Adam Silver’s Next Challenge

Photo Credit: Associated Press

Photo Credit: Associated Press

Three winners emerged from the 2015 NBA Finals; the Golden State Warriors, ESPN, and the NBA.  For obvious reasons, the Warriors concluded their historic season with three consecutive wins to finish with the third-best total record in NBA history at 83-20.  ESPN and NBA relished the highest-rated NBA Finals since Michael Jordan’s sixth ring in 1998.  The series averaged 19.994 million viewers per telecast, culminating with 23.25 million viewers in the Game 6 series finale.

As a result, the league’s global popularity has reached transcendent heights, arguably the largest this millennium.  LeBron James appeared in his fifth consecutive NBA Finals and lost to an upstart, enjoyable Warriors team that endured two decades of futility before winning the championship.  The league’s most popular player facing arguably the league’s most popular team combined to yield one of the most polarizing NBA Finals matchups ever.  Combine the fact that Cleveland and Golden State have two of the most long-suffering fanbases – Cleveland has never won an NBA title and Warriors had not hoisted the Larry O’Brien Trophy since 1975 – and this season’s NBA Finals had a plethora of intriguing storylines on the court.

The viewership success in the NBA Finals coincides with the league’s dominance in social media, as the NBA has undoubtedly the largest following out of the four major American sports leagues.  As seen in the table below, the NBA has more Instagram followers and Facebook fans than the other three leagues combined.   Their Twitter and online website traffic exceeds those other three leagues as well.  Even though the NFL may have larger domestic TV viewership, the NBA has a much stronger global brand as the league continues to push forward as the second most popular team sport in the world behind soccer.

 

League Twitter Followers (in millions) Facebook Fans (in millions) Instagram Followers (in millions)
NBA 15.4 26.967 7.8
NFL 11.8 12.148 3.4
MLB 4.9 6.159 1.6
NHL 3.85 3.807 1.2

 

Now comes the next major challenge; how does the league continue its upward trajectory and expand globally?  One major obstacle facing the NBA will come within the next two seasons, as it may face an inevitable lockout with the National Basketball Players Association (NBPA).  Even though the previous CBA will only expire after the 2020-21 season, both parties can opt-out of their current agreement by December 15, 2016, which would terminate the current CBA on June 30, 2017.

Commissioner Adam Silver has done nothing but grow the game during his tenure as commissioner, from resolving the Donald Sterling saga to orchestrating a smooth Clippers sale to negotiating an extremely lucrative 9-year/$24 billion TV deal with ESPN and Turner Sports.  That latter part may ultimately cause a bitter dispute between the owners and players, as to how to allocate the money.

Newly elected NBPA Director Michele Roberts has given the players a strong leadership voice (Photo Credit: Jennifer S. Altman/Washington Post/Getty Images)

Newly elected NBPA Director Michele Roberts has given the players a strong leadership voice (Photo Credit: Jennifer S. Altman/Washington Post/Getty Images)

Newly elected NBPA Director Michele Roberts already established her stance by rejecting the NBA Salary Cap proposal to smoothen the salary cap increase, which will likely grow the cap from around $68 million next season to over $90 million prior to the 2016-17 season.  This marks an unprecedented growth, as the $22 million total increase is five times the amount of the $4.4 million salary cap growth between the 2013-14 and 2014-15 seasons.  In addition, teams must spend at least 90% of the cap prior to the start of each season, known as the salary floor.  A $90 million salary cap would require every team to spend a minimum of $81 million.

On the outset, that sounds like a tremendous deal for all parties involved.  Following the 2011 labor negotiations, the players have received 51% of the annual Basketball Related Income (down from 57% from the previous CBA) while owners received the remaining 49%.  Some key BRI includes broadcast rights, ticket sales, sponsorships, arena naming rights, and concession sales (Click here for a full list).  With the spike in TV rights and league popularity climbing to soaring heights, the current annual BRI will more than double the amount of league revenue generated in 2011.  Therein lies the problem.

Many players strongly believe the owners duped them in the 2011 negotiations.  How else can you explain Steve Ballmer spending $2 billion on the Clippers or Antony Ressler paying $850 million for the Atlanta Hawks?  Those two franchises perennially ranked in the bottom half of the league in total revenue and valuation.  Suddenly, they became the two largest NBA acquisitions.

Furthermore, Forbes has currently valued 11 teams at over $1 billion.  In 2010, Joe Lacob bought the Golden State Warriors for a then-record $450 million.  Five years later, someone would have to likely spend more than four times that amount to purchase the Warriors if they went on the market.

Superstar players like James, Kevin Durant, and Chris Paul want owners to eliminate the max contract, which would allow the top players to earn close to $40 million annually.  Owners like Mark Cuban have refuted the players’ claims by saying that if players want higher salaries, they must take away fully guaranteed contracts.  Thus, contracts would resemble some of the NFL contracts, where the total value of the deal (ie: Colin Kaepernick’s $127 million contract) differs from the total guaranteed money (Kaepernick’s contract includes $13 million fully guaranteed).  Silver further added that an average NBA player would earn over $8 million annually once the new TV deal kicks in, so he strongly believes both sides currently have a “fair deal” in place.

The 2015 NBA Finals had the largest total viewership this millenium (Photo Credit: Ezra Shaw/Getty Images)

The 2015 NBA Finals had the largest total viewership this millenium (Photo Credit: Ezra Shaw/Getty Images)

Both the NBA and NBPA make reasonable arguments, but Silver and the league absolutely cannot backtrack from what they instilled in the 2011 CBA; the hard cap and harsh luxury tax penalties.  For every $5 million a team went over the luxury tax threshold, it would be charged an extra $1.50 per dollar and an additional $5 million would cost a team an extra $1.75 per dollar.  The Brooklyn Nets severely paid the price for going way over the cap, as they incurred a $144 million loss in the 2013-14 season alone.

The league implemented these rules to establish competitive balance and fair play.  The bigger market teams like the Los Angeles Lakers and New York Knicks would have to spend like the smaller market teams, since no owner would ever approve of paying an $80 million tax bill every year.  Repeat offenders get punished more severely, so everyone had an incentive to play by the rules (If a team’s payroll exceeded the tax threshold in three out of four seasons, they would be charged an additional $1 for every dollar they went over the limit).  Thus, cities like San Antonio, New Orleans, and Cleveland could compete with cities in larger markets, especially if they drafted well.   This has given more teams an opportunity to attract quality players, which has prevented the financial juggernauts from dominating year after year.

The time has come for Silver, the owners, and the players to confront their issues before things escalate further.  Fans have bought into the league product and no matter how they split the money or alter the cap, Silver must keep order and good faith with both sides.  The NBA is as healthy as it’s ever been and the issues the league currently faces pale in comparison to the after-effects of a potential lockout.

Everyone associated with the NBA must understand the impending consequences of not coming to an agreement.  The MLB and NHL lost significant viewership, money, and appeal immediately following labor stoppages in 1994 and 2004-05.  It took multiple years for them to rebound from their miscues.  Greediness from both sides has made the NBA’s current problems larger than they should be.  After all, they deal with a child’s game with millions of fans supporting their favorite sport.  Silver must maintain the larger perspective and do everything in his power to ensure this dispute does not get out of hand.  Otherwise, a second lockout in six years will embarrass the entire league.