Are Basketball and NBA Players Overpaid?

We’ve all seen the staggering figures pop-up on our phones, from relatively unknown NBA players signing multi-million dollar deals to the recent allowance of NCAA athletes to make money off of their likeness, social media accounts, and solicit endorsement deals.  These high figure deals have many people wondering, are basketball and NBA players overpaid?

Below, we are going to look at the nuances of this question and truly determine whether or not basketball and NBA players are overpaid.  Unsurprisingly, the answer is a bit more complicated than what first appears.  While NBA players, in particular, are paid many millions of dollars to effectively play a game, the truth is much more complicated.

The NBA is a Business

Whether unfortunate or not, the NBA is, above all else, a business that engages in the entertainment industry.  The NBA and its franchise owners are continuously looking at the bottom line and for ways to increase profits while reducing overall costs.

And business has been good.

The average NBA team value is now over $2.2 billion, a modest increase of 4% from 2019.  And that is just valuation, which does not take into account yearly revenue and net profit which is measured by earnings after interest, taxes, depreciation, and amortization. 

And even with the pandemic effectively decimating the NBA season last year, with the absence of home games and ticket sales, average team profits fell only 12% to $62 million.  Let me repeat that, without ticket sales, fans, and food sales, the average profit for an NBA team was still $62 million.

And if we look at just the most exclusive, biggest markets, specifically the New York Knicks, the Golden State Warriors, and the Los Angeles Lakers, their valuations cross $4.6 billion. 

Again, that is just the valuation.  These teams continue to generate operating income, that is the amount of profit realized after deducting operating costs and expenses, such as wages and depreciation, in excess of $155-200 million annually.

NBA and Basketball Players Are the Attraction

If I offered you $263 but you had to pay $96 to put on a show, would you do it?  Personally, I don’t know too many people who would pass up on what is, effectively, a net gain of $167.  While these numbers may seem odd, they represent the average NBA team franchise revenue and player salaries.

In the 2019-2020 NBA season, average NBA team franchise revenue stood at $263.87 million.  And the average NBA player salary stood at just over $8 million.  With 12 players on an NBA team, the average player salary for any team was just under $100 million.

While basketball and NBA player salaries may seem exorbitant, it is important to consider that the NBA franchise teams are raking in hundreds of millions of dollars annually.  And while these team franchise owners put-up the initial capital for the team, they are not the ones risking body and limb day-in and day-out for the game.

It is important to ask yourself, if you were going to make $263 million dollars to put on a show, how much would you pay for the source of entertainment?

And while basketball and NBA players may seem overpaid, we have to remember that they are the main attraction to the show.  Us fans attend stadiums, watch live games, and purchase jerseys of our favorite players because of the players on the team. 

Let’s face it, no one has a jersey of their favorite NBA owner in their closet.

There is More Than Meets the Eye

We’ve already established that the NBA is a business.  And as a business, it is in the interest of each franchise owner to maximize profit while minimizing costs.  And while we as casual fans may believe that franchise owners are limited to ticket sales to make a profit, nothing can be further from the truth.

Rather, NBA franchise owners have a plethora of sources to generate additional revenue and income.  And these revenue sources occur both during the season and the off-season. 

By far, one of the most lucrative sources of revenue for both the league and its franchise owners are television revenues.  TV deals are one of the most attractive options for both the league, its franchise owners, its players, and their fans.

TV games are broadcast to millions of households and live sporting games remains one of the most popular forms of entertainment, even as more-and-more households are cutting the cable cord and moving to streaming services such-as Netflix and HBO Max.

But these tv deals are not cheap.  For instance, for the 2016-2017 season, ESPN and TNT re-upped their NBA contracts at an approximate cost of $2.6 billion per year for 9-years.

Similarly, the NBA and its franchise owners engage in merchandise deals.  These merchandise deals account for well over a billion dollars annually and include the sale of player jerseys and team specific outerwear and insignia.

In addition, the NBA and its franchise owners engage in a multitude of sponsorship deals.  From sponsorship patches on players jerseys to stadium sponsorships with specific teams, the NBA brings in hundreds of millions of dollars per team for these rights and the opportunity to showcase differing companies on the court.

And while ticket sales are not the major driving factor to a team’s revenue, they do help to pad overall revenue.  With an average ticket costing $74, a team that can fill a stadium with fans, via on court entertainment and the game, can bring in a significant sum. 

This also doesn’t include concession sales, which include food and drink sales, as well as the oft forgotten sales generated by parking access.

Lastly, the NBA has been particularly adept at appealing to a global audience.  While sports such as football and baseball are generally oriented to an American audience, the NBA has done a spectacular job of appealing to a wider audience.

And China remains one of the NBA’s most influential and important partners.  Anyone remember the Daryl Morey controversy?  However, China remains an important partner to the NBA and is estimated to generate an additional $500 million in annual revenue.

The NBA is the Pinnacle of a Players Career

Talk to any aspiring basketball player and the NBA is always their final destination.  The NBA attracts the top talent from around the world and is by far the most competitive and illustrious basketball league.  However, to make it to the NBA, basketball players must train nearly day-in and day-out, sacrificing family, friends, and recreation for the game.

Per Kevin Durant in his sit down with Draymond Green, there were many times in his own life where he would sacrifice friendships, family events, and relaxation to train for the game and to make it to the NBA.

And we, as fans, have to ask ourselves, how much is that sacrifice worth?  And while it is difficult to place a number value on personal sacrifice, it is much easier when you consider how much the NBA, and its franchise owners, make annually.

Lastly, while it may seem that basketball and NBA players are wildly overpaid, it’s important to consider that on average, an NBA player’s career only lasts 4.8-years. 

And while earnings in those years averages over $24 million, this payment is limited, and most NBA players do not have the luxury of remaining in the league for a healthy amount of time.

Similarly, while the NBA has had a pension plan since 1965, only recently has it been revamped with players beginning to be paid for their sweat and sacrifice to the game and the league. 

Conclusion

While it is easy to see how much NBA players are getting paid, there is much more than meets the eye.  The NBA and its franchise owners are set to make hundreds of millions of dollars in profit annually, with only a small percentage of that sum going to the players.

And while it may appear disingenuous for players to demand more equitable pay, these players are the ones who sacrifice body, limb, and relationships for the game.  They are on the road for games, on the court at 4:00 AM practicing, and dealing with injuries which can plague them for the rest of their lives.

Now, I am not saying that NBA players don’t make a healthy wage, however I would personally disagree with the sentiment that they are overpaid.  What do you think?