Following the NBA's Board of Governors meeting Tuesday, commissioner Adam Silver raised eyebrows when he said that "a significant number of teams" are not profitable.
According to reports, the number could be up to one third of the league.
Close to 10 NBA teams are amongst the losing $ category that Adam Silver spoke of, source said. But how many teams have themselves to blame?
— Marc J. Spears (@SpearsNBAYahoo) July 16, 2015
Silver's revelation might come as a surprise given that the league just inked a $24 billion TV contract. But the deal kicks in starting 2016-17, so teams won't see any revenue until then. Even at that point, it stipulates that players will receive 51 percent of basketball related income.
Teams just shelled out $1.5 billion in player contracts on day one of free agency alone.
The commissioner lays out the league's point of view
"Teams are still spending enormous amounts of money on payroll, they still have enormous expenses in terms of arena costs, teams are building new practice facilities, the cost of their infrastructure in terms of their marketing people and their sales people, those costs have gone up," Silver said.
Obviously, smaller market teams don't make as much money, but the 2011 collective bargaining agreement ushered in more generous revenue sharing. By payroll, Silver seems to implicate player contracts as the main culprit for franchise shortfalls.
The league and players also agreed to divvy up revenue 50-50 in the 2011 CBA (which becomes 51 percent for the players once the TV deal begins in 2016-17), meaning that if player contracts total less than half of the NBA's revenue, the league must cut the NBAPA a check for the difference. And that's happening.
“There are projections that for next year we could be writing a check moving close to half a billion dollars to the players' association. That was not something we predicted when we went into this collective bargaining,” Silver said. “That’s happened because the revenue we have generated was much higher than we had ever modeled. But we are also learning when you have all that money coming into the system, team behavior is not necessarily predictable either.”
Read: Marquee franchises have cash and caché to throw at players. To stay competitive, small market teams must offer similar or even larger contracts to attract talent -- sometimes pushing expenses higher than revenues.
Not so fast, says the NBA Players Association
NBAPA executive director Michele Roberts weighed in the next day. She countered Silver's argument with specific examples of the NBA's growth.
"Virtually every business metric demonstrates that our business is healthy," she said. "Gate receipts, merchandise sales and TV ratings are all at an all-time high. Franchise values have risen exponentially in recent years, and the NBA has enjoyed high single digit revenue growth since 2010-11."
Roberts let the air out of Silver's complaint about the cost of new facilities, asserting that these infrastructure investments have actually been revenue and valuation boosters. Plus, public funding for new construction offsets team costs significantly.
Long story short, the league says teams are losing money and the NBAPA just doesn't buy it
That's too bad, because both sides can opt out of the current collective bargaining agreement on Dec. 15, 2016 -- setting the stage for a lockout in 2017.
Silver's comments may hint at the league's position in future negotiations, potentially that players must accept a smaller share of the revenues for the NBA to thrive.
Judging by Roberts' response, the players consider that position both unfair and untrue.
The NBAPA statement didn't make this point, but it's worth noting that the most valuable franchises make more than enough money to cover the others' losses. The players could argue that the league doesn't need a larger share of revenue, but rather to manage the money it has more effectively.
MORE WIZARDS: Players union head responds to NBA commissioner