Are the forces finally in play for a 32-team NBA?
Expansion talks are heating up, and you’ll never guess why: money. As revenues fall around the NBA due to a lack of ticket sales, some owners see expansion as a logical way to grab some quick cash or pay off some debt.
“I don’t know what will happen, but I may lose $50 million next season,” one team’s owner told ESPN in July. “If that happens, I have three options: I could borrow the money, I could sell part of the team or I could do a cash call and me and my partners would have to write checks.”
Expansion represents door No. 4.
The hope, ESPN’s Brian Windhorst reports, is to ask $2.5 billion per team in expansion fees for the interested bidders, a $5 billion windfall that would be split only among the 30 current NBA owners — the players wouldn’t see 50% of that revenue, like they do with the ongoing income. That would mean over $150 million for each NBA owner to use as they like — well in excess of the losses due to the pandemic.
And there sure are some NBA owners who could use $150 million. The most notable is Tilman Fertitta, owner of the Houston Rockets, who made his money as a restaurant mogul — his company owns Morton’s Steakhouse, Bubba Gump Shrimp Co., and the Golden Nugget Hotel and Casino chains. A report said he was willing to pay 15% interest on a $250 million lifeline; he’s also looking to raise capital by taking his company public. A $150 million windfall out of nowhere? He’d be desperate for that cash.
But there are other owners who seem like obvious beneficiaries, too. Micky Arison, owner of the Heat, is chairman of Carnival Cruises — boy, that’s not the business you want to be in this year. The Buss family is largely only in the business of running the Los Angeles Lakers, and they’re not seeing ticket revenue. They went so far to apply for a PPP loan, getting $4.6 million from the federal government that they eventually returned after public backlash. Pacers owner Herb Simon runs a mall management company, Simon Property Group, that lost half of its stock price in 2020.
The downside, of course, is splitting future league-wide revenue 32 ways instead of 30. How much is that worth? In 2014, the owners of the old ABA club the Spirits of St. Louis, accepted $500 million from the NBA in order to give up their share of the NBA’s TV revenue money in perpetuity. The TV deal is larger now, and of course, there are a few other streams of income to consider. Still, league owners may look at the franchise fees as a smart piece of business, too.
That is, if they get the bidders willing to pay the franchise fees in the markets they want. In any expansion effort, Seattle is a no brainer — the NBA still feels immense guilt for moving the Supersonics to Oklahoma City. It’s a large media market without a team, and Key Arena is undergoing the necessary renovations to be a modern NBA arena as we speak, as the Seattle Kraken expansion NHL team will play there. Hedge fund manager Chris Hansen, from Seattle, is reported to have done well during the pandemic, and has spent nearly a decade trying to get an NBA team back to his home city.
Who else will bid? Las Vegas is an obvious answer, thanks to their new T-Mobile Arena, home to the Golden Knights NHL team, the WNBA’s Aces and much of USA Basketball’s public events. The Las Vegas Review-Journal said that MGM Resorts International was considered to be the most likely bidder there.
Kansas City has an NBA-ready arena, the similarly named T-Mobile Center, and no NBA team within 350 miles, but it’s not clear if there’s sufficient demand for an NBA team there. The Sacramento Kings spent a decade in Kansas City and it didn’t go particularly well, though that was 40 years ago. San Diego announced it is building a new arena, overcoming a roadblock Silver pointed to years ago.
The league really wishes it could expand to Mexico City — the 8th largest city in the world and bigger than New York — because of the revenue that would come from it. The city has a quality arena. But having covered the Jazz’s game in Mexico City two seasons ago, the issues are legion: a market that doesn’t really love basketball, the altitude and travel that just decimated teams coming in, and safety concerns in Mexico. I love spending time there, but it would be an enormous hassle.
Beyond that, Vancouver, Montreal, Virginia Beach, Pittsburgh, and Louisville all are on the list of plausible expansion cities that aren’t among the favorites. An NBA city in those places could work, but there would have to be really committed ownership with deep pockets and big vision, and a lack of quality candidates in the other cities.
Las Vegas Mayor Carolyn Goodman spoke with commissioner Adam Silver at the end of December and came away thinking expansion wasn’t yet imminent, saying that he hasn’t “had a single conversation, as he told me, not with any city or any individual representing a city regarding expansion.”
“I think I’ve always said that it’s sort of the manifest destiny of the league that you expand at some point,” Silver said during his annual preseason press conference. “I’d say it’s caused us to maybe dust off some of the analyses on the economic and competitive impacts of expansion. We’ve been putting a little bit more time into it than we were pre-pandemic, but certainly not to the point that expansion is on the front burner.”
Call it the back burner, then. But, as usual, the money will talk: if the pandemic losses are huge, expansion is one obvious way to bring in the billions.