LeBron James‘ future in Cleveland could be tied to the Brooklyn Nets’ performance this season, writes Harvey Araton of The New York Times. The value of the Nets’ unprotected first-rounder that the Cavaliers received in the Kyrie Irving trade won’t be known until much later in the season. If Brooklyn finishes last in the league again, the Cavs will have a 25% shot at the number one selection and their choice of players such as Michael Porter Jr., Luka Doncic and Marvin Bagley.
ESPN’s Zach Lowe and Brian Windhorst have published an expansive and well-researched report on NBA teams’ finances, providing details on the league’s revenue sharing system, the impact from national and local television deals, and how a lack of net income for NBA franchises could push the league toward considering relocation or expansion.
The report is wide-ranging and detailed, so we’re going to tackle it by dividing it up into several sections, but it’s certainly worth reading in full to get a better picture of whether things stand in the NBA. Let’s dive in…
Which teams are losing money?
- Nine teams reportedly lost money last season, even after revenue sharing. Those clubs were the Hawks, Nets, Pistons, Grizzlies, Magic, Wizards, Bucks, Cavaliers, and Spurs. The latter two teams – Cleveland and San Antonio – initially came out ahead, but paid into the league’s revenue sharing program, pushing them into the red.
- Meanwhile, the Hornets, Kings, Pacers, Pelicans, Suns, Timberwolves, and Trail Blazers also would have lost money based on net income if not for revenue sharing, according to Lowe and Windhorst.
- As a league, the NBA is still doing very well — the overall net income for the 30 teams combined was $530MM, per ESPN. That number also only takes into account basketball income, and doesn’t include income generated via non-basketball events for teams that own their arenas.
- The players’ union and its economists have long been skeptical of NBA teams’ bookkeeping, alleging that clubs are using techniques to make themselves appear less profitable than they actually are, Windhorst and Lowe note. The union has the power to conduct its own audit of several teams per season, and it has begun to take advantage of that power — according to ESPN, the union audited five teams last season, and the new CBA will allow up to 10 teams to be audited going forward.
How does the gap between large and small market teams impact income?
- Even after paying $49MM in revenue sharing, the Lakers finished the 2016/17 with a $115MM profit in terms of net income, per ESPN. That was the highest profit in the NBA, ahead of the second-place Warriors, and could be attributed in large part to the $149MM the Lakers received from their huge local media rights deals.
- On the other end of the spectrum, the Grizzlies earned a league-low $9.4MM in local media rights, which significantly affected their bottom line — even after receiving $32MM in revenue sharing, Memphis lost money for the season. The Grizzlies will start a new TV deal this year that should help boost their revenue, but it still won’t come anywhere close to matching deals like the Lakers‘.
- The biggest local TV deals help drive up the NBA’s salary cap, with teams like the Lakers and Knicks earning in excess of $100MM from their media agreements. According to the ESPN report, the Knicks made $10MM more on their TV deal than the six lowest-earning teams combined.
- As one owner explained to ESPN, “National revenues drive up the cap, but local revenues are needed to keep up with player salaries. If a team can’t generate enough local revenues, they lose money.”
- Playoff revenue from a big-market team like the Warriors also helps push up the salary cap. Sources tell Lowe and Windhorst that Golden State made about $44.3MM in net income from just nine home playoff games last season, more than doubling the playoff revenue of the next-best team (the Cavaliers at about $20MM).
How is revenue sharing affecting teams’ earnings?
- Ten teams paid into the NBA’s revenue sharing system in 2016/17, with 15 teams receiving that money. The Sixers, Raptors, Nets, Heat, and Mavericks neither paid nor received any revenue sharing money. Four teams – the Warriors, Lakers, Bulls, and Knicks – accounted for $144MM of the total $201MM paid in revenue sharing.
- While there’s general agreement throughout the NBA that revenue sharing is working as intended, some teams have “bristled about the current scale of monetary redistribution,” according to ESPN. “The need for revenue sharing was supposed to be for special circumstances, not permanent subsidies,” one large-market team owner said.
- The Grizzlies, Hornets, Pacers, Bucks, and Jazz have each received at least $15MM apiece in each of the last four years via revenue sharing.
