Nearly half of the 30 NBA franchises lost money last season—the Portland Trail Blazers among them—and league revenue sharing is responsible for keeping struggling teams in the black, according to Brian Windhorst and Zach Lowe of ESPN. In an article published this morning, the duo exposed a confidential NBA report detailing the financial status of its teams following the 2016-17 season. According to the document, 14 franchises operated in the red when measured by net income, 10 when gauged by operating income. The Trail Blazers made both lists. The Blazers avoided a third category, “Net Income After Revenue Sharing”, meaning payouts from the league’s complex revenue sharing program and luxury tax violators kept Portland from finishing in debt for the year.
This Sports Business Daily article explains the NBA revenue sharing program. In simple terms, each team contributes a percentage of income—capped at 50%—to a pool, which is then disbursed to all franchises based on average roster salary league-wide. Payouts are modified by byzantine variables, including market size. As this Forbes article from 2016 shows, the Trail Blazers are heavily dependent on revenue sharing for profitability.
Luxury tax payments are more selective. Teams over the tax threshold pay penalties which are then distributed to the teams who didn’t go over the line. The Blazers finished the 2016-17 season with a $112.4 million payroll, just under the tax threshold of $113.3 million, making them eligible to receive revenue sharing funds. Next year they are slated to pay $122.2 million against a tax boundary of $119.3. If those numbers hold through the last day of the season, the Blazers would pay out, not receive, tax funds.
Windfall from the league’s new television contract—amounting to billions of dollars flowing into the system—was expected to ease financial concerns for the league’s franchises but as Windhorst and Lowe explain, smaller markets remain in a disadvantaged position compared to their bigger siblings. A few, mammoth teams bring in the lion’s share of income, most notably the Los Angeles Lakers, who hold a valuable brand and rake $200 million per year in local television broadcast revenue. Small market teams cannot begin to compete with L.A.’s cash flow, giving the Lakers the ability to make moves that the Grizzlies and Trail Blazers cannot without imperiling their bottom line. Rising salaries (due to that same television revenue) make the consequences of those moves graver:
"Teams in small markets are told we need to run our businesses better so we can make money," one ownership source told ESPN.com. "But teams in the largest markets can run their businesses poorly and still make money."
According to the article, both large- and small-market teams want to talk about the revenue-sharing system.
"The need for revenue sharing was supposed to be for special circumstances," one large-market owner told ESPN.com, "not permanent subsidies."
Trail Blazers owner Paul Allen is reportedly on the other side:
Some owners have argued that teams should share enough that all 30 finish in the black. Paul Allen, the owner of the Blazers and the NFL's Seattle Seahawks and one of the world's richest people, is among the loudest voices urging more robust revenue-sharing, sources say. One owner even pitched the idea at a recent meeting of the Board of Governors session in Las Vegas that all teams should be guaranteed $20 million in profit, sources said.
There will be pushback to those ideas.
"This is a club where everyone knows the rules when they buy in," one owner told ESPN.com.
The article is full of other details, putting numbers to the income gap, discussing revenue streams and the salary cap, exploring the options of expansion and franchise relocation, and detailing ironic inequities built into the system.