Acquired - The NBA

0:00By the way, I'm excited for this episode. I got this CO2 detector to tell me how many parts per million are in here when I close the door in the studio. I'm kind of scared of what it's going to get up to based on what my peloton was the other day. That's awesome. It may be the case that I actually get dumber toward the end of episodes, which obviously is bad for a podcast that ends in grading, but I want to see if that's the case. That's amazing.

0:35Welcome to season seven episode four of acquired the podcast about great technology companies and the stories and playbooks behind them I'm Ben Gilbert and I'm the co-founder of Pioneer Square Labs a startup studio and venture firm in Seattle and I'm David Rosenthal and I am an independent angel investor and startup advisor based in San Francisco and we are your hosts Today, our tech focus podcast takes a turn to cover a different powerhouse business, the National Basketball Association. And whether you have been following the playoffs in the COVID bubble at Disney's wide world of sports or not, there is no better time for an absolutely exhaustive deep dive on the history and strategy of the NBA than the week of the finals. So how did David and I get here? Well, our original plan was to cover the business of the Jordan brand.

1:26And halfway in we realize that the story of Jordan is really a part of the Nike story, and we want to cover that another time. But as we dug in, we realize that there's actually a great story in the NBA itself, and it's one that's very relevant through an acquired lens, how it built itself...

1:42from very much the underdog of major American sports started 50 years later than the others. And now it's the second most popular sport in the world globally after soccer or as many of you call it football. And it has done so using a playbook that is very much in the acquired wheelhouse. Yes, spoiler alert. It is quite appropriate that the NBA is playing in.

2:06The Disney bubble right now because so much that we've covered about Disney on these shows over the years is gonna echo here with the NBA. Indeed. So with that said, today we are bringing you a story of a business at its inflection point making huge bets for the future compared to other major sports leagues. The average team valuation has grown a staggering six X in the last decade, which talk about an amazing investment return just on its own. And today we will try and understand all the factors that have made that so. Yeah, these teams used to trade for like 20 million bucks. And now I think every single NBA team is worth more than a billion dollars.

2:47Yep, I'll all triggered by Steve Balmer's $2 billion purchase of the Clippers, what, five-ish years ago? Yeah, as covered on, was that like episode 34 of acquired or something like that? If you know the number, that is very impressive, but yes, quite, quite early. So as always, if you love acquired and you want to hone your own craft of company building, you should join the community of acquired limited partners you'll get access to the LP show the bread and butter of the LP program where we dive deeper into the fundamentals of company building and investing in addition to our monthly LP calls where we talk with all of you directly and of course our book club and our zoom calls with the authors so exciting announcement on that front our next book club will be

3:29reading Brotopia by Emily Chang of Bloomberg TV fame. And Emily has graciously agreed to join us and all of our LPs for a discussion on the book next month. So LPs keep an eye out in your email for the announcement on that. So excited. So if you want a limited partner, you can click the link in the show notes or go to acquire.fm slash LP and all new listeners get a seven day free trial. All right, listeners.

3:57Now is a great time to talk about a new partner of ours here on Acquired. LaGora, the agentic operating system that is redefining how the world's best legal teams work. Yup, it's sort of obvious that AI is going to completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chatbot out there. LaGora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry?

4:25So the founders did exactly what great founders do. Operate with obsessive customer focus. They embedded inside a massive law firm for months. They sat with the lawyers just watching how the work really gets done. And that's how you get features that customers love like tabular review where you.

4:44drop in a folder of hundreds of contracts and it pulls every key term into a grid a lawyer can actually work with. Lagores Bed here is interesting, since it lets each lawyer handle more complexity, any given person can increase the quality of their work and do higher value work, and this means that the pie can grow even as each individual task takes less time.

5:04And they recently launched LaGora agent offering greater intelligence and performance. The agent lets lawyers set an objective. Then it can handle the planning and the execution and delivery of the final product. Legal teams get to maintain full control and transparency since they're still involved where judgment is required. And LaGora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early LaGora numbers essentially speak for themselves when they have a head-to-head pilot with their top competitor they win 70% of the time LaGora now has over a hundred thousand lawyers on the platform from 1200 legal teams in 50 countries and crazily they went from one million to a hundred million in ARR in about 18 months truly insane numbers and that is the real test

5:56Plenty of things demo well, but the question is whether a busy associate actually reaches for it during crunch time, or whether a partner trusts it before going into a conversation with a major client. If your legal team wants to check it out, whether you're a law firm or you're in house at a company, you can learn more at logora.com slash acquired and just tell them that Ben and David sent you. Now into the episode on the NBA.

6:21time, indeed. All right, so one caveat before we dive into the history of that. A caveat, David, all the time. Oh, I know. Well, okay, but this is an important one. Listeners, if you have ever met Ben or me in person, it will become immediately obvious that we didn't really play basketball growing up. And we are casual fans. Really? Just wasn't, wasn't pretty. Oh, yeah, like, Wreckleague, I think I scored 10 points one season.

6:48Oh, nice, like total game. Well, actually I had the best basketball end of my career ever. I played seventh grade JV basketball and I was a total scrub on the bench. And in the last game of the season, they're like, the scrubs got to play at the end of the game. I was like, all right, I'm doing this. So I just like launched up a three pointer with two hands.

7:07and it went in and swish and I was like, done. I'm never playing basketball again. I'm going out on top. That's amazing. I did in middle school transition as part of my duties as being the light and sound person for the theater shows, which flashes forward to where I am today pretty well. Part of the responsibilities there were I did run the scoreboard at basketball games and that's pretty experienced in basketball technicalities. Well, the point of this way too long now, caveat is that this Show is not going to be about the history or analysis of the game itself. There are much, much better sources for that than acquired. But it is going to be about the business history and analysis of basketball and the NBA from one man during a snowy Massachusetts winter in 1891 to now the second largest sport in the world consumed last year by an estimated 1 billion people.

8:02I was kind of hoping you would only go back to the start of the league and not actually the start of basketball at all. So I can like go back earlier than you, but nope. I have to go back to the 1800s is like fantastic. All right. So James Natesmith, Canadian American. Yep. Who was he? Well, he was a Canadian American and who found himself teaching at the young men's Christian association training school. What would become both the YMCA and Springfield College specifically in Springfield, Massachusetts during the winter of 1891. And he was the Fizzed teacher there. He was trying to find ways to keep his gym class active during these cold, dark.

8:46harrowing new England winters. And so he goes through all the existing indoor games and things he can do in a gymnasium. He doesn't really like any of them. And he's like, yeah, maybe I'll just come up with my own. So he writes down some basic rules. The crux of this little game he invents is that he takes a peach basket and he nails it into an elevated track that is running around his gymnasium there in Springfield. And he kind of invents basketball. And I say kind of because this peach basket that he nailed up to the track. First, I don't know if there were one or two. I think there might only been one, I'm not sure, but he didn't take the bottom out of it. So it's literally a basket with a bottom. So when the balls and by balls, I mean,

9:34soccer balls that they were playing with went into the basket. They had to stop the game and somebody to go climb up there and get the ball out of the basket. That's awesome. That's awesome. A couple other things about this game that that he invents. There's no dribbling. So it's kind of like ultimate frisbee with a soccer ball. Once you touched the ball and you had possession of it, you had to stop. You couldn't.

9:58move the only way you could move was by passing the ball. There was also no set number of players on either side. So it's just like, Hey, how many kids are in class today? Great. We're going to divide you up and put you into this game. And on half-court ball, that sounds like the big credit space. But nonetheless, there's some magic to this little game. And people like it and it ends up spreading like wildfire through.

10:24YMCA's and other Christian organizations in the US and Canada, and then very quickly internationally too. So we're going to come back to the game in a minute. But before 1900, like only four or five years after 1891 when they spent events this, the game lands in China through the YMCA organizations there.

10:47actually still today, the oldest existing basketball court in the world is located in China at a former YMCA there. Which also, how crazy is that there are YMCA's in China before 1900? I know. Like, got amazing. Like, it's like crazy to even think about that. This is like our very first playbook theme of the episode all the way at the very front of history and facts here. What an amazing distribution channel.

11:13I mean we talk a lot about what's more important the product or the distribution and this is one where the product had found product market fit for a variety of reasons one of which was it didn't take that much equipment and it wasn't it wasn't full contact so people could get easily get on board with the idea of this is good it's healthy but it you know it won't injure you but distribution is the reason why you know it permeated China and permeated the whole world so quickly that missionary zeal Also, on the contact point, it's important to note, too, it's not just men that are playing this. So women start playing basketball right at the beginning, too. And it actually becomes just as popular with women. It becomes, I think, pretty quickly the largest women's high school sport in.

12:01America. Oh, wow. Yeah. And then it's played in colleges. Unlike, you know, the other major American sports has a long history of, but sex is playing. I got to give one anecdote. I wasn't going to bust this out, but this is just a great quote from an Atlantic article that we will link in the show notes. Some of the first groups that embrace basketball in China were college students. Western-minded scholars and most importantly, members of the Communist Party who love the sport for its cohesive power.

12:28During the Long March, the Red Army's storied year-long retreat in the 1930s to evade the Nationalist Army, communist soldiers and officers played basketball to lift their spirits and solidarity. It goes on to say that the party continued to support the sport after it took power in 1949 during the Cultural Revolution, Mao declared war against almost all Western bourgeois affections from classical music to novels, but he never wavered in his support of basketball. So it's just so crazy to me that like, In China, amidst this revolution, you know, for the 50 years after this, that basketball sort of thrived even though the freaking NBA hadn't even been started yet. Well, hey, who's the number one ambassador to North Korea these days? Dennis Raven. Dennis.

13:13But no, I mean, we're gonna talk much more about basketball in China later in the episode. Yeah, it really is this amazing story of product market fit, plus distribution. And on the product market fit, they do eventually within the first 10 years or so of the game, most of the kinks, the basic kinks get worked out of the game. So in the late 1890s, some Yale students, of course those, you know, Plucky Yale students, there's a loophole in the rules. They decide they think they can advance the ball themselves by passing it to themselves and thus the dribble is born. Shocking. I mean, these students thought that they could.

13:56you know, find a loophole in the rules that they could exploit to advantage themselves. And then the number of players, the five players on each team gets standardized because American football was the big collegiate sport at the time. And at the time, American football was played with 10 players. And so football teams in the winter, once it got too cold to play football outside, they just come in and play basketball and see just divide the team in half. And boom, there you go. Five on five. That's how it happened. Well, speaking of, do you know what James Naysmith is also credited with inventing?

14:25Ooh, I don't know that. Am I actually going to get one that David Rosenthal has not? I think you are. I will see. We'll see. He is also the inventor of the football helmet. No way. Yep. Dude, what a guy. Quite the gym teacher. Man, wow. What an illustrious career. So basketball ends up really taking off around the world pretty quickly, as we've said, and in America, especially in high schools and colleges becomes the winter sport in the American collegiate sports landscape. But interestingly, unlike, certainly unlike baseball, and football had its fits and starts with professional leagues, but certainly started much earlier than professional basketball leagues. Professional basketball leagues don't really take hold, but what does is professional basketball teams. I didn't know this till starting the research, but the Celtics, the original Celtics.

15:22actually started as a barnstorming squad in Boston. What does that even mean? So it was like a traveling team. They travel around the country and play other teams in kind of exhibition games around the country. And of course.

15:35two other teams that start right around the same time were in like the 20s, 30s here are the Harlem Globetrotters who actually are from Chicago. They don't move to Harlem itself until the 60s. Yeah, it was like a branding thing. Huh. I did know that they predated the NBA and that they were not originally started as this like goofy exhibition team, but like, no, they were probably the best professional team in America and they were legit and played legit like real games.

16:01And then a team that actually was from Harlem was the New York Renaissance 5 or the Rennes. So both the Globetrotters and the Rennes were all black teams and were wildly popular. I mean both of them would play like 200 games a year across the country and then eventually around the world just exhibiting great professional basketball.

16:24And no league. Like we made it all the way through two world wars in America before we had the semblance of a professional basketball league. Yeah, I mean, that's kind of how things were until right after World War II. In fact, exactly two years to the day after D-Day on June 6th, 1946, the Basketball Association of America is founded in New York City.

