game that had been penciled in for local television, and instead show it to the entire country, a la the NFL’s flex scheduling.
You’ll be able to stream nationally televised games without needing cable: Currently, the NBA’s only streaming option is NBA League Pass, which is a steaming pile of garbage. One of the biggest problems is that the 142 nationally televised games, 96 NBA TV games, and all playoff games aren’t available, meaning you can’t actually watch the most important games. The NBA fan still needs to have cable.
But per today’s announcement, the league has “established a framework” with ESPN to “negotiate the launch of a new over-the-top offering in which the league would receive equity interest.” In this context, over-the-top means “internet and mobile streaming.” According to the Wall Street Journal, this streaming service will be separate from ESPN’s WatchESPN app, which is a walled garden you can access only if you already pay for cable. The details are far from finalized, but it looks like fans will soon be able to watch nationally televised games without having to pay for cable, a major consumer win.
Your cable bill will increase: Carriage fees for sports networks already make up the largest chunk of your cable bill, and that chunk will only grow due to this deal. Cable providers currently pay $5.75 a month to carry ESPN, $1.28 to carry TNT, and $0.27 to carry NBA TV. With ESPN shelling out an extra $915 million annually and TNT an extra $755 million under the new deal, you can be certain that they will charge cable providers more, who will in turn pass those costs on to you. Your cable bill will increase a couple of dollars a month solely because of the NBA.
CBA ramifications: The new deal has immense ramifications on the collective bargaining agreement. Currently the players are guaranteed between 50 and 51 percent of the league’s basketball-related income (BRI), and the salary cap is set at 44.74 percent of projected BRI (divided by the number of teams in the league). Since the national television deal makes up a huge portion of BRI—and will make up an even bigger portion under the new deal—this will drive up player salaries.
The salary cap for the 2014–15 season is currently set at $63.065 million, but if the newly signed deal were in place the salary cap would be $88 million or so. That means that when the new deal takes effect before the 2016–17 season, there will be a massive jump in the cap. Since many things are tied to the salary cap—such as maximum salaries, the luxury tax, and the value of the mid-level exception—this has huge ramifications for the value of player contracts.
If you were wondering why LeBron James signed a two-year deal with a player option after year one with the Cleveland Cavaliers, here’s your answer. He had his eye on a maximum contract under the new media deal, under which he will make (roughly) $8.5 million more per year in both 2016–17 and 2017–18 than he would have had he signed a four-year max contract this summer.
To prevent this huge jump in the salary cap, Adam Silver said the NBA will begin negotiations with the National Basketball Players Association this afternoon about phasing in the salary cap increases over a number of years. While the league has never phased in TV money into salary-cap negotiations before, Silver noted that the NFL has done so in the past.
It remains to be seen how the NBPA feels about the arrangement, but any proposal the league makes will likely involve salary-cap smoothing over a number of years. That’d mean the salary cap would increase next year due to the future TV money (a win for the players, who get extra money a year earlier than anticipated), but that the cap for the 2016–17 season will be lower than it would’ve been without the smoothing (a loss for the players).
However the issue is decided, the next couple of years will be hell on front offices and agents attempting to negotiate contracts and conduct trades in an uncertain but lucrative environment.
We’re heading toward a strike/lockout in 2017: The NBA thumpingly won the 2011 lockout against the players, reducing the amount of basketball-related income the players got from 57 percent to about 51 percent of BRI, a loss of $300 million per year for the players. The league was much better organized than the players, and it won the public-relations battle by convincing the public that teams were losing money, a claim that the league has never backed up with team financials and one that ignores the immense profits owners make when they sell their teams. Donald Sterling bought the Clippers for $12.5 million in 1981. He sold them this offseason for $2 billion.
The current CBA doesn’t expire until after the 2020–21 season, but either side may opt out after the 2016–17 season, right after the first year under the new media deal. The players have chafed at the terms of the CBA since the day they signed, and they will likely be itching to gain back a larger slice of the pie. In light of billion-dollars sales and a multibillion-dollar annual TV deal, it will be much harder for the league to turn out its pockets and cry poverty.
Photo via Mark Lennihan/AP