The NBA is a league with 30 teams. It’s been a 30-team leg for almost two decades, and if Adam Silver is going to, it planned to remain a 30-team league for the foreseeable future. Notice the past tense of the word “planned” there, for nothing destroys plans quite like pandemics.
The NBA is absolutely bleeding right now. The estimates in March suggested a potential loss of billions of dollars for the league based solely on the corona virus impact this season. If the pandemic extends without a vaccine, billions more could be lost in future gate and TV revenue. As Silver himself has said, the NBA̵
Which gives us back to the league’s commitment to a 30-team model. If the NBA is willing to be flexible in the number of teams it puts on the floor, expansion could solve many of its short-term financial problems. With that in mind, let’s dive into everything you need to know about expansion both on and off the court, starting with the huge financial consequences of adding new teams.
How does expansion work and how much money can it raise?
The easiest way to see the expansion from an economic perspective is to think of it as selling a team that does not yet exist. A buyer or group of buyers buys a team not from an existing owner, but from the league itself. Since the league is no more than the 30 teams that make up it, the selling price is evenly split between the 30 teams, and since it is not considered basketball-related revenue, the team keeps each cent of that money for themselves. Players see none of that, and they have nothing to say if the league can expand or not.
The price for an expansion team is not fixed. Usually it is a weak inflation of the perceived value of a team in a similar market. Charlotte Bobcats paid a $ 300 million expansion fee in 2004. Exclusively on potential profits, this was a small overpayment. The Dallas Mavericks were sold for less than that to $ 285 million just four years earlier despite being in a stronger market, and the Boston Celtics, one of the league’s crown jewels, fetched only $ 360 million in 2002.
However, setting a market price in 2020 comes with some complications. It is clear that the coronavirus pandemic’s impact on the global economy has been pronounced, but the complications of expansion pricing extend beyond that.
The last three teams that changed hands were sold at market-breaking prices. The Los Angeles Clippers and Houston Rockets both sold for at least $ 2 billion, but perhaps more pronounced was the $ 850 million price the Atlanta Hawks collected in a relatively modest NBA market. Four years earlier, the Philadephia 76ers fetched only one-third of that price to $ 280 million with an almost identical metropolis and more concentrated wealth. Five years ago, the NBA was in the midst of a valuation boom, but TV ratings have since dropped and the pandemic has put the league in a vulnerable position. They really wouldn’t settle for the early decades, but buyers wouldn’t be willing to pay the premium that Steve Ballmer (Clippers) and Tillman Fertitta (Rockets) did.
Even considering the current economic situation in the world, the interest is so great that the league is likely to pull big prices. While the $ 2 billion figure that an anonymous owner gave The Athletic’s David Aldridge in 2017 is likely to go far, it is not a stretch to suggest $ 1.5 billion as a starting point. At that price, each team would receive a payout of $ 50 million to do with what they saw fit.
What are the drawbacks to the league?
Do you remember the small inflation of the market value I mentioned earlier? This is because only one new team lowers the value of all existing ones. Why? TV. Adding a new market adds very little value to the league as a national TV product because the primary drivers of ratings, such as the existing supermarket law and the fall season, remain unchanged. But since national TV revenue is shared equally between all teams, the new teams cut the revenue that all other teams would generate even if they didn’t create more of it. There are other revenue streams that are similarly affected, but television is the most important. Think of the new owners as angel investors who buy shares in the league as a whole. It immediately adds cash to the business, but dilutes the long-term earnings of all previous investors.
And then there is the invisible cost of leverage. Leagues prefer to maintain deep stability over possible relocation markets in the back to keep track of their existing cities. If one of those cities doesn’t want to play ball in a new arena, the NBA can only point to what happened to Seattle as proof that it doesn’t bluff when it threatens to move a team. Filling in the best available markets takes them out of the board as leverage. Sending a team back to an existing market significantly weakens the league’s negotiating power as a whole. What is the harm in losing a team if you can only get a new one in a decade or two?
How would expansion affect the product on the floor?