16:50by drum roll is the inauspicious beginnings here. The owners of a bunch of ice hockey arenas in the Northeastern and Midwestern United States and Canada who wanted to make more money from their arenas on the nights when there weren't hockey games happening. This is just an amazing full circle thing where you know, now the ice hockey owners are trying to get sort of the off nights of the NBA owners arenas so that they can make a little bit of money for the ice hockey teams that are playing. And of course that sports getting more and more popular now goes Seattle Kraken but like what an incredible reversal that that's why they started the NBA.

17:29Eh, let's monetize these off-nights for the hockey teams. I didn't even think about this growing up. I think now more so these teams have their hockey and basketball teams. Sometimes they share an arena. Sometimes they often they have their own arenas. But growing up, of course, like hockey and basketball team shared an arena. I never thought about it. That's why basketball and what would become the NBA was like a subsidiary of what would become the NHL.

17:54But I am certain that any basketball arena that was around when you were a child was more built to be a basketball arena. Yeah, yeah, probably. Oh, man, the spectrum and Philly that place was a dump. Back when arenas had real names. Yeah. This is a pretty big deal though, because there had been some other early attempts at professional basketball leagues, but none of them worked. And one of the big reasons that none of them worked is none of them had good venues either in terms of the cities that the teams would play in, but more importantly, like the arenas, they didn't have access to big enough arenas where they could attract large enough fan bases to support economically the teams and the league. The American hockey league was the league that founded this. They take the current commissioner of the

18:42A.H.L. Maurice Paddleoff and they say, hey man, we're gonna give you some extra job responsibilities. So it goes that this thing up, you know, make us some money on the off-nights. And this is really, we're gonna talk about this here and amazing how much wonderful how much things changed. They also were like, hey, make sure that no black people play in this league. You know, this is 1946 when this was set up. Jackie Robinson.

19:09wouldn't break the color barrier in baseball until the next year in 1947. I mean, a, full stop, that's like awful, terrible, racist, wrong, all of these things, but two, it's just like stupid because the globe trotters and the rents, like here you've got these examples of professional basketball teams that have the best talent that make the most money and are by far the most exciting, you know, brand of basketball available anywhere. Right, and these guys are letting racism get in the way of good business sense. Yeah, they're like, no, we don't want any of that. Crazy, crazy, ridiculous. So nonetheless, on the next year, actually note that same year, the first professional basketball game in what would become the NBA takes place.

19:56in Canada, appropriately, given Naesmas origins in Toronto, where the Toronto Huskies hosted the New York Nicarbockers at Maple Leaf Gardens, and what would become the first NBA game in history on November 1st, 1946. And one of these teams has a storied franchise afterwards, and the other one makes it what, a year? Yeah. Well, Huskies were a one or a two-season team. Yeah, I don't think they lasted very long. And in fact, the whole league is...

20:25you know, kind of doing okay. It's this promotional side thing for the hockey league. So a couple of years later in 1949, they decide they need to, they need some more cities, they need some more teams. They merge with a rival league called the National Basketball League, the NBL. And together they change this merge, the name of this merge league to the National Basketball Association. And thus the NBA is officially christened in August 1949.

20:54And in a more typical bone-headed owner fashion in this time, it takes them five years to come up with the idea for a shot clock. So unlike the Glove Trotters and the Rens, where they're playing Real Basketball in the NBA at this time, whatever team was leading in the fourth quarter would just like sit there and hold onto the ball as long as possible.

21:16Whereas now it's like why even watch it until the fourth quarter and that's when the game really starts. It's like crazy to think about the strategy being try and be you know the one in the lead by the time there's 12 minutes remaining so you can run the clock. So they take some five years to come up with that idea then another three years to test it and actually.

21:34implemented and decided it's a good idea across the league. And then as I said, in 1947, Jackie Robinson breaks the color line in baseball and wins the first rookie of the year award that year. And clearly, this is a great thing and lots of black players come into the Major League Baseball, but it takes the NBA owners another three years after that to even sign the first black player in 1950, which was Harold Hunter with the Washington Capitals.

22:03and the capitals cut him in training camp that year. Several other black players didn't end up joining the league and playing that year, but like, come on. Not off to a great start. No, not off to a great start. Do you know who the first non-white player in the league was? It was actually not a black person. Yes, I don't have his name written down, but it was a Japanese American player. I think, right? Yeah, what Tarou Misaka in 1947-48, so a couple of years before that. Yeah.

22:32Crazy. Another crazy thing that'll be a flash forward to today is in the first couple of years of the league in the in the mid-1940s the league created a salary cap for the first time in a sort of a hopes to create a little bit of a fair playing field among their very small number of teams. I think maybe maximum eight teams at this point, they just kept it for a single year because the whoever that I assume the Nickerbockers, but whoever the teams were in the largest Geos basically said, uh, we're not doing this thing. And I think violating. Yeah. And it didn't come back until the 1984 85 season. So that we were going to get into years with no salary cap branch out of one David Stern. So anyway, the league bumps along for another few years.

23:17And then in 1957 the big moment happens the Celtics draft Bill Russell and he becomes the first there have been other like superstars in the NBA before that white superstars but he becomes the first black superstar in the first like real modern I mean Bill Russell's a legend across so many dimensions of the game player in the NBA and then the floodgates open after that. So Red Hourback was the legendary coach of the Celtics. Red retired. I think during the like 66 NBA finals and named this is back when coaches still had like way more power within the organizations than they do now. He named Russell

24:00the coach of the Celtics while retiring during the finals. So Russell becomes a player coach of the Celtics from 66 to 69. He becomes the first black head coach of any North American professional sports team and the first to win a championship later in his 10 year. It's just an amazing guy. He would, I think President Obama would give him the presidential medal of freedom later in life. Did you know also he lives on Mercer Island these days in Washington? Yeah, crazy. You can learn on Wikipedia.

24:29That's wild. Here's another thing, like right during this era, speaking of the Celtics that I sort of realized while I was digging through this. They were possibly the biggest dynasty in the history of sports. In that 12 year run from 1957 to 69, the Celtics only had two years where they were not the NBA champion and only one year where they weren't the finals. There's a lot of talk about the Patriots in the NFL from 2000 to today, but they only played in half the Super Bowls those years. And I think the only comparable dynasty in major US words is probably the Yankees in like the mid 30s to mid 50s, but still not nearly as dominant as the Celtics were in that era. And it sounds like I think you said in 66, the coaching transition happened. So, you know, still rained champion through multiple coaches. Well, then immediately after that would be the beginning of the Celtics.

25:22Lakers rivalry, Wil Chamberlain wouldn't go to the Lakers until 68 I believe. But in 1959, he was drafted and joined the league with the then Philadelphia Warriors who moved to San Francisco a couple years into Wilts 10 year there. And that's just like like any listener who knows anything about Wil Chamberlain knows like there's so many crazy stories about Wilts and he was a character extraordinaire. If you don't know about Wil Chamberlain, like Pause this episode. Go Google him now. Still the only player to ever score 100 points, right? Score to 100 points in a game had over 50 rebounds. I think multiple times. I think he also at least once, if not multiple times in his career, averaged over 50 points a game for the entire season. I mean, so many stories. My favorite one, though, is so will played college ball at the University of Kansas, but he wasn't super happy there. And he wanted to leave and start playing professional.

26:22Early, but the MBA didn't allow it at the time. So he left after his junior year, joined the Globe Trotters and played for a year for the Globe Trotters. Did you know this? No. This is amazing. And so during this... And what were the Globe Trotters at that point? They were still really big at this point.

26:37And were they doing like what they do today they sell tickets they come to town it was more of a show than it was like an actual game and And this is amazing so during that season in 1958 when we'll sweat the globe trotters they do a sold-out tour of the Soviet Union This is like the height of the Cold War they traveled to the Soviet Union They end up playing in front of Nikita Kruzchev in Moscow. And Wilta, like, it's this, you know, crazy Harlem Globetrotters, like, zany stuff. There's this part in, uh, in their stick at the time where, uh, I forget the name of the captain of the team. He would pretend to, like, faint and pass out on the floor. And then Wilta was, like, so big and strong that he would go up and pretend, like, he was gonna help him up and instead, like, literally throw him into the air, like, wrestling style. So they did this.

27:26for Nikita Kuzchafe in Moscow like crazy. What a global sport. Oh my god amazing. And just to paint a picture too of like when when Wilt came into the league. So I think that was like late 50s, but let's let's just.

27:39rewind a couple of years. The league, I think it was the 53, 54 season was only eight teams. And it's worth walking through the eight just to sort of like know where they ended up today. Cause as we know today, the NBA is 30 teams and should be 31 was Seattle. What is that expansion going to happen? By the way, it's been a couple of years out for many years now. So they've got the New York Knicks, the Boston Celtics, the Philadelphia Warriors, which as you said, would go to be the San Francisco. Then the Oakland Warriors then.

28:06Not back to San Francisco words. Yes. The Minneapolis Lakers, which is where the name Lake comes from. Like LA is not known for its Lake. Minneapolis is, or there are thousand lakes. The Rochester Royals, who would then go on to become, I think, the Sacramento Royals, and then finally the Sacramento Kings.

28:26the Fort Wayne Pistons, which as you can, as you know, became the Detroit Pistons. But I always thought, like, oh, of course Detroit is the Pistons because Detroit is the, you know, that's where they may go. Yeah, certainly when I found that in the research too, I was like, why the Pistons in Fort Wayne? Fort Wayne, Indiana. Yeah. I mean, it must have been that there were also, you know, car factories there. The tri cities black hawks, who are now the Atlanta hawks, but the tri cities were in Illinois.

28:54I think they were originally the Buffalo Bisons in Buffalo, New York, and then went to Illinois where they were the Tri-City Black Hawks. And then eventually, after sort of moving around a bunch, I think Milwaukee, St. Louis are now the Atlanta Hawks, but they've had quite the traveling journey. And finally, the Syracuse Nationals, which do you know who that is today? Is that... No, I don't know. That is the Philadelphia 76ers. No, I should know that.

29:24Yeah, so they were I think they when the warriors left, yeah, when they moved to Philly, but then eventually changed their name to the 76ers. Nice. Interesting. It's so funny. I mean, like these teams that we now think of, like, they're all billion dollar plus franchises. We think of them as so established. But like, it was the Wild West back in these days. Totally. And there were only eight of them. I mean, and when you talk about the numerical, just to like paint some order of magnitude stuff for people, even in like the 80s, I think like 1983, the salary cap for a team was something like three and a half million dollars. 3.6 million. Yep. Yeah. That's determined. We're still 25 years, 30 years before that. There's eight teams. You probably, you know, make more money cleaning your local gym than you do. Totally. Being the player. This is a labor of love. Will and Russell and the league were now in the 60s.

30:19You brought up economics. They're these big personalities. They've had great college careers. People love watching them. The NBA does start to gain some in popularity. I mean, it's still very much the underdog, like football, American football and baseball way, way, way bigger than professional basketball at this point in time. But they do during the 60s, early 60s, land a landmark, five year, four million dollar TV rights deal.

30:47with ABC. And who at ABC gets put in charge? Wait, wait, wait, wait. What year is this? This is this in the 60s. So Iger is probably still in like high school at this point in time. Who's the legendary wide world of sports producer that Iger ended up working for? It's a rune, the legend, rune, Arlaj gets put in charge at ABC of like, Hey, take this sport and do something interesting with it. And of course, Rune had the wide world of sports, Monday night football, the Olympics coverage. He was a genius, they're brand also.

31:25Nightline, I believe, like not just sports, but he innovated so much like the evening kind of magazine news shows that he brought to TV. And we're still a decade before ESPN's even founded. Yeah, not till 79. This is great. So Bill Simmons in his basketball book quotes David Halberstam in his basketball book and Simmons is like, I know you can't believe I'm quoting Halberstam here, but I have to do it. So this is Halberstam. He says, what ABC has to prove to a disbelieving national public are alleged believed.

