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NBA's TV Megadeal Is Good News for LeBron and You

Kavitha A. Davidson is a former Bloomberg View columnist.
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Perhaps $2 billion for a basketball team doesn't seem so crazy after all.

The National Basketball Association has extended its television deal with ESPN and TNT, announcing a new contract worth $24 billion over nine years. That averages to almost $2.7 billion a year starting with the 2016-17 season -- a significant bump from the $930 million the league receives under the current pact.

The NBA's deal comes less than a week after the National Football League renewed its contract with DirecTV for the Sunday Ticket package for $12 billion over eight years. Television rights are driving the steady increase in team valuations across the sports world, and with the NBA jumping ahead of baseball to second in revenue from national TV rights, you can pretty much forget everything you thought you knew about a professional basketball team's worth.

It certainly puts Steve Ballmer's $2 billion purchase of the Los Angeles Clippers into perspective and suggests that experts might not be overvaluing the Brooklyn Nets at between $1.2 billion and $1.7 billion amid rumors that owner Mikhail Prokhorov is shopping the team. And the boost to franchise values will benefit Atlanta Hawks owner Bruce Levenson, who announced his intention to sell since "self-reporting" a racist e-mail he sent in 2012.

More importantly, the NBA's new television deal will also have broad implications on the court, expanding team payrolls and player contracts. The salary cap is already up $5 million from last season, to about $63 million, and that number will continue to rise as the league injects more TV revenue over the next nine years. As Grantland's Zach Lowe notes, teams already disagree on how and how much to increase the cap; a significant jump would benefit the wealthier, big-market teams just in time for the summer of 2016, also known as the summer of Kevin Durant's free agency. "You thought LeBron’s free agency in 2010 was an extravaganza? Durant hitting free agency under an $80 million-plus cap would be the craziest summer show in league history," Lowe writes.

Speaking of LeBron James, he continues to prove his business savvy (or at least that of his financial advisers). When he decided he was "coming home" to Cleveland this past offseason, he also decided to forgo a maximum, four-year deal for a two-year contract that will also make him a free agent in 2016, anticipating the new television deal. Just as the salary cap rises with revenue, so too do maximum player contracts. The max contract for a player who has been in the league for at least 10 years is 35 percent of the cap, which currently works out to $22 million a year. If the cap swells to $90 million, as some have predicted, LeBron could sign a new max contract worth $31.5 million a year.

The influx in money does create a bevy of issues that need to be "smoothed" over among teams themselves, and also between the league and the players' union. Big- and small-market teams will greatly differ over how to adjust to the league's new economic realities, and there will likely be a similar divide within the National Basketball Players' Association between superstars and journeymen. The NBA and the union can each opt out of the current collective bargaining agreement in 2017, fueling fears of another work stoppage. The 2011 lockout largely revolved around the distribution of television money and ended with the union divided and defeated, as the players' share decreased from 57 percent to 50 percent. Newly elected NBPA head Michele Roberts will have some time to get her house in order before trying to win back some of her players' share of an increasingly valuable pie, while the league now has more leverage than ever to push for the "hard" salary cap it's wanted for years.

Some experts, including Lowe, believe that the new television deal actually lowers the chance of a work stoppage, with both sides making more money and having more incentive to avoid another embarrassing labor dispute. Despite the reduction in their share of television revenue, the players still gain from a deal that nearly triples the money in the pool. Meanwhile, owners continue fatten their pockets (just don't think that extra cash means taxpayers will avoid the burden of arena construction).

And unlike the NFL's new DirecTV deal, the NBA's contract provides an unexpected benefit to consumers. The Wall Street Journal reports that the league and ESPN have agreed to provide a number of games on an online video service that doesn't require a cable subscription. Details are still fuzzy, but it represents a major departure for ESPN, whose WatchESPN streaming app is only available to pay-TV subscribers and whose stranglehold on televised sports keeps the cable industry in a perpetual headlock of channel bundling and increasing rights fees, with providers passing on the expense to customers whether or not they watch ESPN.

Making games available to online and mobile viewers is especially important to the NBA's goal of increasing its global reach. Basketball enjoys immense popularity across all continents, and will spread even further as more diverse audiences gain access to the game. With roughly $6.5 billion from its national television deal and close to $10 billion in overall revenue, the NFL still rules American sports. But the NBA is now in a position to conquer the world, and at least for now, it's not being done at the expense of the fans.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Kavitha A. Davidson at kdavidson19@bloomberg.net

To contact the editor on this story:
Tobin Harshaw at tharshaw@bloomberg.net