NBA Lockout Would Put $1B in TV Ad Revenue at Stake

Also in Danger: Chunk of $2.7B Licensed Products Market

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A correction has been made in this story. See below.

NEW YORK (AdAge.com) -- Halfway through the 2010-11 National Basketball Association season, it's already been one of the finest in league history by almost every metric -- and that's just one more reason why a potential lockout and protracted labor negotiation between the owners and the players will threaten far more than simply the bottom line of a financial statement.

Although the National Football League's potential labor dispute is more top of mind -- its collective bargaining agreement with players ends in six weeks -- the NBA is dealing with its own issues. While its current agreement with the players doesn't expire until June 30, both sides are trying to avoid a situation that some sports-marketing experts have termed "more dire" than the NFL labor conflict.

At stake? About $1 billion in TV ad revenue for Walt Disney Co.'s ABC/ESPN and Turner Broadcasting's TNT, the main rights holders for NBA games; sponsors and advertisers that are facing the possibility of a second potential sports-programming platform disappearing; a global stage that Nike (and, to a lesser extent, Reebok) uses to hawk shoes; a huge chunk of the $2.7 billion licensed products market, most of which Adidas makes and sells; and brand equity at a pivotal time for the league, both domestically and internationally.

And don't think it isn't real. Phoenix Suns player Jared Dudley recently tweeted: "If you are in the NBA: I need all NBA players to save there [sic] money. Be prepared to live without a check for at least a year. This is serious."

The NBA Finals could see Lebron James, now with the Miami Heat, facing off against Kobe Bryant and the Los Angeles Lakers.
The NBA Finals could see Lebron James, now with the Miami Heat, facing off against Kobe Bryant and the Los Angeles Lakers. Credit: AP
The NBA is as hot as it's been in years. The buzz began three months before the season even tipped off, when LeBron James announced on live TV last July during "The Decision" that he would be leaving his hometown Cleveland Cavaliers for the Miami Heat. The league reportedly had a record 50,000 new season-ticket requests. The buzz has continued through the first half of the season with the potential for an NBA Finals between Mr. James and the Los Angeles Lakers' Kobe Bryant -- by far the two most marketable players in the league -- as well as the resurgence of big-market teams such as the New York Knicks and Chicago Bulls and the emergence of young stars such as Blake Griffin of the Los Angeles Clippers and John Wall of the Washington Wizards.

Attendance at games is flat, up about a half-percent compared to last year, but TV ratings on ESPN and TNT are up a whopping 30%. Advertisers and sponsors have noticed the resurgent fan interest.

The two sponsors that stand to lose the most are the newest ones -- Spanish banking group BBVA and American Express. BBVA, which is looking for increased brand exposure, signed a four-year, $100 million deal with the league this year. And American Express just returned as a sponsor after a five-year absence.

"The problem is this," said one chief marketing officer for an NBA partner. "It's not so much the money that we spend with the league and on the ads, it's how do you fill the hole in the promotional schedule? I mean, you can give me a make-good, but sometimes there's no real way to make good."

TNT clearly has the programming to fill the void if there is no NBA next season, but sports-centric ESPN would have to scramble. Unlike the NBA lockout in 1999, ESPN no longer has the National Hockey League to fall back on. And, according to a report prepared by analysts from RBC Capital, Disney derives 55% of its revenue from sports, primarily from ESPN.

As with the NFL, the NBA dispute is mostly over money. The NBA, claiming it lost $370 million last year, wants to change entirely a system that currently gives the players 57% of the revenue. The league has opened its books and audited tax returns to the union, which wants to maintain the status quo.

"Nobody is anxious to have a lockout or a work stoppage," said Neil Pilson, the former CBS Sports president who now runs his own consultancy, Pilson Communications. "From a cable [network] standpoint, a lockout would be manageable. But then you have a lot of goodwill there that's threatened."

And that goes beyond just the U.S. More than 300 million people play basketball recreationally in China, which has a deep fascination with the NBA and its superstars. Mr. Bryant was treated like a rock star -- some might even say a god -- when he played for the U.S. team in the 2008 Olympics in Beijing.

And what of the sneaker business? The basketball shoe market is a $2.4 billion market. Between the traditional Nike brand and Nike-owned Jordan Brand and Converse, the Swoosh controls 94% market share in basketball shoes. Nike is a marketing partner of the NBA; Adidas is a marketing and merchandising partner.

Nike, through a spokesman, declined to comment. Matt Powell, an analyst with Charlotte, N.C.-based SportsOne Source, said, "Kids are the primary buyers and if kids are still playing ball, it won't have a dramatic impact. But it will have some impact. With no NBA, there's no way for Nike or Reebok to showcase a new guy [in endorsements]."

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CORRECTION: An earlier version of this story said that NBA attendance was down 1% this year; it is up 0.48%. The original story also said the NBA, like the NFL, does not open its books to the union. The league has opened its accounting and its audited tax returns to the players. Nike is an official marketing partner of the league; the original story said otherwise.

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