Cover your ears, children; it’s time for the dreaded D word. Adding new teams does not expand the existing player pool, so more teams end with the same amount of talent. This means inevitable talent dilution. Accumulating top players becomes more difficult for teams when newer competitors for these players emerge, but that distribution tends not to be even. Expansion teams tend to serve as roadkill for their contradictory counterparts. In 1995-96, the Chicago Bulls won 72 games, but did so at a point where six new teams had been added to the league over the past seven seasons. To serve all the new markets, the slaughter of the league for slaughter ended with Michael Jordan.
There are also opportunities for realignment. The NBA currently has 30 teams. For the sake of balance, it cannot add a single law. It would be unfair to one conference if the other had fewer competitors, so each expansion plan will probably have to stand for two new teams. Where these laws fall geographically matters a lot. As we discuss, most of the best expansion markets would make more sense in the Western Conference. To compensate, it could allow a current Western Conference team to switch to the East. Minnesota and Memphis both have geographical conditions, and moving one of them would reduce travel time for both themselves and the rest of the league.
And then there is the question of the schedule. The current system picks each team against their division opponents four times, their non-conference opponents twice, and then divides the rest of their conference opponents to play six of them four times and the remaining four three times. That math falls apart with two more teams.
There are some ways the league can do that to change that. If, for example, the idea of cutting out games from the regular season gains momentum, the team can theoretically play each of its non-conference opponents twice and each of its conference opponents three times. That would put a total of 77 games on the schedule. If the league remains broken, especially after diluting its revenue, it can add extra games to division opponents, or even some form of flexible scheduling to accommodate either a play-in or mid-season tournament.
How do expansion teams fill their game plans?
When new teams are born, the NBA fills them with something called an expansion draft. In this exercise, every NBA team can protect a certain number of players (in 2004 there were eight). If a team has less than eight players under contract, it must make at least one player available. Any player left unprotected can then be drafted by the expansion team, but no existing NBA team can lose more than one player. Such rules could change, but it was the system used for the Bobcats in the league’s last expansion draft. Usually the available players are not very desirable, but occasional jewels slip through the cracks. Gerald Wallace, B. J. Armstrong, Rick Mahorn and Walt Bellamy appear as some of the biggest names ever chosen.
Expansion teams also have choices in the NBA draft itself. There is no hard-and-fast rule to decide where they choose during their first seasons. The then Vancouver Grizzlies and Toronto Raptors selected No. 6 and No. 7 respectively in 1995. The Bobcats had the No. 4 pick, but traded up to No. 2. These selections were not awarded in the lottery, but are issued by the commissioner.
Finally, we must address the lid. Given their lack of past financial burdens, the NBA limits how much new teams can spend to protect the rest of the league from being easier than free agents. In the first season of an expansion team, it can only use 66.7 percent of the cap, and in the second it can use up to 80 percent of the cap. During its third season, an expansion team has the entire salary cap at its disposal.
How does it affect players?
Players don’t technically have a say in the decision to expand, but they have an unusual amount of leverage at this very moment. While no expansion decision is pending remotely, it will do so while the league is still sorting through the case of COVID-19 likely to require some level of cooperation from the players due to the inevitable negotiations that will take place over a number of other coronavirus-related concerns .
For example, if the NBA wanted to scrap the CBA-specified method of setting the salary cap in the interest of a short-term option, players would have to log out. There is also a threat of a strike if players and owners never agree with the safety of playing during the pandemic. The two sides will need to work closely on a number of issues in the coming years. A completely one-sided decision to expand likely would not be well received.
Fortunately, although the league decided to expand without communicating with the union, there are several benefits for players who would not need to be collectively negotiated. The biggest is the influx of new jobs. Two new teams mean 30 new game plans and another four two-way places to be filled. For union members, it could be the difference between staying in the NBA and moving to Europe, and it would certainly help a number of French players to reach the necessary three years of service for their pensions to vest. For higher-level players, more teams correspond to more competition for their services, which theoretically increases the price.
