News of a, massive, new NBA TV contract broke just a few minutes ago. Already we are hearing about how the contract can grow even larger.
From what I'm hearing there are expansion escalators in the new NBA TV contract.
— ☃️ 🦌🎅 Merry Nesgoda 🎄🎁🚂 (@KevinNesgoda) October 6, 2014
The “escalators” that Kevin Nesgoda is referring to in his tweet are increases in the dollar amount ESPN and TNT could end up paying if the NBA were to expand. That means that the owners would not be losing money if there is expansion in the future.
For example, the new deal is expected to pay out $2.66 billion annually. Each franchise can expect to get 1/30th of that amount — that’s about *$88.7 million per year. If the league were to expand by two (without escalators in the contract), then each franchise would only get 1/32 of $2.66 billion — that’s about *$83.13 million. The potential loss of revenue was perceived to be a major obstacle to expansion.
*These numbers are for illustration purposes only. It is important to note that the players union gets a large portion of the TV contract revenue before the league divides it up amount its franchises.
That’s why these escalators in the contract are incredibly good news for those hoping for expansion. It means that the league will increase its revenue, and keep all of the current franchises future revenue (from the TV contract) intact if the league does decide to expand.
If you add in the potential expansion fee, rumored to be around $1 billion per franchise, suddenly current NBA owners could see a dramatic increase in the income of their respective franchises.
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