31:55was that this was not simply a bunch of tall, awkward goons throwing a ball through a hoop, but a game of grace and power played at a fever of intensity. He was artist enough to understand and catch the artistry of the game. He used replays endlessly to show the ballet and to catch the intensity of the matchups. The athletes themselves were self-evidently proud and they liked nothing better than to beat their opponents, particularly on national television. They were in those days obviously motivated more by pride than money.

32:25Obviously, and the cameras readily got their pride. Even with all the money floating around today, there are many, many NBA players that are still motivated much more by pride than money, especially because as we'll get into, while they make astronomical sums in salary from playing more than any other sport in the world, the best of them make at least as much from all of their business outside of the court than they do on the court.

32:50So all that is huge for the MBA, but still by the kind of like mid-60s, into the 60s it's still about 10x smaller than baseball, and ABC is only broadcasting the MBA once per week on.

33:03Saturdays, I think. David, let me come in here and say just to catch folks up on the teams at this point, we were eight teams. The ninth team then came in in 61. That's the Washington Wizards. But at the time was the Chicago Packers, which seems like it has an overlapping name with a city that is, I don't know, pretty close to there and decent rival. So the history of that's that's going to be an interesting one. Then of course, the Chicago Bulls come in. I think 66 to 68 is when they really went crazy and did fly.

33:32like an expansion of five teams all at once. So the Bulls, the Supersonics, which are now the Oklahoma City Thunder, the San Diego Rockets, who obviously became the Houston Rockets, the Milwaukee Bucks, and the Phoenix Sons. So that's sort of what the NBA is looking like at this point toward the end of the decade of the 60s. Yeah, and they were expanding rapidly to compete with the upstart ABA, which we'll get to in one sec, but before the ABA, An actually like super, super seminal, an important event happens in the NBA in 1964, which I think really sets the stage for so much of what comes later and the modern business and game today. So, like we said, ABC and Rune Arledge were starting to popularize the league, but the players were making.

34:20nothing you know in these days and baseball was still the national pastime it was about 10x bigger than basketball at this point in terms of the reach of the professional leagues and in 1964 during the all-star game these players kind of led by led by Chamberlain and Russell they're not super happy with how they're being treated they really want a pension plan from the league for the players after they retire and tells you so much about the time, like the top priority was like, we need a pension plan. We need a pension. Yeah, because you can't play this that long. They're not making that much money and like, then what are they going to do? So literally two hours before the broadcast of the All Star game was supposed to start. This is a big deal, like early in this ABC contract, we're in Ireland just putting on this big, you know, national television event, the NBA All Star game. They threaten to walk out.

35:12and not play the all-star game unless Commissioner Walter Kennedy at the time acquiesce it to their demands and puts a pension agreement in place. So it becomes this huge showdown, like literally two hours before the event. ABC and Roon gets super pissed off and they tell the NBA, like, look, if you leave us hanging here, like we're done, this contract is over, like good luck ever being on national television again. So under this pressure, the league buckles.

35:41they agree to the pension deal. The All Star game gets played. But this is the first example in any sport of players really kind of, you know, the four runner of what would become the players union, unionizing, organizing and, you know, making demands of owners. And I think that's the stage for what the now the NBA players association, you know, all the force that it would become today. And really starting to be an early precursor to sort of tilting the balance of power and the economics to that of a fair one, which is closer where we are today, where the players are able to actually shine and benefit from being the ones that are actually attracting all the attention. I mean, to this point, and obviously we can argue about whether that's true enough today, but to this point, it really hadn't been the players who were economically benefiting at all from this rising popular sport. No, totally. We'll get much more into the economics modern economics today.

36:39But after this, this is pretty incredible. The top players like Wilts and Russell start negotiating much harder for better contracts and more pay. And in 1968, when Wilts signs with the Lakers, he signs a landmark five year deal for 250 grand per year, which is a lot of money in 1968. I mean, I think inflation adjusted. It's like two million or so. So nowhere near the deals today.

37:09but here's the crazy part. So the top paid major league baseball player at the time was Willie Mays, who made $125,000. So Will is getting twice as much money as the top baseball player in the world even though the NBA is still 10x smaller.

37:32then Major League Baseball. Pretty incredible. I mean, also just goes to show how much the baseball owners were screwing the players at the time. And how did that work out? Is it because the Lakers owners had a bunch of money or why were they willing to spend so much more on a player when their viewership was way smaller? Well, probably it worked out economically. Hey, there was no salary cap, no revenue sharing, and Will was such a like cultural.

38:00Icon, like I'm sure that the Lakers in terms of, you know, ad sales, ticket sales, local TV deals, I think we're starting at this point in time. They were able to monetize that at probably equal if not more than what they were paying. Wilt. Yep. Makes sense. The other part of the reason though, why I think the Lakers were willing to pay them so much and other people would start making so much was as we alluded to in 1967, a new rival league gets formed to the NBA, the American Basketball Association, the ABA, and this is pretty awesome. The NFL had merged a couple years before with the AFL, I think it was. And I think that became effectively the conferences, the AFC and the NFC. I think that's right. Yep. And so these are the plucky entrepreneurial guys who start the ABA. They go around to a bunch of people in a bunch of cities and say,

38:57Hey, our business plan is we're going to start a rival league to the NBA. Do what the AFL did and force them to buy us and merge with us. And we're just going to go into all these cities that they're not in. I love that their pitch was an arbitrage. It was like, yeah, hey, they haven't expanded to all the cities where they should have. We're going to beat them to it. And you're basically buying in for the pop when we get acquired. And the timing was totally right because the 1967 draft. It was at the 6768, but I think it was 67 when this was all starting. There was this incredible once in a generation prospect coming out of UCLA. The doctor, Lou Alcindor. Oh, Lou. Okay. Correct me if I'm wrong. But doesn't it? Dr. J play a huge role. Dr. J ends up playing a huge role in this. But this is, of course, Lou Alcindor better known soon as Kareem Abdul-Jabar. He

39:53ends up playing both leagues off of each other. He tells the ABA, I think the Nets in the ABA had the first draft pick in the ABA and the Bucks had the first draft pick in the NBA. They both draft him first and he tells each team, I'm going to take one offer from each. It's got to be best and final. That's it. I'm taking it.

40:15The bucks come in with a $1.4 million deal. The nets were lower. I think maybe like 1.2 or something. So he signs with the bucks and then the nets are like, wait, wait, wait, you actually...

40:25meant that it was like best to find like we'll do how about they offer him 3.6 million for a longer term contract. Remember it was just like that same year that that will get a $250,000 a year deal which was crazy. Damn, this is like Uber fundraising. This is like like six months later like a 10x valuation increase. I know like literally the same day and cream is like no I meant it man like only one offer. And so he signs with the bucks. He goes to the NBA. Still the largest contract at the time. But the ABA science doctor, Jay. All right, listeners. Now is a great time to tell you about a longtime friend of the show, Vanta. AI has scrambled the whole security picture. It used to be that you proved that you were secure once a year on audit or a static PDF. Then everyone would not and you're done. But in an AI first world, that doesn't hold up anymore.

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42:48So like we're in the middle of there's been sort of like three chapters of modern basketball history undergoing like great areas of transformation We're like deep in the first one right now in sort of this NBA versus ABA battle and We're gonna get to classifying the type of power that the NBA has later But this incredible example of counter positioning is happening with the ABA because the ABA of course, you know, it's almost think about it like the XFL But they're not being like exhibitionist about it their pitch really is like the NBA should be bigger and it's not and they're slow so we're gonna go eat their lunch first so they have to buy us and They're willing to do a few things like the XFL and change a few rules so that they can

43:34get more popular more quickly. And one of the counter-positioning things that they do is their rules let them sign college undergrads, which is actually how they get Dr. J, or Julius Irving, and get him in the ABA because they just go get him sooner than the NBA's rules allow for.

43:50It's not that their rules let them sign college undergrads they just don't have any rules so like they actually start going after high school players too and this is the origin of high school players go into the NBA or the ABA first the other things the ABA does remember like you said then they're trying to get bought but they're also like so they're trying to be flashy but they're also trying to really innovate in the game and and do interesting things the NBA up until this point it was like a big man center dominated game you know Bill Russell will chamberlain cream in his own way, although he was, you know, part of a more modern era. But that was like, it was big. It was bruising. That's what the NBA was about. Wasn't fast. Like it's big and bruising today, but it's fast. Like the NBA is like, you know, think about like the tree style of like, I'm going to stand and I'm going to move my arms around and I'm going to block your shots. But I'm not, I'm not driving the lane, muscling through and knocking guys over. Yep. So the ABA.

44:47is actually the league that first invents and implements the three-point line and perimeter shooting and fast breaks. Well, fast breaks always been part of the game, but a much more finesse and skill oriented game. And of course, Dr. J is like perfectly suited to this. The other thing that the ABA does is they basically invent whoop.

45:09would become all-star weekend, which is now such a huge thing for the NBA. So they invent the slam dunk contest, which Dr. J wins the inaugural dunk contest with a dunk from the foul line that, you know, sends everybody, like, Rune Arlidge is loving every minute of this. Right. Yeah. He wanted a television spectacle that he could put in the slow mo. There is nothing better than slam dunk footage for that.

45:34Totally. And that it wasn't until after the merger. I think that the three point contest would be added and some of the other stuff around all start weekend. But that was so innovative because it was the first sports entertainment content that wasn't a game. It was ancillary content to the game, but it was just as if not more exciting and hype building and televizable. Yeah. And you could build hype for weeks before and weeks after. I mean, there's just like, There's so much you can talk about leading up to the dunk competition. And flashing forward to today, the NBA has tried to replicate the success of the slam dunk contest with like...

46:12a bunch of different other types. And I think there's the skills thing. The skill challenge. There was two ball with the with the WNBA. And they even changed the way that the game itself works in the last couple of years. And just like nothing that they have never been able to replicate the success of that thing that the ABA invented way back when, which is just this amazing, perfect spectacle of a slam dunk competition. It was amazing. And so like 1970s too. So.

46:41Actually, before the Dunk contest in 1971, the NBA waves the white flags as, alright, if we give up, let's just merge and do this thing. And they've both basically been gunning for the same cities at this point.

46:53The ABA had taken some sort of strange fringe towns, like they had the Virginia Squires, which was actually a regional team, which is where Dr. J played. But then the NBA saw this sort of coming and went crazy. And I think in 1970, they went and got Portland and Cleveland and Buffalo Braves, which is another Buffalo team that moved. That's now the LA Clippers. We covered that on our clips episode. Yep.

47:18Yep, which oh my gosh, listening to that early episode. But this is really when there's sort of a tremendous amount of franchises that were added really on both sides. Yep. So after four years, they declared truth. They stopped the war. But remember the NBA players association and the power of the players and the union and that they had gotten In a surprise move, they sue to block the merger on antitrust grounds because of course has players like they're making out great. They got the ABA and the NBA bidding against each other. Players are shifting back and forth between leagues, getting these crazy contracts. They sue to block the merger. It ends up going to the Supreme Court, like the US Supreme Court.

48:06and eventually settles, but it takes five years to settle. That's when the ABA just starts going crazy with all these innovations in the Dunk contest and things that they do. And that loss, it really makes you think like they were right. Like there was a competitive market for their talent and they really makes you sort of think today like, well, how is it that the NBA has a monopoly on professional basketball in the United States and that's legal? It raises some interesting questions there as to What is the NBA, and is it a company in itself for...

48:38I'll spoil it a little bit and say it's not really clear whether it is in itself a single entity or a joint venture or just a contract between a bunch of privately owned organizations that sort of has a constitution and a bunch of bylaws, but they have been a different thing in different legal contexts in different courts around the country over the years to kind of fit into whatever they need to be for that particular scenario. Of course, what are you talking about? And they're in association.

49:08It's obvious. Not obvious. When they finally settle in 76 and the merger goes through, the players, though, what drives them to settle is they get a major concession. The MBA agrees to abolish the reserve clause in contracts, which the reserve clause said that any player whose contract was expiring, and this was true across all professional sports in the US at the time.

