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Honestly, with this new NBA media rights deal, I have no idea where to start. (And I’m not even going to write about the gossip/drama involving TNT, the NBA and David Zaslav. Purely from a numbers/strategy point of view, this deal is interesting enough on its own.) I debated between four of five different headlines. Do I write about…
…how the NBA’s media rights deal doesn’t match the hype?
…the one media rights factor no one is talking about?
…how the NBA’s front office got a gigantic raise (and no one’s talking about it)?
…why a big spike in the NBA’s salary cap likely isn’t coming?
And more! There’s just so much to talk about. And I’m going to get to all of that, but let’s start here…
Have gas prices gone up in the last twenty years? Well, that’s easy to find. First, we can pop over to the US Energy Information Administration website…
Wow, gas is about twice as expensive as it was twenty years ago, and it’s 3.5 times more expensive than 25 years ago.
Unless you adjust for inflation. You see, if you adjust for inflation…
Well, now gas prices have actually gone down, slightly, in the same time frame.
You can apply the same exercise to movie tickets.
Finally, a third example, one of my favorite scenes from Silicon Valley.
The same exact problem happened with the NBA’s media rights deal. In countless news articles, everyone talked about the NBA’s rights deal either doubling or tripling
Today, I’m starting my analysis of the NBA’s next national media rights deal. I find this topic fascinating, so I basically wrote a mini-novel covering all my thoughts, channeling my inner Bill Simmons, and then realized that I needed to split things up. In this first article, I look at the true growth rate of the deal. Tomorrow, at The Ankler, I’ll dub my winners and losers. Early next week, I’ll explain why this rights deal could be both a huge win for the NBA, but also point out the biggest threat to NBA media rights (that I don’t think enough people are talking about). And I’ll take a stab at how I think everything plays out.
Also, I want to make something clear: I love the NBA. My editor/researcher loves the NBA. We talk NBA, strategy, team-building, Lakers, and more non-stop. Between us, we listen to five different NBA podcasts. I say all this because I am going to be critical of the NBA, at times, even though modern fandom often doesn’t allow that. But that’s okay! We should be able to criticize things, even the things we really like.
Finally, I’ve got a big month coming up. I’ve got a take on modern economics, antitrust, unions, and politics that I just have to get off of my chest, the WGA released their latest report on screenwriters’ earnings (which confirmed not one but two predictions that I made last year), and we’ve got all of the flops, bombs and misses from the first half of the year. Not to mention trying to get back to my series on the future of film…
These projects take a long, long time. Today’s post took a ton of work hours between reading, writing and researching all of this. Today’s article is free, because I want to make this available to as many NBA fans as possible, but I can only do it with your support.
Please subscribe.
My Aggressively Moderate Take
When I first started thinking about the NBA’s new media rights deal—starting in the 2025-2026 season. I’ll refer to all seasons by the starting year going forward—I anticipated I’d be one of the few analysts to call it a miss for the NBA, despite the flashy numbers. But…
It’s a fine deal for the NBA.
Note: “fine” isn’t great, or even good. This is one of my trademarked “aggressively moderate” takes. Indeed, based on a lot of the coverage of the deal—take your pick of hyperbolic headlines; multiple outlets went with “slam dunk”—calling it just “fine” counts as some of the harshest criticism of the NBA in the sports and entertainment press. (The lone outsider is the one NBA superstar who always speaks his mind, Sir Charles Barkley.)
So let’s summarize the deal, and why I think it’s fine, with this bottom line up front (BLUF):
- The NBA National Media rights deal increased by roughly 10.0% per year from the current deal (which started in 2016) and to the next deal (which starts in 2025).
- That growth number is the single most accurate way to describe the NBA’s growth. Any headlines about tripling the total value or doubling the annual payment ignore the large timelines at play, ignoring (very) basic economics and accounting for inflation/compound growth.
- Moreover, this current national rights deal isn’t “apples-to-apples” with the previous deal, since it involves:
- An eleven-year timeline compared to a previous nine-year deal.
- Going from two media rights partners to three and including more national TV games.
- Global streaming/broadcast rights are included (the previous deal may not have included them).
