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Wealth, itís the thing which makes the world go round. Since the dawn of time humans have searched for ways to get wealth and keep wealth. Humans have traded, bartered, plundered and killed for wealth throughout history. Today we are constrained by laws and civilized society but our thirst for wealth continues. That is the problem for todayís small marker NBA teams. Especially the bottom 8, or the eight smallest market teams. They struggle to be financially secure year after year and it keeps getting harder as the salary cap continues to grow.
When the NBA began to implement its salary cap a few years ago, it may have unexpectedly stepped on a landmine. The Salary cap is determined by the overall revenue of the basketball income in the NBA. So as the league is more successful so are the teams. For the mid-market and large market teams this is great, but the smaller markets are hurt by this. The NBA salary cap is $55.63 million dollars this year, up from around 53 million in 2006-07, the minimum salary is roughly 47 million dollars and the luxury tax threshold is just less than 68 million. That is a lot of money, money which many of the smaller teams are finding harder and harder to come by.
The Bottom eight teams: Memphis, Charlotte, Portland, Minnesota(Minneapolis), Indiana(Indianapolis), Utah(Salt Lake City), Milwaukee, and New Orleans, all play in cities with around 1 million people and which do not garner a lot of media attention. Their local TV deals pale in comparison to the local TV deals which the larger markets get. The Average local TV deal for an NBA team is around 12 million dollars, but of all the small markets only New Orleans and Utah received that much or more from their local television market.
Income varies from team to team, but many sources claim that the average NBA team makes $100 million dollars annually, with the Lakers and Knicks bringing in close to $150 million annually. All the small markets, except for Utah who made the playoffs and eventually the conference finals, brought in less than 85 million dollars. Subtracting the two mega-franchises(Knicks and Lakers) the average NBA gate income was around $750,000 dollars a game or $32,250,000 a year. That $32 million may even be a little high since I also calculated the two preseason games each team plays at home. Of the $32 million a portion of that goes to the visiting team, but since everyone plays the same number of road games it tends to cancel out. The TV contracts with ABC, ESPN, and TNT bring each team 28 million for every one of the NBA teams. Merchandising also brings in close to 5 million a year and finally add in the 13 million for local TV contracts. If youíve been following your math closely, you will see that the total here is not $100 million, its $78 Million. Here is where the differences between small and large markets begin to take effect. Large market teams get around $30-40 million dollars in corporate sponsors and advertisers. Medium markets average around $25 million, and the smaller markets $10-15 million.
The corporate sponsorsí income for the larger markets keep going up, but the same cannot be said for the smaller market. Many of the smaller markets are actually losing sponsor income. One thing which will be interesting regarding sponsor income will be what happens with the New Orleans Hornets now that they are back in New Orleans full time. The past two years they have gotten a lot of local sponsors while playing in Oklahoma City because, the people there were excited about their arrival. Now they return to a city which was nearly destroyed two years ago by hurricane Katrina. The question many have been asking about them is, will they get the needed sponsors?
Winning will help a small market team make up in the income race. As noted above Utah made substantially more than the other small markets with its playoff run to the conference finals. But here is where a catch-22 sets in. To win teams must be willing to pay the big bucks to their players. But if they are not winning they canít get those big bucks to hand out. Thus, a continual circle of mediocrity sets in. Of the bottom 8, only Minnesota, Indiana, and Utah had multiple large contracts on their roster. Also, of the bottom 8 Utah is the only one to have made the playoffs.
There is one anomaly in this equation however, and that is the San Antonio Spurs. The Spurs are in the bottom 1/3 of the NBA when it comes to market size(currently they are the 9th smallest market), yet they are consistently one of the better teams. Theyíre not just a good team, they are a four-time NBA champions. But despite being a four-time NBA champion, the Spurs also suffer because of their small market status. They are not promoted anywhere as much as the far inferior Lakers or Knicks; oneís a team which struggles to make the playoffs the other has become a perennial loser in recent times. Because of this lack of attention they get, they donít get the respect that they deserve. Having won four championships in 8 years they are not considered a dynasty but the Lakers and their three titles in the early century are; The Knicks of the early 70s,who won two titles in three years, get more accreditation as a dynasty than do the Spurs.
The NBA does not stand by as its teams sink into a cataclysm of debt. The NBA helps struggling teams out financially, but only up to five million dollars. The NBA gets that money from the TV contracts as well as the luxury tax. But with everyone except the Knicks trying desperately to avoid the luxury tax the money is coming harder to come by. The NBA has for a couple of years tried to find a way to more evenly disperse the leagues income. One suggestion was the freeze the salary cap, a suggestion which is very unpopular with the players. Another suggestion is revenue sharing, which is equally unpopular with the larger markets.
Of the most notable suggestion the one which is most likely to happen is revenue sharing, but even that idea has less than a one percent chance of happening. Teams like the Lakers, Knicks, Sixers, and Heat have to much to lose in this proposal. Revenue sharing would also reward irresponsible GMís for their stupid mistakes. When you get right down to it, there are reasons why certain franchises continually have losing records, and poor management is almost a universal one. Take the Hawks for instance, here is a team which has been making bad decision for decades. In recent times they have made blunder and blunder in the NBA draft that they have not put an interesting product on the floor-thus they are not getting the gate recites that other teams are. Management goes both ways though, Salt Lake City is the leagues smallest market in population yet the Jazz managed to not only make money but stay competitive because their management hasnít made the same disastrous mistakes the Hawks have.
In the long run it looks as if things will stay the same in the NBA in regards to financial decision. The bottom 8 will have to rely on their wits and some luck to stay competitive. But as long as they hire competent management and the bigger markets keep hiring irresponsible management all will work out in the end.