NBA Revenue Sharing: Small-Market Teams to Benefit from New Sharing Structure

Aliyaho Pearce@AliyahoContributor IIJanuary 25, 2012

The wake of the NBA lockout this past offseason has left the beginnings of a new financial structure intended to slowly infiltrate the league. One of the most contentious issues of the lockout was small-market profitability and revenue sharing.

Many owners of small-market teams like Michael Jordan of the Charlotte Bobcats and Dan Gilbert of the Cleveland Cavaliers complained of ballooning player salaries coupled with the limitations of existing in a small-market city. As a result, collective bargaining chips such as basketball-related income and luxury tax restrictions were altered to greater favour small-market owners.

It was also decided that drastic changes were to occur in the structure of league revenue sharing, but the details of which could be hammered out at a later date. That later date seems to be now, as Sports Business Daily reports that details of a new revenue sharing structure are emerging.

The provisions of this new system seem to level the playing field quite a bit for small-market owners. It works like this:

Sources said that the core of the plan calls for all teams to contribute an annually fixed percentage, roughly 50 percent, of their total annual revenue, minus certain expenses such as arena operating costs, into a revenue sharing pool.

Each team then receives an allocation equal to the league's average team payroll for that season from the revenue pool. If a team's contribution to the pool is less than the league's average team payroll, then that team is a revenue recipient. Teams that contribute an amount that exceeds the average team salary fund the revenue given to receiving teams.

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How very socialist of them. This will benefit teams who do not have the luxury of a gigantic surrounding population like the New York Knicks or the Los Angeles Lakers do. Teams like the Cleveland Cavaliers and the Charlotte Bobcats cannot sign huge local TV deals like rival franchises, so their stream of revenue is limited significantly. Here is an example of how the new revenue sharing system will work:

[...]one high-revenue team could contribute 50 percent of its total revenue, minus certain expenses, for a total of $70 million put into the pool. A low-revenue team could contribute total revenue of $45 million. After allocating to both teams the average team payroll of $58 million, the low-revenue team would receive $13 million in revenue sharing to make up the difference between its pooled revenue from the league's average payroll. The high-revenue team would be contributing $12 million to be distributed among receiving teams, adding financial balance between the markets.

The new revenue sharing structure still requires "small-market teams to generate at least 70 percent of the leaguewide average in total team revenue in order to receive full revenue-sharing benefits." This encourages teams to remain competitive in their business strategies rather than sit back and receive welfare from the rest of the league.

So, essentially what we are looking at here is a levelling of the playing field of sorts. It is projected that 15 of the league's 30 teams will be receiving a payout from this new revenue sharing structure. A complete fix will be impossible, as some teams will just make more money than others. It's just the way it works.

Some teams will always have the prestige and the pedigree and, as such, will maintain an advantage in free agency. This new structure, however, will help small-market teams to be a little more financially competitive. And at the end of the day, who wouldn't want a little more money?

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