- However, not all small-market teams receive revenue-sharing money — if a team outperforms its expectations based on market size, it forfeits its right to that money. For instance, the Thunder and Spurs have each paid into revenue sharing for the last six years.
Why might league-wide income issues lead to relocation or expansion?
- At least one team owner has raised the idea of expansion, since an expansion fee for a new franchise could exceed $1 billion and it wouldn’t be subject to splitting 50/50 with players. A $1 billion expansion fee split 30 ways would work out to $33MM+ per team.
- Meanwhile, larger-market teams who aren’t thrilled about their revenue-sharing fees have suggested that small-market clubs losing money every year should consider relocating to bigger markets, sources tell ESPN.
- As Lowe and Windhorst observe, the Pistons – who lost more money than any other team last season – are undergoing a relocation of sorts, moving from the suburbs to downtown Detroit, in the hopes that the move will help boost revenue.
What are the next steps? Are changes coming?
- The gap between the most and least profitable NBA teams is expected to be addressed at the NBA’s Board of Governors meeting next week, per Lowe and Windhorst. Team owners have scheduled a half-day review of the league’s revenue sharing system.
- Obviously, large- and small-market teams view the issue differently. While some large-market teams have complained about the revenue sharing system, they’re outnumbered, with smaller-market teams pushing those more successful clubs to share more of their profits, according to ESPN.
- Trail Blazers owner Paul Allen is one of the loudest voices pushing for more “robust” revenue sharing, sources tell ESPN. Some team owners have argued that the system should ensure all teams make a profit, while one even suggested every team should be guaranteed a $20MM profit. There will be “pushback” on those ideas, Lowe and Windhorst note. “This is a club where everyone knows the rules when they buy in,” one owner said.
- On the other end of the spectrum, some teams have floated the idea of limiting the amount of revenue sharing money a team can receive if it has been taking payments for several consecutive years.
- Any change to the revenue sharing system that is formally proposed at the NBA’s Board of Governors meeting would require a simple majority (16 votes to 14) to pass.
- Nets first-rounder Jarrett Allen is looking forward to teaming up with newly acquired point guard D’Angelo Russell, relays Anthony Puccio of NetsDaily. The big man out of Texas had to skip summer league because of a hip injury, so the preseason will be the first chance for Brooklyn fans to see him in action. In a question-and-answer session with Puccio, Allen says Russell provides a perfect complement for his skills. “Being 6’10” and athletic I’ll be doing a lot of pick-and-rolls with D’Angelo – set him good screens, roll to the basket or pop and let him do his work and lob it up to me eventually,” Allen said. “… He’s great with the ball, makes good decisions and makes really good passes. He’s going to find me.”
- Eric Pincus of Basketball Insiders updated his salary totals for two Atlantic Division teams in light of recent signings. The Celtics are at $111,505,141 total and $109,873,911 in guaranteed money after camp deals with L.J. Peak and Andrew White and a two-way contract with Jabari Bird. Tyler Zeller‘s deal with the Nets brought Brooklyn to $97,328,061 total and $94,222,526 in guaranteed cash.
- Prior to signing Tyler Zeller this week, the Nets had just two players taller than 6’8″ on their roster, Brian Lewis of the New York Post notes.
SEPTEMBER 12, 2:43pm: The deal is official, the team announced on its website.
SEPTEMBER 11, 6:31pm: The Nets and center Tyler Zeller are finalizing a two-year contract, Adrian Wojnarowski of ESPN.com tweets. Zeller will join the Nets, a league source informs NetsDaily.com, but the second-year is not guaranteed (Twitter link).
Brooklyn’s interest in Zeller doesn’t come as a total surprise, since Michael Scotto of Basketball Insiders recently reported that the Nets had worked him out.
Zeller didn’t draw much interest on the free agent market after he was waived by the Celtics in July in order to free up cap space. The 27-year-old center had a non-guaranteed $8MM salary for 2017/18 that needed to be cleared from Boston’s books in order to sign prized free agent forward Gordon Hayward.
Brooklyn was seeking frontcourt depth after a variety of deals left it a little thin at those spots. The Nets dealt Brook Lopez, Andrew Nicholson, and Justin Hamilton, while adding Timofey Mozgov in a trade and drafting Jarrett Allen in the first round. He’ll compete with Mozgov and Allen for minutes.