There is also valuable opportunity to have more markets in the league. This not only means that players have more cities to choose from in the free agency, but it creates meaningful stylistic diversity. This is especially important in light of the homogenization of playing styles that are currently taking place around the league. As teams continue to emphasize shooting, extra franchise agreements mean extra chances for deviation. This deviation creates opportunities for different types of players to get paid.
However, the disadvantages are potentially significant. While the short-term salary cap is in motion, it will eventually return to its typical state: a predetermined percentage of estimated revenue is shared equally between each team. New teams generate new revenue locally, but as we have discussed has little value on the national stage, so while the league’s total revenue would increase with expansion, it would not grow nearly enough to offset the damage by dividing income between 32 teams rather than 30 Put simpler, add teams lower the lid.
It affects players at all levels. The maximum salary is defined as a percentage of the ceiling for a given year. The average level exemption is based on the average salary for a given year. While the minimum wage is predetermined, a lowered ceiling limits economic mobility upwards through common sense. Teams will always prioritize spending their space on better players, so cutting out cap space would probably force lower-level players to accept lowest offers more easily because there just wouldn’t be space available.
While the union would not have the power to demand concessions for the immediate formation of expansion teams, it can negotiate its way around some of these obstacles. One possible solution to a lower max, for example, would be to loosen the eligibility restrictions for both the “Rose Rule” (prohibiting teams from having two designated players on their list at the same time), and supermax contracts. Both allow players to earn above their specified maximum by meeting certain criteria. The criteria for each include selecting the All-NBA, so maybe the addition of a fourth All-NBA team would offset some of the damage. If the average salary drops, the NBA can offset some of the lost average salary by raising the ceiling for other forms of the exemption, such as taxpayer exemptions and cap rooms. These are just suggestions. The overall point is that the trade union can solve many of the problems that new teams would cause and at the same time take advantage of the extra jobs created.
Which are the most likely expansion markets?
By and large, a city must make some important selections to interest the NBA. It must either have an NBA-ready arena or the will to build one. It does not only have to meet a certain population threshold, but contain enough presence to fill luxury boxes and other premium seats. There must be some distance from other NBA markets in order not to obstruct their territory. And it must have some interest in either basketball or at least more professional sports.
It describes at least a dozen cities that currently have no law, but four stand out. With apologies to Pittsburgh, Anaheim, Louisville and Virginia Beach, these are the four cities that tick the box most for the NBA:
Seattle: The city the NBA left over a decade ago is the one it could potentially return to now for two main reasons. The first is the new development of KeyArena. Seattle was not willing to invest in a stadium in 2007. It does so even now without the guarantee of a franchise. When completed, the new KeyArena will be able to support both an NBA and an NHL team.
Seattle’s other big advantage? Its status as a technical hub, led by Amazon. A new team would have no problems filling their luxury boxes, and even though Chris Hansen would be considered the heavy front runner to lead an ownership group, Seattle has so many billionaires in and around the city that the NBA could potentially drum up any of a bidding war for the right to revive Sonics. Seattle fans have made it clear that they want a team back. The city has supported NBA basketball in the past. It is the second largest US market without a team right now (behind only Tampa Bay). On paper, this is a mud can.
The only concern the NBA may have is to set the precedent that it is willing to send teams back to abandoned markets. If Seattle gets a team back, what would stop another city from assuming it could lose a team and get it back again? This seems more worrying under David Stern than it is under Adam Silver, but it is the only major hiccup in a potential Seattle bid.
Las Vegas: So far, professional sports have blossomed in Vegas. The Golden Knights have thrived in the T-Mobile Arena (which an NBA team would probably share), and the Raiders are moving to a modern new stadium. The league already has a foothold in the desert thanks to the summer and G League Showcase. Vegas is a relatively small market that only beats New Orleans, Memphis and Oklahoma City in size, but it takes so much massive tourism under normal circumstances that filling an arena probably wouldn’t be a problem.