49:36that the team that the player was playing for kept that player's rights for an extra year after their contract expired. So it basically prevented free agency from happening of like you'd get to the end of your contract, and you couldn't go negotiate with other teams because your team held your rights for a year. So if you wanted to go play for somebody else, you either had to demand a trade or sit out.

50:02for a year. And there was actually during the interim when the merger was being disputed, there was a player Rick Barry who jumped leagues. He was one of the first players to jump from the NBA to the ABA. And he thought that he would be able to dispute this reserve clause and be able to start playing right away.

50:24it ended up being held up and he had to spend the first season as he played for Oakland as Oakland's TV announcer before he could actually start playing in the games. So in the end he agrees as part of the settlement to get rid of this. This is huge. So like now for the agency it's opened up and this really begins the modern era in baseball.

50:46The reserve clause would end up being abolished by a lawsuit from Kurt Flood, and I think that would happen later. I think that was 1980. Maybe I want to say, could be wrong on that. But once again, the MBA is kind of leading the way here. It's effectively like a non-compete. Look, you were a professional basketball player for me. You can't compete with me by being on another professional basketball team.

51:05like, we're separate organizations, therefore, and this is where it's that like thing where the NBA, when they want the teams to be separate organizations, they are and when they want it to be one single entity that can sign a collective bargaining agreement, they also do that. Yep. Yep. So the merger happens.

51:22four ABA teams end up getting absorbed into the NBA. Yeah. So this, this to me is the really fascinating thing where between when the NBA waves the white flag in 71 and when they actually end up merging four years later, the leverage shifts entirely to the NBA, like what the players association did by creating that lawsuit.

51:44It was like the ABA had so much momentum and so much cleverness and so much creativity and it seems like they never really had a long-term plan and they sort of started to fatigue. There was like deal fatigue that happened and by the end of it There's ABA teams folding. There's ABA teams not making payroll. There's ABA teams realizing that the strategy of like moving between three different cities in Virginia as a regional team is just a terrible strategy for a professional sports team and their costs are way too expensive. And so there's basically only four left with Denver, the Indiana Pacers, the New York Nets and the San Antonio Spurs, that are really able to make it through in this merger. Yeah. And most of the other teams fold.

52:26Well, including, but except for St. Louis. Did you find out about this band? This is amazing. I don't know. So St. Louis had a team in the ABA. The owners strike this deal where instead of they were in dire financial straits, like some of these other ABA teams, instead of having to pony up more money to keep the team afloat and join the NBA, they fold the franchise in exchange for the draft.

52:55No, no, even better. So a $2.2 million upfront payment from the NBA. And in perpetuity, a one-seventh share of the TV money from the other four ABA teams that get pulled into the NBA in perpetuity. So this is crazy. So the ownership group of this St. Louis team, they get $2.2 million upfront. And then they get a cut of the TV contracts. I think the local TV contracts of these other four teams forever. So through 2009, they signed a perpetuity contract through 2009. They had been paid over $150 million from this settlement, which is just crazy.

53:43Oh my god. So what in 2009 finally the NBA was like, okay, we have to renegotiate this and like doesn't matter. I'm going the only reason through 2009 is that Bill Simmons writes about this in his book and it was published in 2009. That is so insane. Oh my god. Yeah. Also, that is some it's like the owner of state Lewis like saw the writing on the wall and was like, you know what? I'm gonna cut and run and sign a crazy deal for myself instead. Yeah. This is like We covered on the clips episode, the Donald Sternling's estranged wife, when Bomber bought the Clippers got something crazy, like 20 court sides seats, six parking spots, and like, I think the rights to have two championship rings if the Clippers ever win the championship in perpetuity forever.

54:32It's crazy. It's like I want all this stuff because my husband was a crazy racist and Steve Balmer really wants to overpay for this team so I can ask for basically anything I want. I mean, did he overpay? We'll get to that later. Yeah, it's a good point. A couple other points I want to make on this merger because it was crazy by the time it actually closed how much leverage the NBA had.

54:52So the first biggest one was that it's not treated as a merger. So these new teams arriving, they actually have to pay the NBA for permission to enter the league. They have to pay $3.2 million. Pay us to enter now. This is not like we're recognizing enterprise value that you have. Like now you're just anyone with a team on the street who wants to join our league. This is just rude. Like this is not the way it happened in the NFL.

55:19But they decided at the NBA, we are not going to recognize any ABA records. So like any of the history that you guys created, sorry, like that's those never happened. It's not valid history and facts. Yeah. Another crazy thing is the New York nets. You might notice. I was wondering if you could say this. Yep. Yeah. The nets have to pay the New York Knicks 4.8 million in indemnity as compensation for invading their territory. Like You guys, as a whole, have to pay $3.2 million, but you specifically have to pay one of our teams, almost $5 million 1976 for the privilege and compensate them for what you're about to do to them. On top of all this, the ABA team receive no television money at all during their first three seasons, and as we'll get to, that's an enormous NBA source of revenue. It's a huge component of it, probably half, but we'll get there. And those four ABA teams,

56:17Also got no votes related to the distribution of basically ticket sales or the alignment of those NBA divisions. So like they're just pulling all their control provisions and saying, yeah, yeah, we're going to vote on stuff as a league. You don't really get to vote. And so they're instantly brought in as these like crazy second class citizens that I think the net's owner had this quote said something like the merger agreement killed the net says an NBA franchise. The merger agreement got us into the NBA, but it forced me to destroy the team by selling Irving to pay the bill. And that's the crazy thing is they actually Dr. Dre was playing for the net for cash. They sell him to the Sixers for cash to be able to pay off these debts that they owe. It's just brutal. It's like.

57:03Everyone basically sold their soul for the privilege to play in the NBA. It's kind of amazing. What if listeners like this want to do an episode on the spurs some days? It's kind of amazing that the spurs overcome this decades later, it takes bed to be able to build the dynasty that they have. The nets frankly never really recovered.

57:23And it's not like these other teams went on to become amazing dynasties like Indiana of course when bird coach dumb and they had Reggie Miller like they had some great years in there But you're right other than the spurs. It's not like we're looking at the the Lakers or something like that. Yeah totally So at the end of all that as the dust settles right when when the merges officially happening just after is 19 79, which is a momentous year for two reasons. One, because that's the year that bird and magic into the league. And two, of course, that's the year ESPN launches. Yeah, this is all the cherry on top of this sort of first incredible chapter of the NBA where we finally have all the teams we know and love. We finally have the biggest rivalry and you know, the biggest like two superstar players coming in. And on top of the ESPN thing, this is the first year they actually add the three pointer.

58:17That's right. That's right. That was NBA in these days took forever to implement any good idea. So yeah, they finally had the three-pointer bird and magic. And with the ESPN, that means two things. One, there's more just like real estate for showing, televising more NBA games nationally. And two, you know, ESPN launches with Sports Center. You know, Sports Center covers all sports, of course. And like all sports have highlights and whatnot.

58:43What sport is more tailor-made for two-minute highlights with enthusiastic anchors on Sports Center than the NBA? It's just perfect storm. Totally. And it's one of my favorite things from our ESPN episode is like, I don't think I realized that Sports Center was the very first thing that aired on ESPN. Their most famous and perfect product is the thing that they started with from day one.

59:10the NBA would produce the perfect components to be a part of that. It's so interesting doing this now having done that ESPN episode a few years ago because I don't think we had that context that it was only just within those few years before then that the NBA at least finally became a product that would do so well.

59:29on this cable channel. I mean, they would have been fine, you know, with football and baseball and highlights and everything else, but like, especially during the winter, you know, those months when there is no football and baseball, the NBA is really what carried Sports Center and ESPN. So all that sets the stage for what is the second major chapter in the history of the modern NBA. And that is the year 1984.

59:54Great year, of course, because that's the year I was born. So it makes sense that it would be heavily in the Macintosh. That's right. That's right. Major year. But two things, really two people happen in 1984. I think you can argue. I mean, we'll try and make the argument here. You can argue. Maybe it's hard, but I think they're both of kind of equal importance to the MBA and both of these two people are maybe the most impactful.

1:00:22People, individual people on sports and sports business ever. It's a big claim. It is a big claim. So first in February of 1984, the MBA finally, after almost 40 years at this point, gets its first more than not totally incompetent leader.

1:00:45In David Stern becomes commissioner of the NBA and will get into everything that Stern does, but good and bad, but mostly incredibly good. He ends up becoming the longest serving commissioner of any professional sports league ever. He serves for 30 years until 2014, which is just incredible and presides over so much that happens in the NBA. But then of course, this is going to be the hard argument to make that he's as important.

1:01:13But we'll make it as the other person that joins the NBA in 1984, which is, of course, with the, I had forgotten this even from the last dance until doing the research with the third pick of the 1984 draft, the third pick. Like, are you serious? And is any Jordan still miffed about that? Right? I think he's still pretty pissed. Well, because, okay, so the rockets had the first pick in the 84 draft and they draft a Lajuan, which, you know, Obviously, that's a bad decision, but like they needed a center the NBA was still like centers are still a big part of the game and all that like Okay, and he's hit Kim a lot of on like fine With the second pick the trailblazers draft Sam booey like what so ESPN has labeled do not have that guy's outline on them. Oh my gosh ESPN has labeled this literally the worst

1:02:09draft pick in sports history globally and for all time. It kind of also besides Jordan, of course, who which is who we're talking about Charles Barclay and John Stockton are also in this same draft and the blazers pick Sam Booy. Okay. All right. So we're going to come back to MJ, which of course the bulls drafted third in June of 1984.

1:02:35But okay, so first turn, so how did Stern become the commissioner of the MBA? Well, he had been a lawyer in New York who originally did a lot of work with the MBA and a lot of work through the merger with the ABA in the 70s. And then he went in-house and he was in-house counsel at the MBA.

1:02:54and in March of 83. By the way, this story so far, his background is identical to the Major League Baseball Commissioner. He was outside council, worked at a law firm, eventually went in house council with the MLB and rose up. Oh, no way. I didn't know that. I think this is actually a pretty standard path to commission. Well, silver, of course, was Stern's deputy, but I think he also started as a lawyer.

1:03:20before joining the MBA. Mostly need to do lawyer stuff, so that makes a lot of sense. Makes sense. So Stern's in-house, and then in March of 83 while he's General Counsel, the league signs a new collective bargaining agreement with the Players Association. And this is a landmark, totally landmark deal. Like we said, we're gonna come back to the economics of the MBA that sets the stage for today. In this agreement, the MBA agrees to that in aggregate, it will pay the players in any given year 53% of the total gross revenue, not profit, that the league makes in exchange for they finally, as you said been earlier, they get the salary cap back. They're worried about competitive parity between the big market and the small market teams. They want a salary cap. They also want to keep expenses from ballooning out of control.

1:04:19And this deal is like a major landmark because the member of the players have been getting so much influence. Now they're really, they're still the players. They're still the labor in the league. But they're an actual like partner like they are contractually going to get in aggregate over half of the revenue of the league. So the owners still own the teams and they take the profits of his individual team. But they're really partners like the players are essentially equity partners now in the league.

1:04:47Yeah, it's fascinating. This trade, no matter which side you are, it's interesting because it's not an obvious deal that you should take for either side, which is how you know it's a good deal for both sides. Because from the league's perspective, it's not that we can pay up to 53%. Our cogs now are 53%. 53% just for the players. Right, just for the play. Exactly.

1:05:10Staff everything we are now committing that we have the Spotify business model rather than the netflix business model where no matter how many dollars we take in we are paying out you know 53 cents on the dollar for every single dollar so That's scary. Like that. Correct. And that's scary because it caps the potential upside on your business or unless you quote unquote make it up on volume. That's a foreshadow today. But if you're on the players side, you know, you're you're agreeing to this salary cap where sure it's going to bring parity and it'll make the game better. But gosh, like if I'm the LeBron of the era like why would i want to be a salary cap right i i tried to stay away i guess i don't want to directly say LeBron of the era equals mj because i don't want to make that comparison or have a school we said in our caveat that we're not talking about the game here we're talking about the business right right right we won't wait into that to be but yeah it's just this fascinating deal and like you said david it really even though they're not equity partners it

1:06:16effectively because the future cash flows are so intrinsically tied and scaled together, it feels a lot like being true equity partners in the business. Yep. And it's based on revenue, not profits. So like the owners can't hide. It's not like they can, you know, make up a bunch of, you know, Accounting stuff and cost it expensive what not like revenue is a fact profits an opinion exactly exactly to get John Malone in here And this is kind of incredible when you said this earlier in the episode been so this salary cap is three point six million dollars per team And that's 53% of the average gross league revenues. So if you do the math, that means that the average team in 83 was making $6.8 million in revenue. So there were 23 teams in the league at that point that meant the league as a whole was making about 150 million in total revenue. So okay, so keep that in mind. So Stern.