Zeller, the 17th overall pick in the 2012 draft, spent the last three seasons in Boston, but played a career-low 10.3 minutes per game in 2016/17. In 340 career games with the Cavs and Celtics, the UNC product has averaged 7.0 PPG and 4.4 RPG.
Jared Sullinger, who was linked to the Nets in rumors this summer, has signed with the Shenzhen Leopards of the Chinese Basketball Association, tweets international writer David Pick. Sullinger agreed to a two-month contract worth $300K.
It will be the first time playing overseas for the 25-year-old power forward, who was picked 21st in the 2012 draft. Sullinger spent four productive years with the Celtics, averaging 11.1 points and 7.7 rebounds per game, although there were lingering concerns about his conditioning.
He signed with the Raptors last summer, but underwent foot surgery just before the start of the season and was barely able to contribute. Sullinger managed just 11 games in Toronto and was shipped to Phoenix at the February trade deadline. He was immediately waived by the Suns.
The Nets’ interest was rumored for a couple of months after the team scouted him in The Basketball Tournament in July. Sullinger adopted a vegan diet and dropped weight in hopes of an NBA comeback. His agent, David Falk, confirmed in August that Sullinger was “exploring the opportunity” of signing in Brooklyn, but the Nets are close to an agreement with free agent big man Tyler Zeller, leaving China as the best remaining option for Sullinger.
In addition to working out Jared Sullinger in late August, the Nets recently brought in free agent center Tyler Zeller for an audition, according to Michael Scotto of Basketball Insiders (Twitter link).
It’s the first update we’ve heard in more than two months on Zeller, who was waived by the Celtics shortly after the free agent period began in July. The 27-year-old center had a non-guaranteed $8MM salary for 2017/18 that needed to be cleared from Boston’s books in order for the C’s to maximize their cap room, which they ultimately used to sign Gordon Hayward.
While there’s no indication that Zeller is on the verge of joining the Nets, Brooklyn remains on the lookout for frontcourt help. So far this offseason, the Nets have traded away Brook Lopez, Andrew Nicholson, and Justin Hamilton in various deals, adding Timofey Mozgov and Jarrett Allen to help fortify the rotation up front.
Zeller, the 17th overall pick in the 2012 draft, spent the last three seasons in Boston, but played a career-low 10.3 minutes per game in 2016/17. In 340 career games with the Cavs and Celtics, the UNC product has averaged 7.0 PPG and 4.4 RPG. Given his reduced role last season, those averages dipped to 3.5 PPG and 2.4 RPG, though his per-minute numbers weren’t far off his career rates.
Over the course of the 2017 NBA offseason, there have been conflicting reports on whether Nets owner Mikhail Prokhorov intends to sell just a minority share of his franchise, or if he’s seriously considering selling a controlling interest. In his latest report, Josh Kosman of The New York Post reiterates that Prokhorov plans to offload his controlling interest in the Nets, but may do so in a two-part process.
According to Kosman, Prokhorov will look to sell a minority stake in the team first, but will give that buyer a window to purchase the entire franchise — perhaps within three years or so. One source suggested to Kosman that “there will be a new (Nets) owner in the next few years.”
While the idea of selling 49% of the club may sound appealing to Prokhorov, who could retain control while receiving a huge boost to his bank account, there likely aren’t many investors out there interested in spending upwards of $1 billion on less than half of an NBA franchise and not receiving any real power. However, if there’s a clear path to becoming the controlling owner of the Nets, that scenario figures to be much more appealing to potential buyers.
Sources tell Kosman that the Nets believe they can demand a price of at least $2 billion after seeing the Rockets sell for $2.2 billion. Of course, that Rockets sale included operation of the Toyota Center Arena, and Prokhorov doesn’t plan to sell the separately owned Barclays Center, according to Kosman. So it remains to be seen how that will impact the sale price.
[RELATED: Tilman Fertitta Buying Rockets For Record Price]
As for who might be in the mix as a potential buyer, Kosman reports that Alibaba Executive Vice Chairman Joe Tsai has expressed some interest, though reps for his family office, Blue Pool Capital, deny that interest. Other potential suitors – including some “Wall Street types” – have also been doing due diligence on the franchise, according to Kosman, who says that would-be buyers are waiting for clarification on various details before submitting formal offers.
