The NBA has had a HUGE inflation over the last 20 years and shows no signs of regressing. When something climbs this far for this long in economics, there is usually an ensuing crash. Let's take a look at NBA salaries over the years: In 85-86 the season team cap was $4.23 Million The Lakers had the highest payroll of $8,579,750 only 3 players earned between $2-$3 mill The average salary was $370,104 Fast forward to 95-96 that has a $23 mill cap The Knicks had the highest payroll with $43,329,000 7 players earned $6mill or more The highest individual salary was Patrick Ewing at $18,724,000 118 players will earn $1-$2 mill Now to 05-06 with a cap of $49,500,000 The Knicks top the payroll again at an astounding $126,610,272 11 players earned over $10 mill. The average salary was $4,037,899 Shaq tops the list at $20,000,000 And now to 2015-2016 with a cap of $70 mill Cleveland tops the list at $126,702,908 Kobe Bryant made $25 mill Factor this in the this years salary cap increase and next years increase and we are well over $100 mill in cap. This is an inflation of astounding proportions. In 30 years the cap went from $4.23 mill, to $126.7 mill Now lets take a look at some other things in our lives and how they have increased ...........................Back in 86:...........................Today: Gallon of Gas.............$.93................................$2.27 Movie Ticket............$2.75...............................$11.00 Rent.....................$385.00.........................$1,178.58 New Home.....$89,463.00...................$384,000.00 New Car............$9,281.00......................$20,088.35 Income............$22,339.00......................$55,775.00 The inflation is quite disparaging. I am no math wiz, so I am not able to translate these into percentages without a decent amount of time (which I am almost out of). But at a glance, that though most increases seem fairly even, income has had the lowest percent of growth. Many things like beer, chips, insurance (Companies that are paying for today's advertising) don't have much of a history to see what we paid for their services back then compared to now, or records are hard to find. But I do not see how this can sustain at this pace. Inevitably, our costs of goods are going to rise even more in compared to our salaries, to offset all the money companies are having to pay the NBA for the advertising to offset these increases. Can we as a society handle this in the long run? Seems like an economic choke hold for long term growth. I think its out of control and people are not looking at the long term economic ramifications of the ungodly amounts of money being tossed around. Some much smarter people than I around here. Thoughts?
Look at income before you declare a crash. The money is coming from somewhere (TV, tickets, merchandise) - and as long as the income increases, so would the salaries.
It was quite an alarming jump. What accounts for the large jump that just took place? Are ratings really that much better? Advertisers are willing to shell out the money to support it for the time being, but if they decide it's not worth it, the networks would be hit first, since they signed the contract with the NBA. So they'd be a buffer. But yeah, what does the nba do if the networks come back with a much smaller offer the next go round and nba teams already have many of those ridiculous "Allen Crabbe" contracts on the books? The nba could find itself in an odd situation where the salary cap defaltes and max players are earning less than guys like Turner/Crabbe.
I addressed that. Did you read the whole post? "Many things like beer, chips, insurance (Companies that are paying for today's advertising) don't have much of a history to see what we paid for their services back then compared to now, or records are hard to find. But I do not see how this can sustain at this pace. Inevitably, our costs of goods are going to rise even more in compared to our salaries, to offset all the money companies are having to pay the NBA for the advertising to offset these increases. Can we as a society handle this in the long run? Seems like an economic choke hold for long term growth."
Exactly. In order for this type of growth to sustain, advertising companies are going to have to raise the price of their consumer goods through the roof to pay for all of tv contracts. The average American wont be able to take that increae and will stop buying those products, thus having a decreased revenue with an increased cost of advertising. Gotta thing long term on this, but it sure seems scary to me. Something is going to have to give down the road and are us as consumers gonna take it in the teeth and just accept the inevitable increases in daily goods? Insurance increases, a bag od Doritoes is $8 dollars in 2025, but the average annual salery is only $70,000? We can't handle that in my opinion. So who is going to end up footing the bill as this continues? it's a domino effect that almost always ends up in the average person's lap.
