Monday, July 28, 2014

Envisioning the Future of the NBA Pt. 2: Expansion

It has been 10 years since the NBA added an expansion team and Seattle has been in countless rumors since they were moved to become the next in line. The NBA currently has 30 teams with varying degrees of profits, depending on who you ask. That led to 2011 strike and the owners standing firm on reducing the players’ share of revenue from 57% down to 50%. Now, with Steve Ballmer’s 2 billion dollar bid to buy the Clippers and the impending TV rights deal expected to more than double what each team receives annually, people have continued to broach the subject.  Adam Silver has been firm thus far on the issue as noted in a February ESPN article"Ultimately I'm responsible for the financial and competitive health of a 30-team league, and while we made tremendous strides in the last collective bargaining agreement, we're still not there yet. We don't have 30 profitable teams in the NBA, and while we've made progress, there are still teams that aren't competitive enough."

Based on that statement there are a number of problems that have to be addressed before Silver would even consider adding another expansion franchise. Kevin Pelton showed that coming up with enough talented players will not be a problem and anyone who even remotely follows the Euroleague knows that there are plenty of NBA-level players overseas. The talent pool could easily support 2 new teams and likely more so I don’t think teams being competitive has anything to do with available talent as much as it has to do with teams tanking/rebuilding.

So that would mean it comes down to dollar bills and all of a sudden it looks like there will plenty of those to go around. In 2004, the expansion fee for the Charlotte Bobcats was $300 million which was equally divided between each team at $10 million a pop. A recent Business Insider article notes that future expansion fees could easily topple $1 billion after Ballmer’s recent Clippers purchase which would mean,  If the NBA sells two expansion franchises, bringing the total number of teams to 32 (same as the NFL), that would be $70-100 million for each of the league's 30 NBA owners.

In 2016 we will have the new TV rights deal which is projected to increase each team’s share by 3 times what they currently get. Right now, that share is roughly $30 million per year per team. So let’s say that increases by 2.5x to $75 million per team. If we add one new franchise each team would get $72.6M, two new franchises bring each team’s share to $70.3M. So a $5M per year hit for each team gets quickly erased by that $70-100M in expansion money. J. Bruce Miller, a man hoping to bring the NBA to Louisville, recently said, “As I've repeatedly said, ONCE the League gets control of the Sterling situation either by Sterling losing and the sale carrying forth OR by Sterling winning and the League (itself) moving forward as per Silver "...with our own proceedings." --- then the time will come to focus on the television rights negotiation which will also involve the potential expansion to Seattle and another city (most likely to be Louisville).” 

We’ll talk more about Mr. Miller in a little while. Silver has basically said, in so many words, that expansion isn’t going to happen before the new CBA is in place. The players will surely opt out in 2017 as Larry Coon explains, “I expect the players to opt-out in 2017, and for the league to impose a lockout on July 1, 2017 (because they can’t do business without an agreement in place), However, negotiations will be quick and smooth (similar to 2005), and there will be a new CBA in place in time for the 2017-18 season to begin on time.”  The players will get a bigger share of the pie but the pie is growing very quickly, enough so to keep everybody involved happy. So I think we can pinpoint the 2017-18 season as a realistic timeframe of when the expansion process could begin. How long it would take from go from discussing it to a new team or two actually playing in the league depends on what cities would be selected. Let’s take a look at them shall we.

SEATTLE – The obvious and most deserved selection. The Sonics left in 2008 and since then the city has been linked to just about every fleeting franchise slightly rumored to relocate. At the Sloan Conference this past March, Silver mentioned that the Seahawks winning the Super Bowl helped Seattle’s chances at getting an NBA team. Investor Chris Hansen continues to be at the forefront of the Seattle movement and has arena plans already laid out. It looked like his group was going to get the Sacramento Kings to relocate but had it slip away at the end. Regardless, Seattle’s business plan is well laid out for all to see and the city possesses a rabid fan base chomping at the bit for the Sonics to return. So while there is no arena currently in place, Seattle could easily break ground early enough in advance to have a team ready rather quickly.

LAS VEGAS – The solid candidate. David Stern had a telling quote last year, “It wouldn’t surprise me if Commissioner Silver was looking at strong applications from Las Vegas and Seattle in the coming years, and I’m going to enjoy watching it.” The Summer League has been held at UNLV’s Thomas & Mack Center since 2004 so there’s already an NBA connection in play. That arena is too small for an NBA team but alas the city has already broken ground on a brand new arena that will be placed right on the Vegas strip. The gambling issue has long been the obvious concern but that has seemed to diminish over the years. The public has quickly forgotten about the Tim Donaghy betting scandal but concerns will certainly be brought back up should Vegas gain serious consideration. While the potential for foul play would seem to be a drawback, it seems less of an issue than it did in years past. With an arena already being built, Vegas is a solid contender who should have a number of interested ownership groups.

