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Monday, November 12, 2012

How Much Would It Cost To Own An NBA Franchise?

How Much Would It Cost To Own An NBA Franchise?
By: Eric J. Brown

Some of us (including me) have dreamed of owning an NBA franchise. But sometimes the actual capital needed to own and operate a professional sports team gets lost in our fantasy, mainly because our current net worth is nowhere near enough. But for the purpose of this article let's say we do have enough, $25 Billion to be exact, now what?

The average NBA team is valued at $393 Million; therefore $25 Billion in the bank can buy you any team you want, but most likely a team like the Lakers won't be for sale anytime soon. So let's say you purchased the New Orleans Hornets. The Hornets were recently sold for $338M by the NBA to the owner of the New Orleans Saints. When you purchase a team like the Hornets, which probably won't compete for a championship for awhile, expect to put out a substantial amount of capital to attract better players, possibly build a new arena like the Nets, and cut ticket prices to fill seats. After a few seasons, if you can turn around a franchise like the great Mark Cuban (Owner of the Dallas Mavericks) you can start to see your stock rise. But how do you make your money?

First there's NBA Shared Revenue. This is revenue shared by the NBA with its franchises and players also called Basketball Related Income (BRI). BRI includes the following:

Major TV Network Broadcast Rights
Broadcasters ABC/ESPN and TNT pay a combined $930M on average annually for the rights to broadcast live NBA games.

Licensing & Merchandise
The NBA receives revenue from the sale of official NBA merchandise around the world. The league also licenses its logo and likeness for sports apparel, video games and more.

Companies like Kia, T-Mobile, and Sprite pay millions of dollars a year to have their brands associated with the NBA, everything from the half-time report to NBA All Star Weekend.

NBA revenue sharing does provide some revenue that can stem losses for some of the smaller market teams and add on to what some of the giants of the league are already bringing in from their local markets. Teams like the L.A Lakers, Golden State Warriors and Miami Heat all profit tremendously from newly acquired TV network deals, with the Lakers cashing in $200M annually over the next 20 years. So, if you happen to land a franchise in a booming metropolitan area, you could be set for life or at least the next 10-20 years!
In addition to TV and radio broadcast rights teams cash in on in-stadium & local advertising, merchandise, sponsorships, concessions, season ticket holders, and luxury suites. A Vault Suite in the Brooklyn Nets new Barclay's Center costs a member a reported $550,000 a year. But in every business there are losses, and in sports the losing team can lose for years—thank God for die hard sports fans! Chances are if you buy a team, they may lose for awhile, there are plenty of owners who never saw their teams make it to the finals, let alone the playoffs. Then there are the few who have the winning combination of sound fiscal management, leadership and basketball vision who ascend into the ranks of winners and become a proud championship franchise owner. What would your legacy be?


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