NBA expansion appears more realistic than ever in light of the revenue lost to the coronavirus pandemic. Adam Silver has acknowledged the possibility, and it’s a sensible one given the league’s current financial circumstances. When a sport expands, a new owner essentially buys a team from the existing 30 owners, splitting an agreed-upon expansion fee evenly among the existing ownership groups which could serve as a sorely-needed cash infusion.
ESPN’s Brian Windhorst reported that the league could charge a $2.5 billion expansion fee, generating $5 billion in total if the league jumped from 30 teams to 32. Split that among 30 teams, and each would receive an immediate payment of $166.7 million. Not bad, right? Well, Silver seems to think the NBA can do better. Silver participated in Sportico’s valuation event on Tuesday and suggested that the league would want even more than has been reported.
“The commissioner was “not ready” to confirm the number of teams or the price point the league would seek if it were to add clubs. He said it “doesn’t feel like the right time” to focus resources or attention on future growth with the league still trying to navigate the pandemic. But Silver did say that “clearly [the] valuations [show] some of the reported numbers [for expansion fees] are very low in terms of the value at which we would expand.”
Even a $2.5 billion fee would represent the most expensive team sale in the history of North American professional sports. The Brooklyn Nets currently hold that distinction having been sold for $2.35 billion to Joe Tsai, but it should be noted that expansion fees are typically pricier than typical team sales. The Charlotte Bobcats paid $300 million to enter the NBA in 2004, but only four years earlier, the Dallas Mavericks netted only $285 million in a significantly better market. In 2002, the Boston Celtics were sold for only 20 percent more than the Hornets at $360 million despite being one of the most iconic brands in basketball.
That premium exists because expansion dilutes the value of all existing teams. If there are 32 teams instead of 30, all shared nationally-generated revenue is split 32 ways instead of 30. Most importantly, that means less TV money for all existing teams. In the short term, $166.7 million would be extremely helpful. In the long term? The existing ownership groups would wind up losing far more than that in terms of their share of national television revenue. The league’s current deal with ESPN and Turner pays out $2.6 billion per year. That’s around $86.7 million per team, but would drop to $81.3 million if split among 32 teams.
That would explain why Silver would push for a higher price. As helpful as a big one-time fee would be, losing that revenue in perpetuity is not something to be taken lightly. If the 30 other owners are going to sell equity in their league, they are going to do so at the highest possible price.