The NBA has an audience problem

The league's historic TV deal masks poor fundamentals

The National Basketball Association probably isn’t looking for any constructive criticism. The league is on the verge of signing one of the largest TV deals in the history of professional sports, and new teams are almost certainly set to launch in Seattle and Las Vegas. Overseas, the NBA remains the most popular American sports export. Player talent is more impressive than ever, the result of decades of investment in global expansion and the linear advancement of skills over time. The league has even achieved unprecedented parity.

All together, it’s a great moment to be an NBA owner, an NBA player, and presumably, an NBA fan.

But despite the record revenue and wealth of talent, the league is plagued by poor fundamentals, the most concerning of which is the fact that NBA regular season ratings have declined over the past 10 years — a report last week showed that the ratings for the Finals dropped 12% this year.

NBA Commissioner Adam Silver is a shrewd operator. However, I’m worried he’s going to sit happily on the league’s new mountain of cash, and delude himself into thinking that recent marginal innovations (the establishment of an in-season tournament, incentives to increase regular season participation for star players, and changes to playoff seeding) were strategically significant.

Instead, Silver should use this opportunity to really examine the product of professional American basketball, and to begin experimenting with creative reforms that will increase the entertainment value and cultural salience of the sport.

Just ask the leaders of Blackberry, Blockbuster, and Major League Baseball: You don’t want to wait until it’s too late to innovate.

The illogical TV rights deal

There’s a strange irony at the heart of the NBA’s new TV rights deal. The league stands to increase its annual broadcasting fees by 2.5 times what they received under their previous broadcasting agreement. And one might assume, based on these numbers, that ratings — the mechanism that is generally used to measure the financial value of an entertainment product — also increased since the last deal.

But the exact opposite happened. Over the past several years, ratings remained relatively stagnant, between 1.6 and 1.8 million per primetime game. And in the years that preceded the NBA’s last TV deal in 2014, average viewership declined by nearly 1 million viewers, a decrease of around 36%.

There are structural reasons for this decline that are not unique to the NBA.

Roughly 50% of households have dropped their cable provider and opted for streaming services (Netflix and Amazon Prime Video) or virtual pay-TV providers (Sling TV). Now, for the tens of millions of streaming households, it takes more of an effort to seek out professional basketball through an existing streaming service. Obsessive fans use League Pass to ensure that they can catch every game, and the highly-engaged fan will regularly tune in for basketball on the national networks or watch their local team on a Regional Sports Network.¹

But the casual fan, who in the era of cable would’ve been more likely to flip on a nationally televised basketball game, can now choose from more content than ever, which means the NBA competes with everything from endless streaming options to short-form video content. It’s silly to think that Anthony Edwards, a player who’s been hyped as the next Michael Jordan, is competing with this giant Flemish Rabbit for viewership. But that’s sort of what’s happening.

So how did the NBA manage lose viewers and still negotiate a raise?

Brent Magid, the CEO of media consulting firm Magid, has an answer. Basically, the networks entering into the new media agreement (ESPN, Amazon, and NBC) are doing so because they would rather not lose the product to their competitors. As Magid said, “Yes, there’s risk at these fee levels given recent ratings, but they are also looking at the downside of the games being on competing services. Which is worse?”

But another reason is somewhat counterintuitive: The same structural issues that undercut the NBA’s ratings actually made it more likely that the league would be offered such a massive deal.

That’s because the NBA isn’t the only form of entertainment that is suffering a ratings decline. Late night talk shows, prestige cable dramas, and virtually everything on cable television are all suffering a similar fate. The NBA is being rewarded because its ratings haven’t completely cratered. And despite the poor turnout during this most recent Finals series, broadcasters can bank on the fact that the audience always massively increases during the postseason.

Why the NBA should still be concerned

The new deal might momentarily satisfy the team owners, who are reaping historic profits, and the players, most of whom will receive astronomical pay raises from the media deal, and even the regular fans, who have a guaranteed viewing platform to root for their favorite team. But the audience fundamentals are poor, and if the league doesn’t make a change, they won’t be improving anytime soon.

The NBA has attempted to draw fans to the regular season by implementing a somewhat meaningless “In-Season Tournament” and making marginal alterations to the style of play. But the regular season is long and can be boring, a fact even many of the most ardent fans will admit.

Star players frequently sit out games. There’s an over reliance on less entertaining basketball plays such as “isolation three-pointers,” or drawing fouls and scoring points from the free-throw line. The league's two greatest audience draws, LeBron James and Steph Curry, are both charismatic generational talents and are both nearing retirement. And despite the league’s undeniable depth of talent, there is no clear successor.

Meanwhile, the dynamic and ever-competitive ecosystem of sports entertainment continues to churn out sporting events designed to compete with the NBA, further fragmenting the NBA's audience.

It might seem odd for the second most popular sports league in the country to worry about competition from things like UFC and Formula 1. But not so long ago, Major League Baseball and boxing regularly had higher ratings than the NBA; entertainment tastes can evolve. The NBA does do well in opinion polls among younger viewers, but there’s no guarantee that popularity translates to better viewership. That demographic is half as likely to watch live sports as millennials and far more likely to get their entertainment from social media. They also make up a disproportionate number of fans for Formula 1, UFC, and the ratings behemoth that is European Premier League Soccer.

It seems unlikely that the NBA would ever fully lose its cultural cache. But it's at risk of becoming a product that people increasingly tune into only during the playoffs. And even the Finals are in generational decline, matchups that received 20 million viewers in the 1990’s have dropped to 11 million views today.

If the NBA doesn’t address this problem, it could pay dearly when NBA TV rights negotiations come up again in 11 years.

After all, Amazon might decide to instead use the money to sign exclusive content agreements with 15 famous influencers. It could be more advantageous for NBC to invest in cheaper sports with higher audience growth rates. Any remaining networks could force the league to sign a comparatively — and embarrassingly — smaller deal.

These scenarios aren’t guaranteed to pass, but complacency only makes them more likely. For the sake of league’s pride, and its finances, the NBA needs to prioritize audience growth.

The experimentation fallacy

The NBA should focus on increasing the popularity of its regular season. And the only way to do that is by indulging in some experimentation to make the product more entertaining.

Personally, I think the NBA should mimic the NFL’s limited game supply by reducing its own schedule. It should consider altering its in-season tournament to have playoff implications — and experimenting with multiple tournaments featuring different stakes could also enhance engagement.

Other ideas:

• Move back the three-point line to decrease the reliance of the three-point shot

• Eliminate intentional fouls to increase the pace and enjoyment of the end of the game

• Implement a target score, so every game ends on a game-winning shot

I’m not saying that the NBA must enact any one idea. Presumably, the NBA employs some of the greatest basketball minds on the planet to think of such things. The problem is that the league is too cautious to implement any meaningful reforms, because it’s worried about altering the game too much and alienating core fans.

This is a worthy concern. But if you look at other sports leagues, or the very history of the NBA’s own rule changes, there just hasn’t been an instance where altering the schedule or rules led to a mass exodus of fans. Presumably, there is some line, but I think it’s further away than many league officials realize.

I would love to see the NBA make bold moves to inspire the next generation of fans, both diehard and casual, to ensure the league remains popular and culturally relevant for decades to come.

1. The demise of the regional sports network is its own fascinating story. But the short of it is that they’ve been crushed by the end of the cross cable subsidy.