Posted by John Vrooman on Sunday, May 4, 2014 in National Basketball Association.

Interview with Associated Press.

I am working on a story about the NBA’s handling of the Donald Sterling race comments. I’m trying to get to the bottom of just what the league had to lose if it didn’t respond decisively and favorably in the eyes of its players, coaches and, almost as important, its sponsors.

For the most part, it appears Silver’s response and the marketing campaign launched by the league have eased those concerns.

What my story aims to do is to discuss the financial implications that hung over the league while Silver was formulating his response.

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Adam Silver did the right thing both ethically and morally and although he and the entire NBA universe were indignant, the Commissioner had no other economic choice. Here are the numbers by my estimates.

NBA revenues are about $5 billion which is about one-half the revenue size of the NFL

NBA Franchises are valued at about 4.5 times revenues

LA Clippers revenues are about $130 million and their current value is about $600 million

After 2015-2016 season Clippers local TV revenues will jump by as much as $70 million

This puts the total value of the Clippers based on expected cash flow at about $900 million

On average the NBA revenue split comes down about like this:

Gate                      40%

TV                           30%

NBA                       10%

Sponsorships     10%

Concessions        5%

Other                    5%

Based on this average NBA breakdown the Clippers sponsorships should be in the range of about $10 million – $13 million…league-wide sponsorships are maybe as high as $500 million

A good rule of thumb is that every NBA home playoff game grosses about $1 million and nets about $600K

If the Clips are bought and relocated to Seattle they would play in a new arena and be the only NBA NHL arena club in town rather than being the 4^th option in metro LA. The value of the Clips in a new Seattle arena rather than the 3^rd tenant at Staples will increase by about 30% to $780 million- $800 million. Ironically Clippers relocation would also increase the value of the Lakers>

The NBA is an exclusive cartel club of owners who are not necessarily kind hearted in proportion to their wealth. In spite of the fact that NBA owners wield incredible monopoly power over their fans and monopsony power over their players in the end they still must ultimately answer to them both.

One of the most efficient aspects of competition is that racism from owners and teammates cannot survive on the bottom line or between the lines because the subject team will ultimately lose as the players will seek  nonracist owners and teammates. The only way discrimination can persist is if it suits the fans or the owners have monopsony (one employer) power over the labor market.

In the Clippers case the fans were repulsed as consumers and the Clippers sponsors boycotted on behalf of themselves and their customers. But perhaps the loudest voice came from the silent reactions of the players who were apparently prepared to shut down the league. This comes from a weakened NBPA group whose pay was capped at less than 50% of NBA revenues. They were not weak at this time on this issue.

Shutting down the show during the playoff games that matter most  could threaten the new TV rights deals being negotiated in the range of over $50 million per club per season after 2016, compared to $31 million now. This is not chump change. In spite of their power the NBA owners and their commissioner had no other economic choice.