LOUISVILLE – The serious contender. Louisville’s ABA franchise folded in 1976 after being passed over for the NBA merger but it has always been known as a basketball town. The best thing the city has going for them is the NBA-ready arena that currently houses the University of Louisville basketball team. The aforementioned J. Bruce Miller said, “I remain in constant (near daily) contact with representatives of the League, certain team management individuals and potential majority owners for a Louisville/Kentucky franchise.” While Miller is a noted friend of David Stern’s, it has to be encouraging that he appears to have continual contact within the league. It has been questioned that the Louisville market is strong enough to sustain an NBA team but Forbes magazine even did an article stating that Louisville should be at the top of the NBA’s list of expansion cities. With an arena in tow Louisville certainly makes a good case.

PITTSBURGH – The outsider with an arena in place. Pittsburgh is another city that already has an arena in place. The CONSOL Energy Center opened in 2010 and has already hosted the NCAA tournament. The city briefly housed an ABA franchise and even had a team as recently as 2008 with the CBA’s Pittsburgh Xplosion. Pittsburgh is known as a city with a loyal fan base that many believe could translate to support for an NBA team. David Stern actually mentioned Pittsburgh first in 2013 when he rattled off a list of potential NBA cities. On the negative side, a 2011 article by The Business Journals named the city as the 3rd most overextended market for professional sports teams. Locals play up the potential Philly & Cleveland rivalries as another positive but outside of the arena there doesn’t seem to be a whole lot more positives.

VIRGINIA BEACH – The outsider with some hope. In contrast to Pittsburgh, The Business Journals research paper noted Virginia Beach as the 5th best market to host an NBA franchise. The city tried to lure the Kings there in recent times and have multiple proposals to build an arena in attempts to bring any professional sports team to a region without any pro teams at the moment. That fact would ensure the team the entire market of nearly 2 million people. It has also been noted that the Norfolk-Virginia Beach area is the 6th largest NBA television market in the U.S. even without a team. The stalemate continues to be spending the money to build an arena with no promise of any team coming to town. Obviously, an approved plan to build one would go a long way to moving up this list.

THE OTHER U.S. CITIES – David Stern also mentioned Kansas City & Columbus in his list of potential locations. Kansas City has an arena in place but most believe it lacks the money & support that would be needed to sustain the franchise. Columbus also has an arena in place but in addition to the potential lack of support, the city also suffers from being so close to two existing NBA teams, Cleveland and Indiana. While both cities continue to get mentioned as potential landing spots, neither one would realistically seem to be able to beat out the teams mentioned above.

THE INTERNATIONAL CITIES – An Adam Silver quote from last year, "When we do expand, we'd need to expand probably with multiple teams, so that you wouldn't have an orphan team in Europe, but that you'd potentially have a division so those teams could play each other more often and NBA teams presumably traveling in Europe could have more teams to play when they're over there." Obviously the important word is ‘when’. The NBA has made great efforts to tap into the international market and badly hope that European and even Chinese expansion can happen at some point. The NBA has aggressively played preseason games overseas in recent years and the league clearly has the most international appeal of all the major U.S. leagues. The main problem, of course, is travel. As Silver mentioned, there would need to be multiple expansion team at the same time but scheduling would still be problematic. It’s certain that the NBA wants to have some teams overseas but expansion will definitely occur stateside first.

In conclusion, I think expanding the league by two more teams is something we will see in the next 5 years.  I think talk about potential cities will ramp back up once the TV deal is completed.  The money will be available to make it feasible and the talent pool will always be ripe for the picking.  Seattle seems the lock for one spot while Vegas & Louisville appear the front runners for the second spot with Virginia Beach & Pittsburgh pulling up the rear.  Having 32 teams opens up lots of possibilities for divisional and conference realignment and is also allows for some potential bracket-style tournaments.  5 years from now seems realistic to have 32 NBA teams and also would allow enough time to complete the 1 to 1 D-League affiliation I spoke about in part one.  The combination of expansion & D-League reform could go hand in hand with draft lottery reform and also open up many more opportunities overseas.

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