1:07:17Negotiates this deal. And then in February of 84 he gets promoted. He becomes the commissioner of the league. So let's just let's just contextualize like the 150 million revenue against like some startups. So it's making basically what like a pre IPO startup is making in revenue except the NBA is actually profitable and not losing money. So like that's that's the type of debate of all it. I think some teams are profitable. Some teams are losing money. But yeah, okay.

1:07:45So they're likely better than a break-even business on the whole, but called a break-even business that effectively, revenue-wise, looks like a late-stage startup. Yep. So also in 1983, right before Stern took over, they negotiated a new TV deal with ABC that I believe was about 20 million a year in terms of payments for national broadcast rates to the MBA as a whole. So now, five years later, In December 1989, so five years after Stern takes over, now granted, he had MJ to market as like a pretty good product to market. That deal expires, and he and the NBA negotiate.

1:08:25a new two actually new four-year TV deals with NBC and with Turner for $875 million. So that's over $200 million a year. Literally 10x the deal that had been negotiated the year before Stern took over. And not only 10x on the TV deal, if you just take that revenue, ignore all other revenue sources in the NBA, you know.

1:08:50concessions, ticket sales, merchandise sales, everything else, advertising, just the TV deal alone is 50% more annual revenue than the entire revenue of the league in 1983, when it started to cover. Wow. So that's, do you say 200 million a year in TV revenue? Yeah, but I think it's like 220 million in TV. Yeah. So there we are. The player is getting 120 million a year in revenue that they otherwise wouldn't have.

1:09:19Commissioner was a great thing for the players. Great thing for the business, which ended up being a great thing for the players. So that was the first thing Stern does is he just like massively up levels. The business and the TV deals that the MBA is doing. The second thing you could argue whether this is good for the players or not. I mean, ultimately, this is good for the players. So the 80s, the MBA, just like most of the rest of American society.

1:09:44had a huge drug problem, and this has been catalogued. Many other places in NBA history. The saddest and the worst example of this was, of course, Len Bias, the hugely, hugely talented college basketball player drafted in the first pick of the 86 draft, I believe, by the Boston Celtics. And two weeks after being drafted, he dies of a cocaine overdose.

1:10:12tragic and terrible but endemic of you know what was happening and in the league at this time like cocaine had totally infiltrated the league and many of the spikes to talk so much about this in the last dance yeah when he showed up in 84 in Chicago he was like what the hell are like all these veterans these drugged out dudes like who are loafing around the court and like that is not MJ style as everyone knows. So Stern, this is a big problem. So Stern puts in place a drug testing policy and a three strikes in your out policy. So literally, you know, first offense, you get rehab in a warning, second offense, you get a big fine. You do, you get caught at third time with any kind of drugs in your system. You are literally lifetime ban from the MBA. So a few players actually do get lifetime bands. Your combination of this

1:11:05And Jordan and everything really revitalizes and turns this around for the NBA. The third huge, huge thing that Stern does. And by all accounts, this is really his vision. Is he internationalizes the game? So like, of course, remember the game had been international and huge in China from back in the Naismeth days.

1:11:27but he internationalizes the days. Stern internationalizes not just basketball but the NBA. So obviously, anybody who was alive at the time and probably most people who don't are gonna remember the 92 dream team in the Olympics, that was Stern. So I didn't realize this until doing the research. It was a lot of people that made that happen, but Stern was the one he was like, there's a big opportunity for the MBA to go global, you know, not just in terms of recruiting players and developing talent, but also for consumers of the product. Had some had the Olympics before had just college players or like second rate groups. So FIBA, the international.

1:12:15governing body for basketball had only allowed amateur players to play an international competition. So that of course barred all the NBA players. What a stern have to lobby them. Hey, this is going to be really good for the sport. You should let us do this totally. And it was great for the sport and like that 92 GMT. I mean, it was a big focus of the last dance and big part of Michael's career and everybody involved. I mean, that was huge, man. I remember watching that on to it was like the biggest event of 1992 was professional players finally being allowed to play in the Olympics and like this greatest team ever assembled. That was all stern. On the back of that, the MBA opened up offices in I think 14 countries around the world to start essentially two functions, one talent development and recruitment. And of course, we would see that. We'll talk much more about that in a minute with the modern MBA and international players, but also just selling the product.

1:13:13And that's when the NBA itself and not just basketball really starts to become a global phenomenon. The fourth thing that Stern does is after the next Olympics in 96, the women had a big Olympics year led by I think Rebecca Lobo at the time.

1:13:31talk around the NBA and some plans on the back burner for launching a women's league. After the 96 Olympics, Stern really champions, no, we need to make this happen. And so he pushes through launching the WNBA. And I believe it was 97, I think, when it launched. And I didn't realize this either for the first eight years of the WNBA's life, it was wholly owned by the NBA. Oh, huh. So what? There weren't like individual team owners.

1:13:59each team was owned either by the MBA as a collective organization or by its MBA counterpart in the city. It was in if there was an MBA counterpart in the city. Oh, so the owner of the calves would have owned the Cleveland WNBA team. Yeah, like the storm was owned by the Sonic's. So then after eight years, they then spin it out and get into recruit independent owners for the teams.

1:14:25but that all happened in his 10-year. And then, of course, he would also embrace technology and launch leak pass and streaming in 95, which was pretty excellent. Yeah, pretty rare. Amazon was founded. Yeah, seriously. Any one of those things would have been huge, but he did all of those things over his 30-year career, which is pretty amazing. And that's still what? I'm not 15 years before he retired. But that was only the first half of his career. Yeah, almost 20 years before he retired.

1:14:54So that's Stern. On the flip side of that, though, like he's also responsible for a lot of the very highly criticized. Oh yeah, the dress code. Control. Yeah. Like that because for listeners, you don't know at some point there was a dress code where I was boiling the story. Yeah, yeah, yeah. We're going to get to that in a minute. Okay. He has definitely a Stern got older. Like he probably should have hung it up maybe five to 10 years before he did. But we'll get into that. So then MJ, I mean, We're not playing say too much about MJ here because like Netflix did a pretty good documentary. Yeah. Netflix and ESPN kind of told the official story. What we will talk a little bit about though is like Ben you were saying that the at the top of the show part of our initial inspiration for doing this was wanting to tell the Jordan brand story and realizing that that's really it's it's totally tied up in the Nike story and there's a better time and place for that. But Jordan he

1:15:51Signs the Nike deal right after he's drafted. I don't think this was talked about too much in the last dance. Which is not the deal he wanted. What was the sneaker company he wanted to sign with? I think it was Adidas that he wanted to sign with. Yeah, you're right. It was Adidas. And this is directly from the last dance. They asked him, do you have a shoe company that you wanted to go with? And he confirms that was Adidas.

1:16:15considering the billions of dollars that Jordan brand has produced today. We're gonna get into it. So it was his agent, I believe, who pushed him to say, before you make a decision, talk to these guys out in Oregon, these Nike guys. Didn't think it could fly out. I don't remember. I think they were like, fly out and meet Phil. Ah, that might have been. Well, we're definitely gonna tell this whole story on another episode someday. This probably stands for consideration as maybe the best non-acquisition deal of all time. We should totally do at some point, like we did our top 10 acquisitions episode. We should do a top 10 non-acquisition deals that have been happening. Ideal gets done in 84. I believe it was 2.5 million up front or something like that. And then a percentage of, I believe the profits from the Jordan brand over time. This is incredible. So Jordan, as of today,

1:17:16has made over one and a half billion dollars personally from the deal. And the Jordan brand within Nike, which obviously nobody could have seen at the time, is still going strong. And last year generated over $3 billion in revenue. 35 years after they signed the deal, unbelievable. And so as a result of that, I'm not 100% sure, but I think this is true.

1:17:44last year, Jordan's earnings from the Nike deal. So Michael's earnings were the single highest athlete endorsement, like single endorsement deal in the world. Last year and the dude retired 16 years ago. Oh my God. Isn't that incredible? Nike, it's the parent brand plus the Jordan brand.

1:18:10Their market share of the performance basketball market is 86%. Their market share of the lifestyle basketball market, which most of their Jordan sales, is 96%. And 77% of NBA players this season are sponsored by and are wearing either Nike or Jordan branded shoes. Totally crazy.

1:18:38So the legacy of this period, you know, in these two men, we should mention he was like a pretty good basketball player to go watch the last dance. It's amazing. Enjoy every minute of it. By the way, it wasn't Jordan. It was a team accomplishment is what I gleaned from the documentary. It was really just it was kind of everybody in the team front office and players. I think that was the big takeaway. Yeah.

1:19:03Right. Well, it does take a village, that's for sure. But that village is named Michael Jordan. So the legacy of these two dudes, Jordan and Stern, is that today, and we're not done with the story yet, but I think it really just comes from what these two people did. NBA players in alumni are one.

1:19:25the highest paid athletes in the world as a group, which a lot of which stems from that 1983 collective bargaining agreement that started orchestrated with the players union to have the largest social media followings and influence among American sports players by like a laughable laughable margin. So soccer and soccer players.

1:19:48football for all of our non-American friends is actually bigger than basketball players in terms of social following but within the US it's like it's not even close and we're going to talk a bunch more about that in a minute but then probably most importantly I think the the last element of this is that the current and former NBA athletes have wealth at a level and it become entrepreneurs and business people at a level that like just is completely eclipsed any other sport period in the world, both in their current playing careers and post-playing careers. So at the top of the list is Jordan himself. As of today, he's worth $2.1 billion. He is the wealthiest former athlete in the world, the fourth richest black person in America astounding. Below him, I mean, it's a wide gap between Jordan and the next, but

1:20:45There are a bunch of other people too, so Kobe's estate, sadly, Kobe tragically, rest in peace, but at the time of his death and his estate is worth $600 million, much of which came from all of his business activities after his playing career. Magic and Magic Johnson Enterprises also worth $600 million, nearly all of that came from after Magic's playing days through his business managers and influence.

1:21:14And then interestingly, after that, so there's another $600 million net worth former basketball player, a guy named Junior Bridgman. What? He played for the Bucks and the Clips in the 70s and 80s, and he founded Bridgman Foods after retiring, which is one of the largest, I think, chilies and...

1:21:35Maybe when he's franchisees in America, he employs like 11,000 people. It's incredible. Wow. He's worth $600 million. LeBron is worth $480 million. Shaq is worth $400 million, and is on the board of Papa Johns. Amazing. Had to put that in there. Amazing. And then another $400 million net worth former player, Vinny Johnson, who played for the Sonic Spurs and Pistons in the 80s.

1:22:03After he left the Pistons, he founded Piston Automotive Parts, which is one of the largest independent automotive parts manufacturers in America. That's a big jump. Yeah, incredible. So these are all black-owned businesses, black entrepreneurs, all the legacy of the MBA and the amount of wealth that these people were able to age generate during their playing days, but B also just had the...

1:22:28influence and ability and invest and take those assets and build bigger empires with them. Yeah. So literally nobody else from any other major American sport with the only exception is Roger Staubach, the Cat Dallas Cowboys quarterback. He built a big real estate company after his playing days. So he's also worth about half a billion dollars. But like nobody else even comes close. Like I don't know if anybody else is even worth a hundred billion dollars. I think Tiger is a billionaire individual sport. Yeah.

1:22:57So, uh, no other team sport. So football, NFL, nope, except for Starbucks, major league baseball, nope hockey, nope, like basketball is the only sport team sport that has produced these, uh, incredible, incredibly wealthy alumni. As one more measure of...

