Monday, November 28, 2011
NBA's lack of local revenue sharing unique
By Kristi Dosh
New collective bargaining agreements have been reached in three of the four major professional sports leagues in 2011, now that NBA owners and players have reached a handshake agreement to end the lockout. Yet initial reports about the NBA deal leave revenue sharing as one issue that has not been addressed.
Although each pro sports league shares revenue among its teams in a different manner, only the NBA lacks a method for locally generated revenue to be shared, which means lucrative regional TV deals and gate receipts from large-market teams are not shared with owners in smaller markets. The revenue gulf among markets can be enormous. The Memphis Grizzlies’ gate receipts per game in 2008-09 averaged $322,105 compared with the Los Angeles Lakers at $1.9 million, according to gate receipt data obtained by CBSSports.com. The Lakers also earn about $150 million a year from their regional television deal, while the Grizzlies receive less than $10 million annually from theirs.
Lower revenue NBA teams have gotten some relief from a luxury tax levied on teams that spend over a league threshold, but the payout has been smaller than other leagues’ local revenue sharing plans. Under the new deal, the tax will be harsher, but it is unclear what that will mean in terms of the revenue-sharing pool.
In the NHL, the top 10 teams in terms of revenue generation contribute to a pool, which also includes some league-generated revenue, from which the bottom 15 teams can collect. A formula determines each recipient team’s share; a full share requires a season paid attendance average of at least 14,000 or an average that exceeds the league-wide average and revenue growth that exceeds the league average. However, no team in a market with more than 2.5 million TV households is eligible to receive a distribution. In 2010, a full share was worth $10 million.
The NFL accomplishes local revenue sharing by pooling 34 percent of all gate receipts and dividing it equally between all 32 teams. Last season, each team received about $24.4 million. The league also has had what it calls a “supplemental revenue sharing plan,” in which lower revenue teams can pull money from a fund held by the NFL. Under the last collective-bargaining agreement, lower revenue teams could pull from that $100-million-a-year fund. Eight to 12 teams qualified each year. The new CBA continues the sharing plan in a similar manner, but the league says it’s just a small piece of the NFL’s overall sharing plan.
While NFL and NHL combine revenue sharing with a hard salary cap, MLB uses a cap-free system with a large local revenue sharing plan that moved around $404 million following the 2010 season. According to details provided by MLB about the new collective bargaining agreement reached last week, the calculations under the revenue sharing plan will stay largely the same as under the previous agreement. Under that, all 30 clubs contributed 31 percent of net local revenue (which includes local revenue such as gate receipts and local broadcast deals but subtracts actual stadium expenses) to a pool, which is divided equally between the clubs.
Another provision of MLB’s revenue sharing plan calls for higher revenue clubs to contribute greater amounts that are given to lower revenue clubs. The two provisions together have moved as much as $433 million (in 2009) around the league in a given season, with the Marlins receiving almost $48 million in 2008 alone. While the provisions pertaining to calculations will remain the same, the new collective bargaining agreement calls for 15 teams from larger markets to become ineligible for revenue sharing, which will be accomplished by phasing them out in 25% increments from 2013-2016.
So, all of the leagues do it a bit differently, with the NBA occupying some middle ground in American professional sports: a soft salary cap with exceptions and no local revenue sharing. The real question: How does all of this affect the league?
From 2001-10, 10 different NBA teams participated in the NBA Finals, with six different teams winning. That’s the least of the four major professional sports in the United States. MLB saw 13 different teams in the World Series and eight different champions; the NHL, 14 participants and 9 different champions; the NFL, 15 teams in the Super Bowl and eight different winners.
More NBA teams also have been forced to relocate during the past 10 years than the other three leagues combined. The Vancouver Grizzlies moved to Memphis (2001), the Hornets relocated from Charlotte to New Orleans (2002) and the Seattle SuperSonics became the Oklahoma City Thunder in 2008. Meanwhile, MLB and the NHL each only saw one team relocate in the past decade. MLB’s Montreal Expos became the Washington Nationals in 2005 and marked the first relocation in 33 years. The NHL’s Atlanta Thrashers relocated to Winnipeg this season. The NFL hasn’t had a team relocate since 1997.