SBJ/November 5-11, 2012/Leagues and Governing Bodies

Clock ticks for NBA on jersey ads

The window of opportunity is closing for NBA teams to sign jersey advertising deals for next season.

NBA owners did not address jersey advertising at length during their recent Board of Governors meeting. Instead, owners sent the issue back to the league’s 13-member planning committee to further study the feasibility of having corporate advertising on uniforms.

The league since the start of the year has been working toward allowing teams to sell jersey ads beginning next season, but no consensus has been reached on what exactly the process would be, including whether deals would be sold on the league or team level, and how any resulting revenue would be split.

Ultimately, what’s being contemplated is a system in which the deals could be expected to generate at least $100 million in annual revenue if every team were to have a deal in place.

There is little objection among teams to putting what would be a 2.5-inch by 2.5-inch square corporate patch on jerseys. However, the questions about how teams would split any revenue generated are critical. Sources said that amount could range from $800,000 a year for small-market teams to $15 million annually for big-market clubs like the Los Angeles Lakers and New York Knicks.

“We have been prepared to start meeting immediately with partners for a jersey deal,” said Alex Martins, chief executive officer of the Orlando Magic. “There are a number of different issues that need to be resolved and [revenue split of jersey advertising] is just one of them. It seems like a simple process on the front end, but you get into details ranging from current corporate partners to revenue decisions. It is a complex decision.”

Various proposals are under review, including one plan that calls for teams to pool a fixed percentage of any jersey deal’s revenue, with the proceeds then split among all 30 teams, according to one team source familiar with the discussions.

“It’s not about the philosophy or the image of a patch; everyone is on board,” said one team source. “But does the league sell it and split it 30 ways, or do teams sell it and then there is a surcharge paid to teams who can’t get big deals on their own? It is about the economics.”

One small-market team executive said there is concern that the wide range of jersey deals will give large-market teams a financial advantage while potentially driving up the league’s salary cap. The salary cap, according to the league’s collective-bargaining agreement, is determined based on league revenue, so anything that increases NBA revenue also increases the amount each team has to pay the players in salary.

“You get a team that gets a 10-year, $15 million annual deal, and that goes into the cap and drives up our expenses,” the source said.

With such complex issues under review, and time also needed for teams to sell any deals, the clock is ticking for the league to have a system in place for the 2013-14 season. There’s also a fan-sales component. Putting the logos on jerseys at retail is a key part of the initiative. For the purchasing advertiser, it means not only having a company logo on the jerseys worn by a team’s players, but also on the jerseys purchased annually by that team’s fans. One team source said the jersey deals would have to be in place by April in order for NBA uniform partner Adidas to get the newly branded jerseys to retail by the start of the 2013-14 season.

NBA Commissioner David Stern has said publicly that while he does not favor putting advertising patches on uniforms, he will leave it to the teams to decide the structure. NBA Deputy Commissioner Adam Silver, who will replace Stern in February 2014, has said that all teams favor a jersey deal in some form but that more discussion is needed to address how additional revenue would affect specific teams.

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