But the tourism industry is a double-edged sword. Vegas is being smacked by coronavirus as it is almost entirely dependent on tourism revenue. Even if a vaccine is found, it will take the global economy years later to recover to the point where people will have enough disposable income to travel to previous levels. Vegas was perfect a year ago. Now? The city faces so much financial uncertainty that its NBA dreams may no longer be viable.
Kansas City: Another fairly small market, but a potentially valuable one. There is no other NBA team within 350 miles of Kansas City. A territory that has been partially divided among the Bulls, Pacers, Grizzlies and Thunder may belong to a Kansas City expansion team. The city has a first-class arena in the Sprint Center that is just waiting to be filled.
Corporate presence is Kansas City’s biggest challenge. Missouri has some big ones in its backyard like Sprint and Anheuser-Busch, but it traces significantly behind Seattle and Vegas casinos that way. It is also the matter of interest. Yes, the state of Kansas supports its Jayhawks, but the Kings spent more than a decade in Kansas City without making much of a dent.
Mexico City: The ultimate wild card in all expansion calls. Mexico City is the NBA’s dream market. It has a larger population than New York and a denser population at that. It has a fairly new arena that has hosted NBA games in the past (albeit with a few events, including a fire in 2013). International expansion has real momentum right now in light of Toronto’s rise to the top of the league. If a team can succeed in Canada, it can theoretically succeed in Mexico.
But for every advantage there is a great concern. Mexico City is not very rich. It’s not very safe either. The NBA had trouble convincing players to move to Vancouver. Mexico City would be an even tougher sale. The height would create a potentially unfair advantage at home and maybe even some medical problems. Mexico City has the highest upside of any expansion markets. It also comes with more risk than literally any city that any North American professional athletic has ever expanded to.
So will this happen? And if so, when?
Inertia is the strongest force in sports. It’s hard to convince $ 30 billion to try something new because they’re already billionaires. What they do seems to work. That was largely true in the NBA before this pandemic. Although there have been some notable hiccups, revenue continues to increase annually. As recently as a year ago, Silver shot down imminent expansion.
But the necessity is modern to the invention, and it can’t be argued how badly the NBA needs cash right now. The league has already almost doubled its credit. That lowers player wages by 25 percent at the moment, but that measure is temporary, and even with barriers and the force majeure clause, it is unlikely that teams will be able to shave enough spending to compensate for the large losses they currently have. With no vaccine in sight, you don’t know when fans will be able to return to the stadiums. They explain40 percent of league revenue.
Some owners may weather this storm. Steve Ballmer has $ 50 billion. He will be fine. Not all owners are so happy. Houston’s Tilman Fertitta needed to take a $ 300 million loan at a rate of 13 percent just to keep his restaurant empire afloat, and his Rockets acquisition initially left him already heavily leveraged. Some families that bought their franchise companies decades ago, including Buss (Lakers) and Reinsdorf (Bulls and White Sox) ownership groups, lack other significant revenue streams outside of professional sports. The same can theoretically be said of Michael Jordan, as premium sales of sneakers are also likely to decrease sharply. It is easy to think of owners as a monolith, but the truth is that their wealth varies greatly and some are significantly better prepared to deal with a long-term loss of income than others.
At present, it would be naive to assume that the expansion is imminent, but it would also be naive to assume that the owners are not considering the outlook. The odds are significantly lower than 50 percent, but the unique circumstances facing the league now guarantee that they are higher than zero.
Should the NBA seriously maintain the expansion, the earliest possible timeline would have new teams playing off the 2022-23 season. The Bobcats were announced about 18 months before the game began, but that timeframe does not include what was undoubtedly months of negotiations before. If the NBA is desperate enough, these negotiations can be speeded up, but there is no guarantee. Even if the league decided tomorrow that it wanted to expand, it would probably need at least a few months to find buyers, and then more than a year to integrate the new teams into the league.
Even now, it makes sense to characterize this scenario as “unlikely.” There are significant long-term costs associated with expansion that most teams strongly prefer to avoid. But desperate times require desperate action. The NBA may never have faced more desperate times than now, and if it is seeking a desperate measure to compensate, expansion is by far the best there is.