Unlike the Rockets, who made a public statement earlier this summer announcing the franchise was up for sale, the Nets have not officially announced that Prokhorov is looking to sell controlling interest in the team. In fact, according to a NetsDaily report, a spokesman for Prokhorov downplayed the idea that the Russian owner is looking to offload the franchise, at least in the short term.
“We have received multiple offers with varying formats for buying a part or all of the Nets,” that spokesman said. “We are not considering any proposals that preclude our ongoing participation in the Nets for years to come. Mikhail continues to be an enthusiastic supporter of the team and remains committed to the Nets.”
The Nets are in the middle of a long, unconventional rebuild but that hasn’t deterred veterans from aiming for the postseason in 2017/18. Anthony Puccio of Nets Daily recently broke down some Timofey Mozgov comments suggesting exactly that.
While it’s worth recognizing that little stock should be placed in an NBA player saying they think their team can make the playoffs when asked directly, this is the 20-62 Nets we’re talking about and their success or failure will directly impact one of the summer’s most significant storylines (the Cavaliers acquiring Brooklyn’s first-rounder in the Kyrie Irving trade).
Earlier this offseason, Jeremy Lin adamantly claimed that the Nets would make the playoffs in 2017/18, as Ryne Nelson of SLAM Online broke down, and perhaps more weight should be put in those comments than in Mozgov’s. While D’Angelo Russell may well be the biggest long-term building block the franchise has, it’s hard to argue that Lin is anything but their best player here and now.
Of course any discussion about the Nets’ playoff chances should touch on the fact that this isn’t a typical young, rebuilding organization. Lacking their pick in 2018, there’s no incentive for Brooklyn to lose games. In fact, rallying together for a shot at the playoffs could be the most beneficial thing Kenny Atkinson and Sean Marks could hope for in the development of their young core.
- There were some in the Nets organization that wanted to give international free agent Milos Teodosic a look but the point guard’s age and defensive shortcomings hurt his chances, a Nets Daily report says.
A report earlier this week suggested that friction between the Knicks‘ young phenom Kristaps Porzingis and head coach Jeff Hornacek caused the Latvian to skip his exit meeting earlier this offseason. However, Marc Berman of the New York Post reports that issues between the player and coach were not the source of Porzingis’ issue with the team.
Porzingis was reportedly frustrated with the front office (particularly ex-president Phil Jackson) and the team’s treatment of Carmelo Anthony. Issues between Hornacek and Porzingis suggest that his problems with the team went beyond Jackson and company. Stefan Bondy of the New York Daily News reported in July that Porzingis and Hornacek’s relationship “sat on rocky terrain” for most last season, partly because of his loud and critical treatment of the Knicks’ former first-round pick.
“We try to get good relationships with all our guys, not just the star guys,” Hornacek said to Bondy about his relationships with players on the team. “We’re talking to these guys every day. We see them every day. We travel with them. As a group we’re trying to do more things as a team, kind of family-type stuff. We’ll try to grow on that, that way.”
For what it’s worth, the Knicks have insisted that the organization’s future rests on its young assets with the 22-year-old Porzingis at the forefront. With key changes to the front office and the roster, New York enters 2017/18 with cooled expectations but a clearer vision for the future.
Below you can read additional news around the Atlantic Division:
- The “Process” of the Sixers rebuilding and trying to be competitive is over, swingman Nik Stauskas says to William Lou of theScore. The Sixers drafted Markelle Fultz first overall, signed J.J. Redick, and are hoping for healthy seasons from Ben Simmons and Joel Embiid If those elements come together, Stauskas feels the team can win.
- Jared Sullinger is one of several remaining free agent targets for the Nets, according to SB Nation’s NetsDaily (Twitter link). Brooklyn has two open roster spots and approximately $5MM in cap space, NetsDaily adds.
- With the Kyrie Irving trade complete, Chris Forsberg of ESPN writes that Boston can now focus on how the current roster shapes up and how the big three of Irving, Gordon Hayward, and first-round pick Jayson Tatum will mesh.
- While Celtics’ general manager Danny Ainge gave up a king’s ransom for Irving, CSN New England’s A. Sherrod Blakely writes that Ainge was right to complete the deal for the superstar guard.