- Added an additional night of the week (Monday) from the previous deal.
- If you exclude the new Comcast package (which added games to Sunday and Monday night), the media rights deal only increased by 5.2%, compared to the 11.7% increase for the last deal. If subtract Amazon’s deal, it only drops to 6.7%.
- The biggest win for the NBA is that they sustained above-average growth for media rights while viewership for regular season games has been declining.
- Interestingly, the NBA league office is expanding their take from 0.5% of the national rights to 8%. Understanding why—they likely plan to either launch their own streamer or start production—tells us a lot about where the NBA sees the media landscape going.
- That said, there is a HUGE potential risk that the NBA’s media rights overall still shrink, despite this payday. Specifically, as the linear cable bundle declines in subscribers, “regional sports networks”—the cable channels that provide the NBA with 25% of their revenue—could collapse. These losses (which, for obvious reasons, the NBA doesn’t reveal) could offset some or all of the NBA’s national media rights gains.
Part I: How Big Is This New Deal?
Here’s a simple question that’s surprisingly tough to answer:
How much did the NBA’s national media rights deal increase?
If you read a lot of headlines from last May, the answer was “the rights tripled in value”, which, to quote Obi-Wan Kenobi, is true, from a certain point of view. In total, the 9-year deal from 2016 to 2024 paid the NBA $24 billion. The new 11-year deal will pay the NBA $76 billion. Yes, $24 billion times three is just under $76 billion.
Alternatively, since the number of years was different—and maybe they saw my Twitter rants on the topic at the time—some folks simply focused on the increase in the annual average value of the media rights. The current deal pays $2.667 billion per year through the 2024 season. The next deal will pay, on average, $6.909 billion starting in 2025. Yes, that new number is about 2.5 times higher. (I saw more reporters/analysts/pundits cite this.)
As the introduction made clear, it isn’t that impressive for things to double or triple in value over a 20-year timeframe! That’s what inflation does to all sorts of goods!
Instead, the key question is, “What is the growth rate? And how is that changing?”
Glad you asked, and you should be glad you have an Entertainment Strategy Guy around willing to try to answer these questions for you.
So let’s answer that more valuable question. Here’s a chart with the NBA’s last few media rights deals charted out over time:
Yeah, it does look really impressive. The deals are clearly steps up. But you can see they’re definitely getting longer too.
We have to account for those increases in length. Again, the previous NBA deal ran nine years and the current deal runs for eleven years. That’s twenty years! If I just put my $1 billion in a savings account earning 3% per year, it’s going to almost double in value too! But note: only growing at 3% isn’t that good, is it? No one brags about earning 3% on their money.
Ideally, then, I’d tell you the “combined annual growth rate”. That’s the financial term for the increase in value over time, accounting for compounding growth. To do that, you need to know the starting value, the ending value, and the length of time.
The trouble with this is that the NBA doesn’t tell us the starting or ending value of their media rights deals. (But someone may have accidentally revealed this info. More on that in a moment.)
So instead we have to do some estimating. We don’t know the starting and ending values, but we do know the averages. And we know how far apart the middle of each year range is. If we do that, then we find that going from $2.667 billion to $6.909 billion over 11 years (the middle of the 9-year period to the middle of the 11-year period), the increase is 10.0%. (Technically, 9.998%.)
If 10.0% sounds good, I’d agree!
But We Know A Little More
To be honest, calculating growth rates from the averages still requires a lot of guesswork. Ideally, we’d have the starting value of the media rights deal in 2016, and the ending value in 2035, and from those we could calculate the actual CAGR. But the NBA doesn’t tell us starting or ending values, because the average increase sounds more impressive.
But every so often, if you’re lucky, a disgruntled NBA owner releases an angry letter to the NBA, and it contains the exact information you’re looking for!
Specifically, NBA Knicks owner James Dolan is a bit miffed at the league, because the league office takes a cut of the national media rights deal to fund their operations. And hoo boy, is the league taking a bigger cut in the next deal. According to ESPN:
“Dolan outlined his criticism of what he called the league’s plan to retain “$6 billion (or 8 percent) of the total-NBA related fees”…“Dolan made a comparison to the league retaining $15 million (0.5%) in the league’s current media deal for the 2024-25 season and expressed dissatisfaction with an increase of $358 million in 2025-26 under the league’s proposal, according to the letter.”