There certainly is the potential for a future bubble bursting with the NBA and with all pro sports leagues. That being said, I think that sports has reached that level where its not even necessarily about ROI for many sponsors, but rather the brand association with the immense popularity of sport. Here's what i mean: if Kia decides, when their "crappy car of the NBA" (or whatever their sponsorship is called) deal is over, that they don't wan to re-up, you can bet that one of Nissan, Ford, Toyota, Fiat, Mercedes, etc. will be next in line to hand over bushels of cash to get that association. Same can be said for Sprite, Ticketmaster, etc. Obviously in these types of "what if" situations, it's all speculative until the numbers bare out -- I suppose if Kia somehow collapsed because of their NBA sponsorship, other sponsors might be more weary, but I think that's a pretty extreme and unlikely scenario. For that reason, I suspect we'll probably see less of a violent burst and more of a plateauing effect. I can tell you that pro sports teams and leagues are always on the hunt for new revenue streams and to the OP -- applying economic theory to pro sports finances is utterly fascinating. On one hand, we're seeing a very real decline in ticket and TV revenues across the board that is causing very real change in the industry (teams are looking at building smaller stadiums, providing less expensive ticket packages, etc.), and on the other hand, the financial growth in pro sports hasn't even reached equilibrium yet -- there's still opportunity for them to expand their earnings. Throw in these astronomical salaries and the general concept of power within the league, and you've got an extremely interesting economic climate moving forward. Fortunately, unlike the hosing bubble, our pro sports leagues have some very smart people working on these challenges and trying to come up with more ways for their golden geese to keep laying those eggs.
ESPN and Turner networks alone pay the NBA $2.6 billion per year under the new contract. That contract more than doubled when they re-negotiated in 2014. The last agreed contract in 2007 was for around $930 million annually. As to how this impacts the consumer directly, if you are a cable customer, ESPN charges your provider around 6 bucks per month and is expected to increase to 8 per month. This new money has nothing do do with tickets and all to do with media contracts.
So okay, its not like the old fashioned burst of the past that would affect things like the cost of bread and milk, but Turner owns a lot. Time/Warner is one of the few huge corporate consumers, meaning they swallow companies whole, left and right. So this will affect cable bills and that increase would only be as you mentioned , if everything sustains. If not, it will skyrocket. With that said, @glazeduck had some great points about company after company in line waiting to take the place and pay the money for the advertising, to sustain these tv contracts. A plateau Would be acceptable I suppose, but a fast regression could be a huge trickle down effect to us consumers.
A thread like this was just started a couple of days ago. http://www.sportstwo.com/threads/forbes-nba-most-valueable-teams-2017-blazers-ranked-16th.309282/ The trouble with financial threads is that there is no detail to discuss. The league and individual teams refuse to show financial statements. In every CBA negotiation, they cry wolf that they're losing money, so the union says prove it by showing your books, and the owners decline. So we have no numbers to analyze. It's the same as Republicans making it illegal for the government to do cost studies on climate change, and illegal to do science studies about street drugs. No analysis is allowed; just a police state yelling down at us.
Some ways we are paying portion of the bill. Through tickets or at the concession stands or through T.v. We are still paying.
Today's cap is a based on a 50/50 split of revenue between the owners and the players. It seems fair that the players earning the money get half of it.
I'm not disputing the spread or how the pie is divided per say, but more so the size of the pie itself. I don't think its consumable if it continues to grow the way it is. Again though Ive had second thoughts on whether it will continue at its pace, due to further input.
Back in 1985 you got maybe a couple of games a week nationally broadcast. Now it's every game. That is the main reason why the pie is bigger.
Good point but then ticket sales have gone up dramatically as well, but yet when you take a look at most other items we consume and the availability of, the prices go down with more accessibility. Not up.
The OP examples are generally three-fold increases (2-4x), including movie tickets. Salary cap is about 10x that. The interesting comparison point would be NBA ticket prices. Anyone know those average numbers? I know there's a huge discrepancy throughout the league. I do think the explosion of TV money is bad for the league. Some people have tuned out their favorite teams because the contracts became grotesque overnight. Lots are cancelling cable, cutting into growth, if not sustenance, potential. The 50/50 split is very problematic. The CBA should have stipulated either making every contract a % of the cap (fluctuating with it annually), or controlling rate of annual growth and putting any excess into player pensions, including former players who helped create the explosive growth.
Cable has gone up a dramatically as well. What used to cost you $50 15 years ago costs $150 now. I'm not focused on just ticket sales or even stadium concession sales. I'm concerned about consumer goods in general that these companies dishing out this ungodly money for their ads to support these tv contracts with the NBA and how they will pass of the inflation to us through these goods.
One thing about TV money is the fact that with the advent of DVR, sports are just about the only thing on TV these days that demand live attention. Hence, commercials for sports broadcasts are significantly more valuable than those for comparably-rated non-sports programming. As long as that remains the case, I don't foresee a crash forthcoming.
The amount of promo you get to the live attendance is nothing compared to the loss at home with DVR's
