How are many NBA teams losing money?

Thanks to a $24 billion television deal that kicks in before the 2016-17 NBA season, already skyrocketing salaries will soon reach a new stratosphere. Photo / AP

At a time when franchise valuations have never been higher and players agreed to nearly $US1.5 billion in contracts on the first day of the free agent negotiation period in addition to a lucrative new $US24 billion national television contract starting in one year, the NBA would appear to be more financially sound than ever.

With dollars seemingly flowing like a geyser, however, Commissioner Adam Silver said on Wednesday that "a significant number of teams" are losing money.

Silver delivered that startling revelation following a nearly four-hour meeting of the NBA's Board of Governors during which the league's 30 owners discussed a myriad of subjects, including possibly changing the playoff format, an arena deal for the Milwaukee Bucks and fixing the lengthy moratorium period that gave Los Angeles Clippers center DeAndre Jordan enough time to renege on an oral agreement with the Dallas Mavericks.

But after expressing his desire to avoid another work stoppage with owners and players able to opt out of the current collective bargaining agreement before 2017, Silver made the case that many teams remain unable to make a profit despite an economic boon.

"I don't know the precise number and don't want to get into it, but a significant number of teams are continuing to lose money and they continue to lose money because their expenses exceed their revenue," Silver said.

During the last collective bargaining agreement in 2011 - which came after a protracted lockout - NBA owners were able to negotiate a more favorable pact with the players that included a nearly 50-50 revenue split and stiffer luxury tax penalties to prevent reckless spending. But Silver added that the infrastructure of running a team, rising arena costs, increasing payrolls, higher bills for teams that repeatedly pay the luxury tax, smaller local television deals and the influx of self-funded practice facilities have made it tougher for teams to turn a profit.

The only notable changes that should come from Tuesday's meeting, Silver said, is that the league owners recommended removing the guaranteed top four playoff seed for one of the three division winners and instead having eight teams from each conference, ranked in order of record. Last season, the Portland Trail Blazers finished fourth in the Western Conference despite having the sixth-best record, creating an unusual situation in which the 56-win Los Angeles Clippers and 55-win San Antonio Spurs faced each other in a three-six first round matchup.

"It's my expectation that that change will be adopted before the beginning of this coming season," Silver said, though it is yet to be determined if a division winner is guaranteed a playoff berth should it not finish with one of the eight best records based on conference standings.

Teams will also look into widening the escape lanes near the basket stanchion by at least a foot to avoid a situation such as Game 4 of the NBA Finals, when LeBron James crashed into a cameraman seated behind the hoop and cut open his head.

Silver said "nobody had a great idea" on how to avoid a situation that allowed Jordan to change his mind five days after reaching an agreement during the nearly week-long moratorium in which the league finds out how to divvy revenue from the previous year. There was some discussion about shortening the period, so that legally-binding deals could be signed sooner. Mavericks owner Mark Cuban was upset but said this week that he had to "move on," refusing to mention Jordan by name.

"It's an imperfect system," Silver said. "We still think we're striking the right balance between teams having the opportunity to talk to players when they become free agents and creating certainty at some point when contracts are entered into. I would say from a personal standpoint, it was not a great look. . . . There was a breakdown in the system to a certain extent. No one, at least from the owners' standpoint, came up with a better solution to how to deal with free agency."

The Bucks are seeking a new downtown arena and will find out on Wednesday if they have the approval for the public funding needed to move forward with those plans. Las Vegas and Seattle have been mentioned as possible relocation sites in 2017 if a deal cannot be reached. Silver is optimistic that the Bucks will stay in Milwaukee but said a move to Las Vegas "is not realistic in the short term . . . my hope is that that team is not going to relocate."

Player salaries have increased dramatically with revenues skyrocketing. Anthony Davis signed a record five-year, $145 million extension but that number could be surpassed next summer if James or Kevin Durant agree to five-year deals next season. Davis, James and Durant are stars but this offseason has seen players receive extremely bloated deals in comparison to previous contracts. Silver suggested that the rise in salaries wouldn't necessarily lead to average fans being priced out of attending and added that players have earned the right to receive the highest compensation.

"Most fans recognize that to the extent that these guys have a special and unique talent that are being rewarded by the marketplace. It's very difficult to make value judgments," Silver said. "I'm like any other fan when I say, 'Oh, my God, I can't believe that compared to a teacher or doctor or someone else. But we live in a market economy. So that's how values are set.

"One of the things we're learning is that there is so much that's unpredictable when the cap is moving so dramatically as it did - as it will next year and the year after that we're continuing to study how our system is absorbing the money," Silver said. "There are projections that for next year we could be writing a check moving close to half a billion dollars to the Players Association. That's not of course the ideal outcome from our standpoint. It's not something we predicted when we went into this collective bargaining agreement. Now it's happened because the revenue we generated was much higher than we had ever modeled. But we're also learning that when you have all that money coming into the system, team behavior isn't necessarily predictable either."

Players and owners can both opt out of the current collective bargaining agreement on Dec. 15, 2016 but Silver said he doesn't anticipate that the players will take that route. "I think as we and the Players Association talked about getting together even as soon as this summer to begin talking about how we feel the system is working, what changes we both potentially would like to see to make it even better," Silver said.

- WASHINGTON POST