Math time! If the league keeps 0.5% of the current media rights deal, and that take was $15 million for the season starting in 2024, that means the value for the next deal is…$3 billion! But wait! If the league is keeping 8% going forward, and that’s going to be $358 million in the season starting in 2025…that’s $4.475 billion. In other words, we have the ending and starting values for the current and next deals!
To make a more accurate headline for all the sports reporters out there:
NBA Will See a 49% Jump in National Media Rights for the 2024 to 2025 Seasons
How much will it grow by year after that? Well, I don’t know if the NBA will have the increase stay flat (say $487 million per year) or a fixed percentage (roughly 8.4% per year) after the initial big jump. But either of those two numbers will get you to $76 billion from a $4.5 billion (roughly) starting point.
Notably, we can apply the same math to the previous deal too. If we know the deal ends at roughly $3 billion per year (again, Knicks owner James Dolan told us so), we can apply a reverse growth rate of roughly 3% per year to get a total media rights value of $24 billion. (Yes, if the 3% seems lower than the 8.4% per year, it’s because the previous jump in rights was likely well over 100%.)
That would result in this, more accurate estimate of annual national media rights per year:
Using these estimates, that would give us a starting value of $2.356 billion in 2016, and an ending value of $10.0 billion in 2035. That growth rate is 7.9% over the course of the previous and current deals.
Thus, in classic EntStrategyGuy fashion, I can now give you two numbers. If you want the start of the previous deal to the end of the current deal, the growth rate (CAGR, mind you) is approximately 7.9%. If you simply compare the average annual values, the growth rate is 10.0%.
(By the way, you can double-check this in your head with the “rule of 72”. If you want to know, roughly, how long until compound growth causes your investment to double, divide either the years you have or the interest rate by 72. For example, at an 6% growth rate, an investment will double in approximately twelve years. In this case, at a 7.9% growth rate, the NBA’s rights should double every nine years. So throughout this twenty-year deal, we’d expect the rights to more than quadruple, and they did! The key is if Dolan’s leak about the 2024 and 2025 rights values are accurate, along with the average values reported by the NBA.)
NBA Nerd Side Data Point
The key number for NBA fans above is that the rights are going to increase by roughly 49% from the 2024 to 2025 seasons. You’ll want to know how that will impact the salary cap, since that’s what players will make/teams have to spend. (BTW, I suppose the players will want to know this too.)
Running the numbers, the $1.475 billion increase will result in a $49.2 million increase per team. Since half the money goes to the players, that means a $24.6 million increase to the salary cap.
Fun fact for context: in 2016, the cap “spiked” by…$24 million per team, from $70 million to $94 million, a whopping 35% increase. Given that the current salary cap is $140 million, we’d expect it to increase to somewhere between $160 to $170 million. If it increases by $24 million, that’s “only” a 17% increase. The percentage increase won’t be nearly as large as the last deal’s one-time jump.
Of course, that exact number won’t be the increase. NBA ticket sales continue to set records, which will increase the cap too. Meanwhile, shrinking local media rights could offset some of these gains. (I’ll discuss that landmine next week.) Also, if the NBA front office’s 8% share counts against the players’ half, then it would be lower too.
Now, let’s discuss if this increase is “good”.
Is 7.9%-to-10.0% growth good?
Mostly yes, but some no.
Let’s start with the “no”. The main case here is that folks forget just how massive of an increase the rights deal was for the season starting in 2016. I mean, the NBA rights deal that ran from 2008 to 2015 was under a billion dollars on average for that 8-year deal. While only extending the length of the deal one year, the 2016 rights increased on average to $2.667 billion, meaning it nearly tripled on a deal two years shorter than the next deal.
As such, the estimated CAGR for that deal was nearly 11.7%. In other words, the NBA rights deal increased by 11.7% per year in the previous deal and is increasing by 10.0% in the current deal. Since 10.0% is smaller than 11.7%, NBA’s growth rate is slowing. Again, it’s still double digit percentage growth–which is very good!–but the growth rate did slow from the last deal.
