Roundball in Sin City?

Editor’s Note: Yours truly is still on vacation, so today you’re in the capable hands of Jeff Leatherock, who ponders Las Vegas‘ emergence as a major league sports town. Enjoy!

I have been a big sports fan for 50 years. I also wound up being a fan of the business of sports for about as long. I read The $4000,000 Quarterback for the first time around 1972. 

The 1960s-70s were a great time to be a young sports fan because new leagues and teams were popping up all the time and everywhere. From 1960-80 there was, on average, more than one new team added each year to the “big four” North American sports  (baseball, football, basketball and hockey). Two football leagues, one basketball league, nine MLB teams. The NHL doubled in one Swell Foop in 1967, going from 6 to 12 teams, and by 1980 had 21 (!) teams. The NFL had endured the best shot of the AFL being formed and had a merger agreement with them by 1967. The attempt by the WFL to get in on the action in the early 70s was an abject failure. The ABA  began their decade long war of attrition with the NBA in 1967 and ultimately staggered into the league with the Nets, Nuggets, Pacers and Spurs “allowed” to buy their way into the NBA.

With the exception of the USFL going from nothing to 12 then 18 teams then back to nothing in three short years, the 1980s-90s slowed this explosive growth and brought some order and understanding of market dilution to the leagues. TV and merchandising revenue exploded, and the NBA decided the socialism model of the NFL in regard to revenue streams complemented its own trailblazing salary-cap player partnership in such a way that they became the darlings of North American sports management. 

The explosive growth of TV and merchandising revenue eliminated the “quick fix” benefit of expansion fees. And the financially savvy minds coming into sports management began to cast a highly critical eye toward the negative effects of cutting up the revenue pie into smaller pieces. As a percentage of U.S. population there are fewer roster spots and teams in the North American four leagues than at any time since 1960. Sports have been so successful that even unionized players don’t want more players. Rather, they want more money for the players that they have.

Streaming and future media opportunities are growing so much that NBA media rights are expected to generate around $7 billion per year by mid-decade. Over three times the current amount, this would pay each of the 30 teams about $230 million annually.

And there is the rub.

The media deals are expected to be about the same for a 32 teams league as the current 30. And the payout split 32 ways drops about $15 million a year to each team. Each billion dollars of any expansion fee would pay each team about $30 million for one time. Or two years of how much your media money is going to be reduced if you let me in your league. This is the disincentive for the league—the amount that someone would have to pay to be in the league is not a benefit to the group as a whole when split 30 ways. I think it is less than one year of a maximum player’s contract. Adding teams doesn’t look to be a financial windfall for the NBA.

Let’s move past that and look how the NBA is set up. The NBA has had great success by being the only league in town. seven of the 30 teams (Memphis, Oklahoma City, Orlando, Portland, Sacramento, San Antonio and Utah) are NBA only, three more (Charlotte, Indiana and Phoenix) were NBA only for a decade or more. Comapre to the other leagues and we see how unique the NBA is in that regard; MLB only has Oakland and San Diego as one-league cities, and they both had to run off other sports to get there. The NFL has none. And the NHL has only Columbus as a U.S .one-sport city (Canada is a different animal). The NBA has always been protective of their markets and market share. They are rarely late arrivals after other leagues have established in a market.

Having said ALL that, I believe the NBA will expand in the next five years. I think it will be two teams. And I am convinced Seattle will be one of the cities. I think the other team will come from, in no particular order…

Mexico City
Las Vegas
Louisville

All three cities have no problem getting the money for a team. I think the cultural differences will exclude Mexico City. 

The negatives of Las Vegas: Too-rapid expansion into the major sports world; going from zero to two (and one of those is NFL) within five years unheard of. Even the supercharged world of Las Vegas can’t get NBA owners to embrace growth into the market for at least five more years.  It is too close to Seattle. A two-team expansion of Seattle and Las Vegas would be too West Coast-focused. The NBA would like to spread out the viewers throughout the country.

Arena tenancy. It would be impossible for the NBA team to be primary tenant of T-Mobile Arena. They would have to be in second position behind the Golden Knights and that provides control of dates, signage, and other revenue streams that are critical to profitability. 

My hunch is that it will be Louisville that gets Team Two. But I think the incredible ability of Las Vegs to access capital, reinvent and grow is impossible to ignore.