Phoenix Suns sale shows small-market NBA teams will increase in value

The sale of the Phoenix Suns shocked the sports world when Robert Sarver agreed to sell the team to Mat Ishbia for $4 billion. When the sale closes, it will be the largest purchase in NBA history. Sarver had bought the Suns for $401 million in 2004. It’s a good return on investment.

The Brooklyn Nets were sold in 2019 for $3.3 billion and Steve Ballmer bought the Los Angeles Clippers for $2 billion in 2014. While both transactions involved teams in large markets, the sale of the small market Suns has eclipsed both sales by a wide margin. which is contrary to previous sales where small market teams were significantly less valuable than their large market counterparts.

The reason this sale is good news for future valuations of small-market NBA teams like Phoenix is ​​that the price of the teams can only be attributed to one thing: projected future revenue. Here’s a breakdown of how money is distributed in the NBA and why small markets will experience disproportionate growth in valuations.

The general rule of the NBA is that all revenue outside of a 90-mile radius around each team’s location is controlled and exploited by the league. This includes media and intellectual property rights for all NBA teams. These revenues are distributed equally to each NBA team regardless of market size. While the NBA is left to exploit these domestic and international rights, teams are free to make deals in their home markets and this is where the big markets have the advantage.

Historically, teams in these big markets, like the Lakers and Knicks, would enjoy exponentially higher revenue than their small-market counterparts from sources like ticket sales, local sponsorship, and media rights. Even when combined with the revenue contributed by the NBA, the result was a huge difference in total revenue and, in turn, franchise value, with large-market teams being worth significantly more than small-market teams. However, the recent sale of the Phoenix Suns for $4Billion may be a sign that that percentage of the valuation gap will decrease significantly in the future.

While big city teams will still be able to extract more revenue from their largest and most prosperous markets, Adam Silver and his team in the NBA created or identified many new revenue streams domestically and internationally that resulted in NBA revenue. escalating dramatically with no end in sight. And small-market teams like Phoenix are entitled to an equal share of that revenue.

Historically, the NBA’s revenue came from limited sources: media, sponsorship, and licensing. In 2001, total revenue at the league level was approximately $2 billion per year. Last year, Adam Silver announced that the NBA had eclipsed $10 billion in revenue. There are a number of reasons for this spectacular increase in revenue and a good indication that this growth will only continue at a rapid pace.

The main reasons are the growth of international markets and the new forms of participation and monetization of consumers. Internationally, the NBA has enjoyed explosive growth in revenue from international media distribution, sponsorship, licensing and merchandising. NBA “League Pass”, a DTC media offering, has been promoted not only by current stars like LeBron James and Stephen Curry, but also by internationally famous players like Luca Doncik and Nicola Jokic. In addition, NBA teams can now sell uniform patches that are viewable around the world due to their international broadcast deals, drawing investment from international companies looking to reach their non-US fan audiences. of the NBA.

Another source of revenue growth for the NBA will be in its national media rights deal that expires at the end of the 2024/25 season where they are allegedly seeking $75 billion National broadcasters only. This deal will be offered to traditional players like Disney/ESPN and Turner, but there are new kids on the block like Amazon.
Apple and Google
, all of whom have expressed an interest in these rights. These tech giants have huge market caps and a lot of dry dust to throw at an award-winning property like the NBA and will likely drive the price up. We’ve already seen this play out a bit in the negotiations with the NFT media. Additionally, a component of that media deal will likely include a smorgasbord of direct-to-consumer (DTC) offerings that may be more appealing to younger audiences with a shorter attention span. Many of those younger NBA fans often engage with the league through highlights, social media, and games instead of watching the games live. The NBA media deal of the future may solve that problem through some form of micro transaction, perhaps even facilitated by blockchain technology.

Also, the NBA has been working diligently to engage the fans in every possible way to increase their affinity for the NBA and extract more money from them. That includes AR/VR, alternative broadcast streams, and more interactive elements where the NBA can charge fans directly or monetize these new forms of engagement through sponsorship. Digital collectibles in the form of NBA Top Shots were all the rage generating over $1 billion in revenue (although that market has cooled off a bit). And finally, the league is looking at gambling as the holy grail of new revenue with the NBA feeding betting odds to fans throughout the game to stimulate their interest in betting and make it easy through the betting app. the nba.

All of this new or increased revenue will be shared equally among teams in the NBA’s small and large markets. This bodes well for the future value of all franchises in the league and bodes even better for small-market teams that will get their fair share of the most powerful growth engine in future revenue.

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