1:23:14incredible wealth is owning a sports team. It's a line in billions where they say owning an NFL franchise or an NBA franchise is the closest thing we have to royalty in America. And I was doing an analysis on the whole list of NBA owners and They're all, I'll actually bust the stat out now because I think it's interesting. Open up my spreadsheet. The NBA owners today are basically dominated by tech, private equity and venture capital. So you have 16 of the 30 teams owned by tech, PE or VC. And only five of them actually are family money of sort of inherited wealth. A lot of the others are entrepreneurs of different strokes, but they're

1:23:56Exist one player who owns a team and that's Michael Jordan and he's sort of in the same wealth conversation as those, you know, I mean, I think everyone else a billionaire. Yeah, so obviously, well anybody who owns a majority of an MBA team is a paper billionaire. So Jordan of course, I think he owns about 80% of the Charlotte Hornets first former player in any league to become a majority owner and As of this week, did you see the news, Ben? No. He is also now a NASCAR team owner. Wow. Interesting. He bought the team that Bubble Wallace drives for. Oh, fascinating. Well, he had a nice little return here on, on buying the Hornets. Cause in 2010, he bought majority control of the club. And I think it went for

1:24:47175 million and he just sold 20% of it that valued the company at one and a half billion. So he's he's gotten some nice appreciation over the last decade from from his basketball investment and has to use that cash somewhere. Yeah, totally. All right. So let's get into chapter three of building the modern day MBA after Jordan and still during the Stern era, but leading into the silver era. So when Jordan finally retired for the second or third time with the Wizards into those 2003. I think when he finally retired for good, there was definitely a bit of a hangover after that. So ratings dropped. While Jordan was in the league, TV ratings for the NBA rose every single year. He was in the league, which also I don't think any other professional athlete has had that happen in their career unless they were in the league for like two years or concurrently with Jordan ratings dropped and scoring dropped. And there was this

1:25:45uh, narrative, which a lot of people believe, but frankly was like really wrong and also crappy and kind of racist that the league was just filled with thugs. And this was the whole like, Alan Iverset thing. And is this when they had the brawl? Yeah, the mallas at the palace, the palace with round our test, the fans that instigated it were like drunk depressed, like off their rockers saying terrible racist things. Like And you know, the whole Alan Iverson and AI thing, I think this was actually my carve out maybe like a year or so ago. He wrote this great piece for the players Tribune. Two years ago, I think that we'll link to just about his experience and what it was like being AI and like being labeled as a thug and what we're talking about is he dressed like lots of like hip-hop artists and rappers did and like

1:26:39wore what he wanted to wear and had his personality. And a lot of the media came down super hard on him about this. And he was like, look, like I love the game. Nobody played harder than me. Nobody worked harder than me despite the practice line, you know? I was just trying to be me. Like I just wanted to be me. And it's kind of amazing that like what that's turned into fortunately, I think is what so many NBA players exemplified best by LeBron are today like they are them like they are their personalities and they are influencers but during the time so we referred to Stern maybe staying a little bit too long after the malice of the palace and dealing with Iverson and all of this stuff before the 2005-2006 MBA season Stern institutes what he he terms these are his words a liberal and easygoing

1:27:35dress code that mandates that players wear business casual attire when participating in team or league activities. The code also prohibits a headgear of any kind, as well as chains, pendants, or medallions worn over the player's clothes.

1:27:52And the fact that that's all specifically called out is just like ridiculous. For someone that benefited the players in so many ways, that is proof that you've now stayed too long, sir. He just like he didn't get it. It's veiled racism. The amount of distance between him and the players is just so evident by him making those comments and describing it. It's like you just you live in a completely different world, dude. Yeah. Well, I think I ever sin in his Quote about it at the time, I think actually says it best. What he doesn't say that other place did say is like, yeah, this is racist, which is true. Iverson says his quote is, they're targeting my generation, the hip hop generation. Like that's what it is. This is like a kids get off my lawn kind of thing. Like, you know, this is just, the world was changing, right? And, you know, the NBA was, of course, at the forefront of it with these, you know, young, incredibly talented people that were playing.

1:28:49How did the league recover from this to get where we are today, like being frankly a leader in social justice? Well, a bunch of things happen, but specifically on the dress code, I believe it's still in effect today. I'm not sure about that whether it is or isn't it doesn't matter because the players in this like brilliant move completely co-opted. And I think Dwayne Wade was really the first player to start doing this and then he was followed quickly by LeBron. They embraced and they're like, all right, great. You say we got a dress up. We're going to dress to the nines. And that's when, you know, it really transformed into this, you know, every arrival at the arenas for NBA games and post came press conferences became this fashion show. And they said, like, all right, great. Like we're not going to wear golf shirts and khakis, you know, hiked up to our navels. We're going to like

1:29:42Be like you faster. Yeah, like you David Stern. We're gonna be fashionable. We're gonna be on the cutting edge and like Particularly, although this would of course happen later But not that much later with the rise of social media and particularly the rise of Instagram fashion how they dressed Players closed like just played right into them being able to build these larger than life social media followings All right, so bring us into act three then, okay, so act three I think there are really three aspects to what has become now the modern NBA. And really all of them, we have to give credit. Like I said, a minute ago to David Stern laying the groundwork for the vision for these. So one, I would say I'm going to call this unique and compelling content within the NBA, both on the court and off the court. Two is international players and the international game and fan base.

1:30:41and 3 is the wholesale embrace of technology in all of its forms. So, what are those three pillars of a playbook remind you of? I feel like I've heard this somewhere before. Are you pitching me on the strategy for the NBA in the 2000s, or are you trying to tell me that you are going to take Disney into the next 20 years? Yeah. And right around the same time, too. So, of course, this is the Bob Ager three point plan for Disney when he becomes CEO in 2006. And it's right around the same time that all these same things start happening in the NBA. So, first on international.

1:31:16You started in the 90s and early 2000s, getting some of this happening with, of course, Tony Kucoach and some of the other great Flotte Deweck and some of the other great German players. Yeah. Dirk Nowitzki for the Mavs, of course, becomes a huge superstar from Germany in the early 2000s and then Steve Nash from Canada.

1:31:37debatable whether that's international but we'll give it to we'll give it to we'll give it to and then in 2002 you had literally the biggest international player from the most unlikely of places as a seven foot what is he seven foot six although rewinding back to the beginning of the episode not the most unlikely of places Yao Ming drafted the first pick by the rockets in the 2002 mpa draft the first international player ever selected with the number one pick without first playing US college basketball. And yeah, I mean, this was just like so huge. So unfortunately, Yao's career was cut short by injuries. He only played eight seasons in the league, but he's still in the hall of fame. An incredible player. He's already in the hall. Yeah, he was like first ballot for sure. He's already in the hall. So he brought, of course, China to the NBA, but even more important, he brought the NBA.

1:32:35to China. So the rockets after they draft, yeah, become the most popular sports team in China. Like, like across any sport. Yeah. I mean, basketball is already at this point, the biggest sport in China. And the rockets become the most popular basketball team in China. And on the back of this basketball becomes as we talked about, the second most popular sport in the entire world after soccer, the Associated Press estimates that today, 300 million people in China alone play basketball and 600 million people watch it so like literally there's an America's worth of people who play basketball in China and two America's worth of people who watch it

1:33:22That's insane. It's a great regular reminder to anybody listening to this show that China is always bigger than you think it is. It's like whenever we were doing the Tencent Ali Baba episodes, it's like I would always feel like our numbers were off by an order of magnitude. Yeah, I mean, I had to reread those numbers like six times to make sure they were right. Of course, their estimates, but that's how big this moment was and today 25% of the players on NBA rosters are international today. And even more important than that, probably I'd say like half, maybe more than half of the next generation of stars are international. So of course, there's Yannis, the MVP from the past two years. There's Joel and bead with the sixers. There's Jamal Murray, again, Canadian, you know, maybe, maybe not. But there's Yoke as well on the on the nuggets. And then of course, there's there's Luca, right? Like, I mean,

1:34:17We could be redoing an MBA episode in five years and talking about Lucas MJ. That's a, it's a bold call. A bold call for sure. But I can't think of a more promising young player in the league right now than David. You said we weren't going to make this about basketball. Don't expose that I don't know enough about players today to have an informal conversation with you here. I should, this actually play a good point to tell listeners. If we are talking about the calves, from 2005 to 2008, I can have a very informed conversation with you about every little bit of minutia in the league outside of that.

1:34:57I am not going to have a player by player conversation with you. And of course, like, I grew up 15 minutes from where LeBron went to high school. I got to watch him play. It was unbelievable when the Cavs got the first pick. And then we get to draft him. Like, it was, I mean, being in Cleveland at that time was just this absolutely unbelievable moment when he came back from the heat. And we won a championship just absolutely for a Cleveland fan to get to say that we won a championship in any sport. It's just a special thing. But I should come clean on my.

1:35:26My game play knowledge right now. Good point. We'll tone down the the player talk and come back to the business. The net of all that though is so Forbes estimated that during the 2017 2018 season there were literally one billion people around the globe who watched the NBA that season.

1:35:49And obviously the vast majority of those came from outside the US. You know, we're going to talk about the MBA's business and business model in a minute, but right now they still trail the NFL. They're the third highest revenue US league. Like that's the crazy thing about this. You're talking about this incredible global appeal and this explosion and all this attention from, you know, every corner of the earth. And they don't make as much as the MLB or the NFL in the US. Totally.

1:36:17So we're just talking about international now. We're going to talk about technology and unique and compelling content in a minute. But I don't see any way that five, 10 years from now, the MBA isn't significantly larger than any other sports league except some of the professional soccer leagues. Just by virtue of this, like you could debate its popularity in the US, but it doesn't even matter. You know, like there's so many more people around the world who watch it than do here and you look at baseball and football, football, especially just has no appeal outside of the US. Like, that's going to be a challenging future for it. And they're trying. I mean, like, there was a Seahawks game in London a couple of years ago. And I think they're doing these sort of one-offs is very much a copycat game now. I've trying to figure out how to execute a global strategy as good as the NBA. And David, your call I think is right. Like, if you want to be a part of the popular sport,

1:37:12five, 10 years from now that the world is talking about, you should invest your time in caring about basketball or, you know, non-American football, but that's harder to do from the US at least. So, okay, so that's international. Now let's talk about technology. So like we said, in 95, 96, the MBA launched their league pass offering interestingly, not in house. So they went a different route than baseball, of course, we covered the BAM. They covered with BAM tech. So yeah, the MBA partner with Turner. So Turner still operates League Pass for the MBA. But this is super interesting. And once again, like man, the NFL is so screwed. So League Pass, the MLB has MLB.tv, which is its on streaming service. It's powered by BAM tech.

1:38:04There's kind of a hole in the nobody business. Like they're in a good spot. You know, baseball as a whole is not in a good spot, but when it comes to technology, they're in a good spot. Did you know that average age of a baseball fan is 59 the average? Wow. Yeah, that's not good. No, that's definitely not good. And the average age of the NBA fan, 43, 43.

1:38:30and more importantly than that, you may have more detailed stats than me on this, but I believe among 13 to 13 to 17 year old. Okay, you want me to hold this? No, no, no. So among 13 to 17 year olds, the NBA is 57% of their favorite sport. Compare that to the NFL, 13% of them say that's their favorite sport. And in baseball, 4% of them say that's their favorite sport. Yet another reason why 5, 10 years from now, the picture is going to look very different. Yep. Okay. So back to technology. So MLB, they may have added more now, but I believe it's just the games. Here's what the MBA is doing. That's interesting. They don't own their own technology, which is a bit of a liability for them. But it's not just games that they have on week pass and MBA TV. They have all sorts of other content, too. So they're basically recreating everything ESPN does in terms of content.

1:39:27highlights features behind the scenes, you know, NBA insider, all of these things, plus games that you can stream on any device in any format in any country in the world with a direct to customer over the top relationship. Now again, mediated by Turner, but still that's pretty powerful. So now let's like, you know, they'll be like, like we said, they're in a pretty decent spot.

