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The NBA just scored a huge new TV deal with implications way beyond sports

Kevin Frayer/Getty Images

The NBA is announcing a new nine-year $24 billion deal with ESPN and TNT to broadcast regular season and playoff basketball games. On an annual basis this is about 2.9 times as much money as the league is getting under its current deal with the same networks. Even more strikingly, it's about 1.8 times the current Major League Baseball television contract and would pull the NBA almost even with what the much more popular NFL is getting paid. That's not because basketball has suddenly displaced football and baseball in America's living rooms. It's because the NBA is reaping the advantages of broad structural shifts in the media landscape that will soon enough come to benefit the other things.

Even if you're not a basketball fan — or, indeed, a sports fan at all — it's worth trying to understand what's going on, because the implications reach deep throughout the entire American entertainment industry and economy.

1) Advertisers love TV, but it's dying

(Jim Edwards/Business Insider)

Major network television ratings have been in structural decline since the early 1990s, and with digital streaming services on the rise that trend has continued and begun to spread to cable. Television, in other words, is dying. This isn't to say that short-form video programming is dying as an artistic medium — in some ways it's flourishing as never before — but the traditional television business model is dying off. At the same time, advertisers love television. A live video program interrupted by small blocks of ultra-short sponsored messages is most brands' preferred way to spend money communicating with the public, if you can deliver that audience. But delivering such an audience is getting more and more challenging.

Sports still gets the job done. Because sports fans strongly prefer to watch events live rather than stream them later or DVR them for later consumption, sports leagues are seeing the value of their audiences skyrocket even if the audiences themselves do not grow enormously. Especially for brands looking to reach a younger male audience, live sports is increasingly the only game in town.

2) Capital is crushing labor

(St Louis Federal Reserve)

Back in 2011, billionaire owners of NBA franchises cried poverty and locked out basketball players to demand wage cuts. The players' union's position during this negotiation was that of course basketball players should accept wage cuts — they proposed letting players' share of compensation slip from 57 percent of the league's basketball-related income to 53 percent. The owners demanded 47 percent. Both sides eventually settled on 50-50. Then this spring, the Milwaukee Bucks — a bad team playing in a bad market — sold for $550 million. Now this fall we learn that the NBA's television revenue is poised to triple. The cries of poverty were, shall we say, inaccurate.

But ultimately truth matters less in labor relations than power, and the owners had the power. The pro sports labor market is idiosyncratic in many ways, but in this respect it's entirely typical. The labor share of national income has sunk to record lows in recent years, and there's no real sign of a turnaround.

3) Expect more blockbuster superstar moves

Gonna get paid (Ronald Martinez/Getty)

If you don't like basketball and found this spring's heavy coverage of LeBron James' free agency annoying, get ready for more annoyance. Conversely, if you love the spectacle of free agent hopping get ready for more. This is because NBA players' contracts are specified in multi-year nominal dollar sums, while the minimum and maximum amount of total player spending required by the rules is specified as a fraction of the league's overall revenue. In other words, the new television contract means that teams both can and must dramatically increase their overall level of spending on players. But players who recently signed long-term deals won't and can't get raises until those deals expire.

That means there will be an enormous volume of money chasing star free agents in the first couple of years of the new deal's life. That's why James opted to choose a contract structure with the Cleveland Cavaliers that will let him opt-out after one year and demand a raise. And it means that Kevin Durant and other star free agents coming on the market soon will have unprecedented flexibility in terms of the number of teams capable of signing them. See Tom Ziller for more on the strictly basketball implications.

4) The internet regulation wars will only heat up

These guys want money too (Spencer Platt/Getty)

Live sports is the last man standing of the traditional television business model, but at some point it's essentially inevitable that the leagues themselves will disrupt it. Rather than selling broadcast rights to networks who then show games on cable television, leagues could simply stream video live to fans. The leagues could then collect advertising and subscription fees directly and cut out the middle man. Right now products that resemble this exist, but they're usually crippled with blackout rules and other restrictions designed to preserve the value of conventional television deals. The enormous sum of cash being offered the NBA underscores why leagues are more interested in preserving network relationships than in serving cord-cutting fans. But as demographic turnover continues, the business logic of disintermediation will only grow more compelling.

And when it does, the enormous sums of money at stake in live sports broadcasting are going to make the regulatory wars over network neutrality and related internet matters get even hotter. ISPs are not going to be excited about all that revenue passing from advertisers and fans directly into the hands of sports teams while they subsist on generic monthly subscriber fees. Current efforts to force Netflix to kick back some of its subscriber fees to home broadband infrastructure owners prefigure fights over even larger sums of money from sports teams and leagues when online streaming becomes the preferred means of sports watching.

5) Look for a niche sports boom

Topless Landon Donovan #SEO (Kevork Djansezian/Getty)

Fans of soccer, women's basketball, lacrosse, and other not-so-major American sports are probably in luck. The same basic logic that is pushing for a tripling in the value of NBA broadcasts should also increase the value of broadcast rights to less popular, less lucrative sports.

The difference is that current salaries are low enough in those sports that pumping more money into them could actually alter the quality of talent the relevant leagues are able to attract and maintain. That raises the prospect of a virtuous circle in which, say, Major League Soccer becomes more able to compete in the international market for soccer talent, which leads to improved quality of play, which leads to increased viewership, which supports further growth.

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