(Not to get too “media commentary”, but you didn’t see that take anywhere over the last three months, did you? If you want to know why no NBA pundits are discussing “salary cap smoothing” this time around, this is why.)
We can also compare this number to some other benchmarks.
One way to think about investing in anything is to look at the cost of investing in other, similar industries. This is called the Cost of Capital, or WACC inside a company. For example, the entertainment industry has an 8% cost of capital historically. (Right now, it’s 7.5% according to NYU, the universal source for industry WACC.) Meaning that if you invest in an entertainment company, to compensate for the risk of this industry specifically, you need an 8% return. If you take the lower estimate above (7.9%), then this deal is basically average. If you take the 10.0% increase, then it’s above average. Or, better said, the previous deal starting in 2016 was well above WACC, meaning it was a terrific deal for the NBA, and this deal is just “good”.
(To think about this another way: an NBA owner could take their money and buy an NBA sports team, or they could just invest in an index fund of entertainment stocks. The latter would be expected, over time, to earn 8% on their money. For the NBA to justify growing valuations, they need to be that average portfolio. Of course, you buy an NBA team to sit courtside, but if business was the only consideration, that’s how you’d think about it.)
We could also look at non-entertainment growth rates. Over the last 20 years, the S&P 500 actually returned 10% on average, and over 13% for the last ten years. Thus, the S&P 500 was a better investment than the NBA’s national media rights.
The last way to look at it is to look at all media rights to see how this deal compares to them. A few years back, I looked at this for Athletic Director’s U, and across all rights, starting in 2000, media rights deals increased by 4.4 to 5.8% on average. In that context, since 7.9-10.0% is well above that, the NBA saw a rights deal increase well above market average. That’s very good.
If we stopped here, we’d say this deal looks like a win for the NBA. But let’s look at one last variable which may change our minds…
Part III: But…The Caveats
In the calculations above, I mostly assumed that each rights package perfectly resembled each other. Meaning, the NBA sold the same amount of games to air/stream in the same amount of places.
To continue the “inflation” theme of today’s article, a lot of recent commentary on inflation has focused on “shrinkflation”, the idea that a company keeps a product’s packaging the same size, but shrinks the amount of food they put into it, while charging the same amount for it. So the price doesn’t increase, but you’re paying the same for less, which is still inflation.
(Not to call them out, but there is a package of mini muffins at my local Ralphs that did this. They have a gigantic box for twenty tiny muffins, and it tricked me when I bought a box at the request of my son. Never again!)
In this case, the NBA might actually have “reverse” shrinkflation going on. (Growthflation?) The NBA is selling more national games in the current deal (the one starting in 2025) than they did in the previous deal (the one starting in 2016). Specifically, the NBA sold a third package of streaming-only games to Amazon.
(The Ankler’s Sean McNulty had an excellent rundown of how many games were included in the next package, but I’ve never seen an analysis of the current rights deal that started in 2016. Sports Media Watch also covered who has what games.)
So…what if we took out one of the packages? How would that change the growth rate? Well, if you pull Amazon’s new deal (though it took ESPN’s Friday night games and TNT’s Thursday night doubleheader), the CAGR drops to 6.7%. In other words, the new package drove almost the entire above-average-for-media-rights-in-the-2000’s growth rate. Interestingly, if you pull NBC’s deal—which has Tuesday, but also added more valuable Sunday primetime games and Monday Peacock-exclusive games—the growth rate drops to 5.2%, even lower. Both 6.7% and 5.2% are well below the 11.7% growth rate of the 2016 deal, showing that most of the increase in growth came from selling extra games.
Here’s a timeline with all my calculations:
I’ll be honest with you, that’s what I believe is the single most accurate estimate of the NBA’s national media rights by year you will find on the internet.
The NBA tweaked the deal in some other minor ways too. Amazon specifically bought a global rights package, and Comcast and Disney also have global rights. The NBA currently makes about $500 million from international rights deals, so it’s unclear if these new deals will lower demand for the NBA’s current media rights deal with additional inventory.