1:39:55I looked into, I had no idea before doing this research. Do you know what the NFL's streaming solution is? I have no idea. This is ridiculous. So NFL Sunday ticket is a really expensive deal that they've cut with Direct TV. Only available on Direct TV. So if you have any other pay TV provider, you can get it. Yeah, like how do I get an NFL Sunday ticket equivalent if I have cable? So here's what you do.

1:40:24You go to or if I have nothing and I just have Netflix. I believe it's called NFL game day. I want to say I may be butchering this but who cares? You pay them. It's pretty cheap. I think it's 99 bucks a year. You get access to streaming every NFL game. Sounds great. Really compelling, right? I'm in so far. There's one catch. You can only begin streaming the games after the games are over.

1:40:54What? Yeah, you can't stream them live. You can only, you want to watch a game live, you got to watch it on broadcast television or on Direct TV Sunday ticket. Like, what? How consumer hostile is that? I can understand this in like 2001, where the internet hasn't become prevalent enough since the last time you negotiated a deal, but like you didn't carve out the right to stream your own games on the internet in the last deal that you cut with.

1:41:23like the network. Well, he's what's interesting. So I actually don't know. I'm speculating here. They may or may not have the rights, but the NFL, so the NFL still is the highest revenue-grossing Americans. Oh, they make just a truckload of money. Like they make 10 point.

1:41:39I think it's more like 13, 14 billion dollars something like that. Oh, I'm thinking of their TV deal. Yeah, the TV contract. So it's all the TV contract and all their money is coming from these TV contracts and that's why they have this direct TV deal and the broadcast deals. This is the thing like this is going to matter. They make $13 billion a year compared to the NBA's 8.8, but they make six point eight million dollars a year on TV contracts alone nationally compared to the 2.66 from the NBA. Right. So, and the NFL, of course, still has the highest TV ratings, but this doesn't matter because like, you know, the future and younger generations don't watch TV aren't going to consume sports on direct TV. They're going to consume sports the way they consume the NBA, which is on any device at any time in any location in any format and

1:42:31the NBA and baseball are just like so much better position to this. So as this happens, all of that TV revenue over time is just going to start to a road. And especially now that ESPN has started and Disney have started to say, hey, yup, streaming's the future. We're putting actually good content on streaming now. Disney plus ESPN plus, like the writings on the wall here. It's just hard not to see the NFL being dethroned here on the technology front.

1:42:58The other interesting things the NBA has done is in July 2019, they also announced a five-year $1.5 billion streaming deal with Tencent in China to stream NBA games in China. They also have a linear TV deal with China Television. So that's super interesting. We'll come back to that. And then this is lesser in terms of revenue impact, but video games and esports. So NBA 2K is a believe by a pretty significant margin, the most streamed sports video game on Twitch, so not most streamed video game period, but of video games that are based on sports adaptation of a real world sport. The NBA 2K franchise is heads and shoulders, I think, above anybody else. FIFA is up there.

1:43:48of American sports certainly, 2K is the biggest. And the NBA has actually promoted the 2K league to be one of their four major brands. So they have the NBA, they have what used to be called the NBA D league that is now the sponsored NBA G league by Gatorade, the WNBA and now the 2K league, which is, you know, kind of crazy. Like you go to the NBA's website, you see their four big brands along the top and one of them's the 2K league.

1:44:15So then the last piece of this which ties into the unique and compelling content piece is social media. And this is another one where like as far ahead as the MBA is in these other dimensions versus the other leagues in America further here. I mean, this is like, it's not even a contest. And David to elaborate on what this is, I think.

1:44:36I think you're squinting a little bit to call this sort of the like unique and compelling content because you're trying to put in the Eiger's language exactly if we didn't have the Disney vision that we wanted to co-opt here which actually fits pretty darn well this one should be called empowering the players and this is really like the thing that they've done that is a brilliant marketing strategy that has been a 20 year bet, 30 year bet is to basically bet on the rise of influencers, which I think they were like 10 years early, but it is massively paying off now that the other sports leagues do not invest in building the brands of the players. They're always subordinate to the teams and or maybe not invest. They actively discourage. Right. And you look at what was your, what number did you find on the LeBron social media following?

1:45:23I think the important thing to note here, this is really I think where Stern stayed too long. This was I think part of his strategy of empowering the players, making them the stars. But then during the whole, you know, dress code and the thug era, like he missed the boat. Like this is what was happening was this was just the next generation of even more empowerment of the players and then with the coming of social media. But yeah, like despite the dress code. So LeBron is the NBA player with by far, the most social media followers, he has 119 million followers across Twitter and Instagram. And Instagram alone, something like 75 million, right? So that's like, I think it's like 73 million on Instagram. Yeah. So just put that in perspective, that's more followers than Donald Trump. So whatever you think of him, no slouch on the social media influencer department.

1:46:21So LeBron literally has more influence than the president, in some sense, in some sense, would that it would be even more. But so that's LeBron. The MBA accounts, social media accounts themselves, like the official MBA accounts. They have 80 million followers across Twitter and Instagram.

1:46:42Steph Curry has 45 million, Kobe's accounts have 35 million, the Jordan accounts have 25 million, and a whole bunch of players have, you know, kind of 20 to 40 million followers. And are these like, how does this compare to like other celebrities? Like I sort of assume that all those people would have a lot, like high millions or something. Yep. I would assume to, I don't actually have a good sense of like Taylor Swift and the like or Kanye, like how many followers they have at real time. All right. You do that in real time. I'm going to talk about the other leagues to just illustrate.

1:47:10What a delta there is here. Well first baseball baseball is just like abysmal It's not even worth talking about the top influencer in baseball is a picture for the meds named Marcus Strowman who has about 3.5 million followers the only reason he's the top influencers because he's like apparently the only guy who actually posts anything Bryce Harper has three million followers, but has only 50 posts across Instagram and Twitter as of a year or so ago. So okay, whatever. Football is a little better, but this is interesting. So if you search the query on Google, top football players on social media, literally all 10 links on the first page of Google are about soccer players. The NFL isn't anywhere to be found. I mean, it's because the NFL actively suppresses player voices instead of leaning into the 100% go go build a brand. Totally. So like the top.

1:48:06follower counts in the NFL, Odell Beckham Jr has the most with 18 million. Tom Brady, who should be like the LeBron of the NFL, he has nine million. Cam Newton has five million. It's just like, yeah, it's crazy. And so then this leads into like you're saying, the bigger, by the way, my homework here reveals like, if you're thinking about like Taylor Swift and Kim Kardashian, your past LeBron territory. It's like 140 million on Instagram alone and then 190 million on Instagram alone. So like what we're really saying here is the NBA players are participating in the social media revolution and reach that caliber of entertainment celebrity is and none of the other leagues are participating in the same way. Yeah. She's nowhere as this bitter illustrated than the

1:48:57Widely divergent reactions between the NFL and the NBA to the Black Lives Matter movement just Colin Kaepernick's treatment in the NFL and Everything the the NBA probably should have done more sooner But what they're doing now and in the bubble with Black Lives Matter all over the courts the players talking about it in every interview all over their social media accounts and the league embracing that and amplifying it. It's just such a different Strategy I don't know how the call went down to put black lives matter on the court I was pretty surprised to like tune into a playoff game doing research for this episode and see that the only branding on that court other than maybe the NBA logo is a massive black lives matter It's sort of like to say that you shouldn't I shouldn't be saying wow they really have the courage of their convictions But like that really is what they're doing and I think a lot of the times the NBA

1:49:55in their sort of leadership, it's almost like they haven't been the leader, but when their players are clearly reaching out for them to do something, they quickly follow suit. And I think an example is the protest game when the, I think it was the Milwaukee Bucks decided to go back to the locker room and hey, we're not going to play this game. It was like 10 minutes or something before the NBA came out and said, we're canceling this, we're canceling the other playoff game. And like we're going to reschedule them and we're not going to like fight this at all. This is what we're doing. And it was like,

1:50:24I don't know if that's their explicit strategy, but the idea of let the players lead and we will follow on this stuff. But the fact that we will follow, we're not going to fight on it. I just think it's the right thing for the league to be doing. It feels like their place. Totally. Well, this is what I think is really interesting from a business standpoint and is fun to talk about on acquired. I agree and totally think it's just the right.

1:50:49thing like morally in terms of being a leader or even just like not a laggard to do, but it's also a good business. And like it's really interesting strategy because what does this mean? You could be like, okay, like social media, I guess that means something just as one small example. The NBA is the first US league to let the team sell advertising slots on players jerseys. So every time LeBron post something on Instagram where he's in his Lakers jerseys that wish has sponsored. Well, guess what? That's a new ad impression for a wish. And LeBron has 120 million followers, right? Like, so wish paid the Lakers 30 million bucks for that ad sponsorship. And let's even pop up a level above that. Let's say like take a player like Luca, right? Like, you know,

1:51:42potentially the next great super superstar in the league or even or Yannis who already is two-time MVP in the league, you know, and is how old is Yannis? I think he's like 26 maybe I just want to hold a try about how I don't know. Okay. Then doesn't know. That's the moral of the story. Anyway, they post something kids in this 13 to 17 year old demographic follow him like Boom, what did the NBA just get? They just got a new fan for life who they're going to monetize for decades. This is really good strategy to allow the players to have their own presence and amplify it like this. Yep, completely agree. I also want to say on the coronavirus shutdown, I mark my calendar by March 11th when the NBA canceled the rest of their season. I don't think they knew that they were playing this leadership role, but where we kind of have a lack of leadership in our society right now,

1:52:34I definitely marked my calendar by March 11th the shutdown started because in a lot of ways the NBA gave the United States public permission to say like, okay, this is serious enough right now. We're like, look, if the NBA is not playing, I'm changing my life. Yeah. I mean, it was a wake up call for sure.

1:52:55There's definitely an amount of like societal leadership that they didn't ask for and they're not necessarily the best stewards of, but they seem to be doing a bang up job with the attention that they have. Not to mention, they're the only sports team to responsibly implement a way to play their sport and run their business. I think profitably during this era in executing really well on the Disney bubble. Well, at least safely. I mean, every other sports league professional and collegiate, I think, that has not taken a bubble approach has had coronavirus cases, which that pretty much brings us to the end of, you know, the modern day today. One last code that we would be remiss if we didn't talk about is really interesting drama that it will see how plays out in the coming years. And that's back to China. And

1:53:47this tension between these two elements of really on the one hand, you've got these two, the three plus technology, but let's put technology aside for a minute. These two massive forces driving the NBA of internationalization and letting the players be the stars and have their own voices. And China is right in the middle of this. David, have your own voices does not sound like a platform that the Chinese Communist Party would like. All right. So last fall, most listeners probably know Darryl Mori, who's the GM of the rockets, posted a tweet in support of the Hong Kong protests. Fight for freedom stand with Hong Kong. Yeah, to say that that caused an issue would be an understatement. So the season hadn't yet started. The NBA was scheduled to play two preseason games in China. The Chinese government coming as party postponed those games.

1:54:41China television dropped MBA programming. I don't know what happened with the 10 cent streaming deal, but I believe that might have been paused or at least. So Adam Silver at the terms of economic impact estimated that the league lost $400 million in revenue as a result of this. But even more importantly, like tens of billions of future revenue, or still maybe, or still maybe even more importantly, that would like it put silver.

1:55:11and the league in this kind of unwinnable situation of like they either could call out Mori and the Chinese government wanted him to be fired for this tweet. or they could support him and it's kind of like either way you're going to win and you're going to lose. Is there there are two strategies are directly at odds like hey we want to empower you to have your own voice and speak your mind and build your own brand, build your own following and let the NBA trickle through your brand. Also we want to be huge in China. So what happens when you have this conflict of somebody has some kind of disagreement with the Chinese government, and they have their own voice. You're two guiding principles have just smashed up against each other. Yeah. So ultimately, Silver and the NBA did side with Mori and the freedom of voices of NBA players and. Sort of. So I mean, they like Silver apologized twice and said he disagreed with the sentiment twice and Darryl Mori deleted the tweet.

