On October 4, buzz for the upcoming NBA season was ramping up. That’s when Houston Rockets GM Daryl Morey sent out a tweet:
“Fight for freedom, stand with Hong Kong.”
With that Morey set off a firestorm. On one side, the NBA, the biggest basketball league in the world. On the other side is China, one of the biggest and most powerful nations on the planet. Now the NBA has to deal with the fallout from Morey’s tweet.
China: The NBA’s Multi-billion Market
China is one of the league’s biggest markets. The NBA has multibillion-dollar deals in China, including $5 billion for NBA China alone. In fact, some 500 million Chinese fans watched NBA programming last season on NBA partner Tencent. These are massive numbers, and unsurprisingly the NBA’s second largest store outside North America is located in Beijing. This shows how China makes a considerable contribution to the NBA’s revenue, and ultimately that is the crux of the issue for the NBA.
It’s Mostly about the Money
The biggest fallout from the Morey tweet is financial: The NBA stands to lose a lot of money. Of note here is David Carter’s estimate that the Chinese market is worth some 10% of the NBA’s total revenue. If Carter, the executive director of the USC Sports Business Institute, is correct then as much as $500 million annually — might be affected.
Already nearly all of the NBA’s Chinese partners have cut ties with the league, while a few have suspended their relationships with the NBA. These, according to Commissioner Adam Silver, have resulted in “substantial” losses for the NBA. Silver is naturally concerned. “I don’t know where we go from here,” said Silver. “The financial consequences have been and may continue to be fairly dramatic.”
Players: Stuck Between a Rock and a Hard Place
NBA players have been caught in the crossfire too. Some, like Klay Thompson (Anta) and CJ McCollum (Li-Ning), have business dealings with China, and they stand to lose money should these be nixed. Others, such as James Harden and LeBron James, are financially invested in China, as their respective brands profit immensely off the Mainland’s massive basketball market. No wonder then that Harden apologized to China.
This was followed by LeBron criticizing Morey, essentially describing the Rockets GM as misinformed. “I believe he wasn’t educated on the situation at hand,” said James. “Yes, we all do have freedom of speech, but at times there are ramifications for the negative that can happen…” James’ comments birthed LeBron-Gate. But his stance is predictable, as is the backlash.
That’s because James is the NBA’s marquee name, and the Lakers star is the second highest earning athlete in the world. His salary alone is over $28 million annually. That’s possible, in part, due to the NBA’s ever rising salary cap, which is a direct consequence of the league raking in millions in revenue from the Chinese market.
Now the NBA’s salary cap is expected to shrink considerably next season as a consequence of this hit in revenue. It will be the first time that this has happened since 2013, with the cap forecast to shrink by 10% to 15%. That would slash the initial salary cap projection for next season — $116 million — by $11.6 million to $17.4 million. This means lower salaries for future free agents. That may even include James, who can opt out of his current deal with the Lakers next year.
Wait and See
At the moment the NBA is locked in a wait-and-see with China. The league, though, has an ace up its sleeve: the Chinese love basketball. Best-case scenario is China softening up on its mostly anti-NBA stance, so that the process of reconciliation can begin. The sooner the NBA patches things up with China, the better it is for the league. Otherwise, the NBA and its players are likely to lose millions of dollars in the coming years.