NBA free agency opened on July 1 and teams wasted no time in signing their own or other teams’ free agents to what may appear to be exorbitant contracts.
Stephen Curry re-signed with the Golden State Warriors for five years and just over $200 million. Kyle Lowry signed a 3-year $100 million contract to stay with the Toronto Raptors. Gordon Hayward left the Utah Jazz to sign a 4-year $128 million contract with the Boston Celtics. Blake Griffin decided to stick with the only team he has known, the Los Angeles Clippers. You would too if they agreed to pay you $173 million over five years despite being plagued by injuries, as Griffin has been during the past few years.
The flow of money didn’t stop with the stars. A rising tide lifted all boats, or contracts. How else to explain the one-year $23 million contract J.J. Redick received? That’s an absurd amount of money for someone with his talent, or lack thereof.
Most of the money that fuels player salaries comes from television revenue. The NBA will begin the second year of a 9-year deal with ESPN and Turner Sports that will pay the league a whopping $24 billion, or $2.6 billion a year, through 2025. The NFL disperses $7.8 billion annually among its 32 teams from deals with CBS, DirecTV, ESPN, Fox, NBC and ESPN that run through 2022. MLB has 8-year contracts with ESPN, Fox and Turner Sports that will pay the league $1.55 billion annually through 2021. That’s less than half the total television revenue in MLB when local television contracts are added in.
Cleveland’s LeBron James, who knows a thing or two about the potential largess available to a free agent athlete, wasn’t shocked at the monopoly-like money swirling around the NBA this summer. After Curry’s contract figures became public King James tweeted: “Steph should be getting 400M this summer 5 yrs.” Not everyone agrees with James.
Michael Leeds, a sports economist who chairs the economics department at Temple University, told USA Today that television revenue is heading for a fall. “I do see a significant correction coming. With the cord cutting and all of the chaos at ESPN, I think that there’s every reason to believe that we’re seeing a major change, a sea change,” Leeds said. “And the (leagues) … could be in for major changes the next time things come around. This era in which you had huge rights fees being paid for the NFL, for the NBA… that’s going to be, to a great extent, a thing of the past.” Maybe, maybe not.
It’s true that cord cutting is accelerating and traditional TV viewing is falling. But as streaming and other alternative means of consuming sports become popular, there will be new revenue streams through digital and subscriptions. And ratings have been falling for years, in direct proportion to the number of channels available to the viewing public. That doesn’t mean live sports programming isn’t as important to networks today as it has been in the past.
But the big elephant in the discussion of future league revenue, which will impact player compensation, is gambling. No one knows for certain when gambling on sports will become legal in this country but it will happen, sooner rather than later.
Estimates of the amount of illegal gambling on sports in the U.S. range between $160 and $400 billion a year. Ten percent of the latter figure, or $40 billion, is a reasonable estimate of the sum that will flow to the leagues. That’s almost three times the total television revenue for the four major league team sports. With revenue sharing guaranteed in three of those four leagues, players stand to benefit enormously from the legalization of sports gambling.
Every boom in stocks and real estate is followed by a bust. But as long as we have an insatiable appetite for sports, don’t believe the prediction that massive player contracts are destined to drop.
Jordan Kobritz is a former attorney, CPA, Minor League Baseball team owner and current investor in MiLB teams. He is a Professor in and Chair of the Sport Management Department at SUNY Cortland and maintains the blog: http://sportsbeyondthelines.com. The opinions contained in this column are the author’s. Jordan can be reached at firstname.lastname@example.org.