Should the NBA Consider Expansion to Ease Unprecedented Financial Pain?

Eric Pincus@@EricPincusLA Lakers Lead WriterMay 8, 2020

NBA Commissioner Adam Silver speaks at a news conference before an NBA preseason basketball game between the Houston Rockets and the Toronto Raptors Tuesday, Oct. 8, 2019, in Saitama, near Tokyo. (AP Photo/Jae C. Hong)
Jae C. Hong/Associated Press

LOS ANGELES — As NBA teams try to navigate through an expensive, unexpected shutdown, could the answer be making expansion a priority?

Even if the NBA is able to resume the 2019-20 season at some point, it will likely do so without fans in attendance. Some or even all of the rest of the regular season might be canceled, and the playoffs could be abbreviated, too. It also remains unclear whether fans will be able to attend at the start of the 2020-21 season.

The league will feel the economic impact of the coronavirus for years to come, as will the players, who will have roughly half of the lost revenue taken from their share of the income. There may not be a cure-all solution that solves this problem, but with teams facing a cash-flow crisis, it might be time for the league to consider expansion.

"That's not a discussion for today," Dallas Mavericks owner Mark Cuban told Bleacher Report via email. "Lots of other things to get through first."

Yes, the league has a lot on its plate as it tries to resume business after shutting down in mid-March because of the pandemic. However, the NBA does eventually intend to expand again.

"It's inevitable at some point, we'll start looking at growth of franchises," NBA Commissioner Adam Silver told Portland Trail Blazers guard CJ McCollum in 2017 (via the Players' Tribune). "That's always been the case in this league, and Seattle will no doubt be on a short list of cities we'll look at."

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Seattle would love to get an NBA franchise. Las Vegas has an arena available, as do several other cities eager to join the league. Nonetheless, Silver has been clear over the past few years that expansion has been relegated to the back burner.

Meanwhile, ESPN's Adrian Wojnarowski reported in mid-March that the NBA planned to raise its line of credit to $1.2 billion, "which would aid the league in handling its expenses through what is expected to be an extended shutdown."

Teams have watched their revenue plummet with no clear end in sight. Several owners are also dealing with a difficult economy in a variety of service industries outside of the NBA.

"The league has expanded its line of credit, and I assume teams are using it," salary-cap expert Larry Coon told Bleacher Report. "Here's an opportunity to erase that debt."

If the franchise fee to buy into the league is roughly the average value of an NBA franchise, then by the most recent Forbes valuations, an entry fee could be in the neighborhood of $2.1 billion. To keep the league balanced, expansion would likely come in pairs. If the league itself kept 10 percent of $4.2 billion from two new teams, that could translate to an influx of roughly $126 million per team.

That might not move the needle for Steve Ballmer of the Los Angeles Clippers or Cuban, but they are among the wealthiest owners in the league. If a franchise is looking at borrowing $126 million in debt to get through the coronavirus crisis, that amount would be essentially wiped clean by expansion.

"You're making a permanent solution to a temporary problem," Coon said. However, he acknowledged that it "might help owners who are feeling the impact of the economic shutdown, outside of basketball." 

"Long term, they'd be diluting their share of the national television deal and other revenue-sharing mechanisms, but that's inevitable if the league eventually chooses to expand," he added.

Those splits would drop from a 1/30th share to a 1/32nd, but if expansion is indeed "inevitable," as Silver noted, then it's more a change in timing than philosophy.

"Two more teams? That's another 30 jobs," one team executive noted. "That's a win for the [players] union."

With 30 teams each able to carry 15 players in the regular season, plus a pair of two-way contracts, that would increase the maximum number of players under NBA contract to 544 (up from 510).

It's difficult to guess how much money the NBA will lose because of its stoppage. Coon estimated it could near $1.5 billion in lost income just for the 2019-20 campaign. Roughly half of that, or $750 million, will come from the players' share of income.

While expansion might help the owners, new franchise fees do not factor into basketball-related income. The owners would get a cash-flow influx, but not the players. That's because the owners would be the ones accepting a smaller share of league equity long term

The players are always going to get close to 50 percent of the league's revenue each year, but how the NBA divides up the owners' piece of the pie—in this case via expansion—is an internal issue.

Cuban is undoubtedly correct that the league has a lot to sort through just to get teams back on the court. The topic of expansion might not make a lot of sense in May. But if the NBA continues to struggle financially as time passes (hopefully with fan-less games as the low bar), it could be time to start thinking about adding more teams sooner than later.

Besides, who wouldn't want to see a franchise back in Seattle?

                     

Email Eric Pincus at eric.pincus@gmail.com and follow him on Twitter, @EricPincus.


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