1:56:15But I guess they sided with him in the fact that they didn't fire him Well, and also so that happened initially and then after people were like Excuse me guys sulfur did issue a statement saying, you know, there's kind of trying to be the diplomat here But siding with Mori he says it is inevitable that people around the world including from America and China will have different viewpoints over different issues It is not the role of the NBA to adjudicate those differences. However, the NBA will not put itself in a position of regulating what players, employees, and team owners say, or will not say on these issues, we simply could not operate that way, which to me sounds like a pretty strong statement of like, no value number one priority number one is. But we'll send a suggestion email to everyone tonight, letting them know they should probably not do this again, because. Yeah, please think hard before you do this. All of us are at risk when you do that. Yep. Yep.

1:57:11Totally. So the super interesting code at all this, though, is guess who is currently the president of the Chinese Basketball Association, which now the Chinese Basketball Association is a very interesting organization. It's the equivalent of both like USA Basketball and the NBA. So it runs the international competition and the whole like development. Right. It's how China would do the NBA. It's the government. Exactly. And it's a professional league with teams and competition. The current president of the CBA is Yao Ming. And Yao's last two years with the rockets, who was the GM. Darryl Maury. Wow. Oh, that's amazing. Isn't that amazing? So there's a lot.

1:58:00more and probably years worth of more events and things to happen and evolve on this front. Also going to be very impacted by US-China relations as a whole and what happens with TikTok and everything. But there is a lot of hope here that people believe like, look, if anybody can broker peace here, it's Yao and the MBA and not that Mori is involved at this level.

1:58:25But yeah, it has a very, very close relationship, of course, with Silver and with Stern before Stern passed away and then with the MBAs all. Should we go into power and into exploring the business model of the MBA today? Yeah, let's do it. All right, listeners. Now is a great time to thank our longtime friend of the show, ServiceNow. If you are running a large enterprise, AI agents are likely spread across every team and deploying them is no longer the hard part.

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1:59:55billion workflows annually, and trillions of transactions for more than 85% of the Fortune 500. So when companies need a place to govern AI at enterprise scale, they're building on a platform at the center of how their business already operates. And in a future that isn't going to be one AI, it's going to be thousands of AI agents working across every function of the company. But the question is, who's managing them all? So if you're trying to turn AI ambition into real business outcomes and make it work safely, securely at scale, Go check out servicenow.com slash acquired and tell them that Ben and David sent you. Well, for folks who are new to the show, if this was an acquisition episode, then we would be talking about acquisition category here and trying to find why they bought the company. That's not the case in this episode. And we can look no further than our friend of the show, Hamilton Helmer, an author of seven powers to try and figure out

2:00:48What gives the NBA power as a business? And to review, he's got these seven, as you can guess from the book, counter positioning, scale economies, switching cost, network economies, branding, process power, or a cornered resource. And we're going to evaluate sort of which of those the NBA has and in what ways it comes from those. And before we can do that, we should probably talk about where the NBA's revenue comes from and how much of it they do. And so we talked earlier about the fact that this is an enterprise that grosses, an enterprise might be the wrong word, but the NBA as an association grosses 8.8 billion a year in revenue. And David like,

2:01:26just ludicrous thinking about some of the numbers that we were talking about earlier and now we're in this sort of billion dollar category for the league. It's almost like looking at an Amazon stock chart where all the growth happened in the last few years and it's like everything before that for the last decades didn't matter. Right. It looks flat because it's looking down from such a high mountain top. The funny thing about exponential charts is it's flat until it's vertical. Yeah. But where does this money come from?

2:01:54David, I'll kick it over to you before we assign numbers to it to talk about the two unique structural things with the NBA in the collective bargaining agreement and in the salary cap. Yeah, so we already touched on one of them, which is the revenue sharing with the players. So within the collective bargaining agreement, every five to 10 years, it gets renegotiated.

2:02:19But mostly since 1983, right around 50% of the revenue has been contractually going to players. And then there's like Bill Simmons or somebody should do a whole episode on this. How does it work? In principle, there are caps on the amount that a team can pay in total salary costs for all their players.

2:02:47and that individual players can earn so it's designed to both create some parity within the league and create not parity but like some degree of parity within a team so it's not like LeBron is making 90% of the payroll of the leakers. Right. And importantly, to know this salary cap, because it's tied to that 50%, so that the league sort of figures out, well, how much money are you going to make? And then they back into, okay, well, what is 50% of that? And then what is that? If we distribute it, you know, cut it by 30. So this year, the cap is set right around $109 million. And of course, as you'd expect, some people are going to want to go above that. How does that work? So you can go above that. But then you pay a luxury tax back to the league. If you do go above that, there's somebody that's

2:03:32up at like $150 million in payroll. Yeah. So it's a soft cap. That's the takeaway here. But that leads into the other interesting aspect of the MBA is there's a revenue sharing agreement amongst the teams. So the luxury tax in the salary cap is related to this. But basically the way it works is with a lot of nuance is that every team pays into the league pool roughly 50% of their annual revenue of their basketball revenue of their basketball related income basketball related income which basically covers all the major buckets that Ben's going to go into and so like for a team a big market team like the Lakers or the Warriors or the Knicks that total revenue is obviously going to be much higher than the smaller market teams but every team pays in 50% whatever their revenue is

2:04:25And then that gets redistributed out to the rest of the teams equally. So this is the kind of, along with the salary cap, the second mechanism that ensures some semblance of parity within the league and allows teams like the Maverick, well, not the Dallas is a small market, but like the Spurs are great example or the Bucks or relatively small market teams to remain competitive with the Lakers and the Warriors.

2:04:53Well, I'm not even going to say the next because that's ridiculous, but the Celtics. Yeah, it's interesting. I mean, it's this very different philosophy. where it's basically say, because keep in mind, all these owners are running their own individual fiefdoms. They have no ownership in other people's teams. They have no ownership in the league. And so it really is this sort of prisoner's dilemma situation. And also, every owner is this fierce capitalist. I mean, all these people are private equity and tech billionaires. Literally, Timoth is one of the co-owners of the Warriors.

2:05:23So the situation is, well, how do I maximize my own personal wealth? And over the years, they've decided that the way to do that is by creating the most competitive situation possible across the whole league. And by doing this really unbelievably large revenue share, like the fact that half of all their basketball related income revenue goes to be re-spread around to everyone else. Imagine any business where you did that with direct competitors. Yeah, it's literal. It is the same analogy. Facebook and Twitter said, hey, it'd be better for both of us if the social media ecosystem had more parity. So we're going to share our revenue like this.

2:06:07Yeah, it's wild. It cuts at this continued question of, like, what is the NBA? Are the team's competitors or not? And the answer is gray. It is just a big, morassy gray area. But the strategy for them of paying revenue into a big pool and redistributing around has worked tremendously well. And so, well, how does that break down?

2:06:28Well of this 8.8 billion that they make per year the most widely publicized number that we know for sure is that the league having being an association and having contractual relationships with all the teams has negotiated a bulk deal half with approximately half with ESPN and half with TNT to pull in about $2.6 billion a year to broadcast the games on ESPN and TNT. And that's for the national TV, right? Exactly. So that leaves the local TV rights for any given team which I think there's about Thousand games across all the teams that are not sold as part of the national package 82 games they all play each other So I think there's about one to 200 million that each team makes on their own Just from that depending on what market they're in just from that local TV contract best estimates are that's roughly equivalent But you know basically think about five billion of that 8.8 probably comes from

2:07:28from these TV contracts at both the national collectively negotiated level and the individual, summed with the individual team level. Now, what's really interesting that we don't know is whether the leak pass revenue is part of that with the Turner deal or if it's separate. Yeah. It's a great question. Well, let's keep going and then we can kind of know by process of elimination. So another thing that we know for sure is that a little over a billion dollars a year is made from licensing and merchandising and again this much like the national TV deal the league Has contractual rights with all the team and they enter into these licensing agreements on behalf of all the teams and they share equally among all the teams so whether you know, you're the Lakers selling LeBron jerseys or you know, you're the bucks selling your your bench players jerseys like all of those get paid into the same pool which I also found was fascinating and that deal is with Nike Yes, well so

2:08:32The Nike deal alone is worth $125 million a year, but all the other licensing that they do in total is sums to about a billion dollars a year. Pat's, you know, whatever other merchandise. Yeah. And fun fact on the Nike deal, when the NBA started the patch program, which the patch sponsor like wish for the Lakers that everybody gets to have on there. In addition to that, the Jersey sponsor gets to have a logo. So you have the sort of paid sponsor on one side and Nike on the other.

2:09:00for the Nike one, every team has the Nike swoosh except for the Charlotte Hornets, formerly the Charlotte Bobcats, because Jordan is the owner. So it has the Jordan logo on it. And I think that is just like freaking perfect. So on point. Yep. It's also worth knowing this Jersey patch program brings in anywhere from 10 to $30 million per team per year. And so for anybody who's got an ad budget and you're thinking about CPMs, it's just really fascinating for me to think about, like, would you pay 15 million bucks, 20 million bucks to have that real estate? And I really wonder, like, how does the NBA message what that real estate is worth? And I think individual teams sell that, not the NBA at large. And so those are sold by individual teams. Yeah. In the same way that the individual teams are allowed to, you know, sell the rights there, arena, or I guess whoever owns the arena has a lot to sell the rights to the arena. It's sort of negotiated that way.

2:09:55That of course leaves one more huge pillar which is tickets that our best estimates are one to two billion dollars a year obviously got crushed this year from ending the season early and then playing the whole thing in a bubble with no fans but that's sort of the three major pillars of NBA revenue. There's another additional $500 million a year that comes in from China, largely from streaming, and that pillar will only grow in future years. The other one that will certainly grow very quickly is when the National TV deal that's $2.6 billion a year expires in 2024 or five best estimates are that will at least double. And so when we compare this to the NFL that generates 13 billion compared to the NBA's 8.8 or Major League Baseball that generates about 10 billion a year, it is a little staggering how

2:10:47broad the reach of the NBA is but how behind they are in monetization. But I think all the themes that we've talked about to this point put them in this really nice place to lean hard into the value capture here in the next several years. Yeah. And also probably start increasing their monetization rates for media rates deals both streaming and linear television outside the US like there's obviously China which is its whole thing but there's Europe there's Africa there's the rest of Asia like the NBA is hugely popular in all of these places well actually before now naming the powers I want to talk about another spreadsheet that I made which was basically analyzing the names of all of the arenas because it's always really bothered me that like we switched from you know really great names like

2:11:34You know, the garden or the palace, the palace or, uh, and I know this isn't NBA, the Coliseum to now like, I hesitate to even say any of them out loud, but like Oracle Arena. And that one's like not that offensive for some reason to me, but you look at, uh, Ficer forum or the AT&T center or talking stick resort arena. That one always cracks me up. Set the suns.

2:12:03Yes, and do you know what the talking stick resort is? Is it casino? Yeah, so here's here's kind of a funny thing. So you look at all 30 of these arenas and almost all of them can be categorized as a bank. So you've got Barclays, Capital One, Chase, Fyserve, Golden One, Rocket Mortgage, Scotia Bank. I think I said that right. TD Garden, like, you know, goes on an airline. So you have American Airlines arena. You have American Airlines Center. American Airlines shelled out twice for arena naming rights. Is that right? Miami and Dallas. I think so. Like I should have done my research before but I'm like clicking through these Wikipedia pages now in real time to verify that. That's just insane that that is true. So a bank, an airline insurance company, cable or telecom, and my last category here is sugar water because you got Pepsi Center and Smoothie King Center. So the vast vast majority of these arenas are named after pure commodities that have no way to compete in their business other than

2:13:10to differentiate on brand. And so what they have to do is pour these brand dollars in to making their actuarial tables in the case of insurance companies or interest rates appear somehow differentiated to consumers than their competitors. And so this seems to be the popular way to do it. And I think the only NBA arenas that are not one of these pure commodities are pyramid schemes and casinos.

2:13:38Amazing. In which category do you put Oracle? Depends if this tick-tock deal goes through or not. Yeah. Yeah. No, I think Oracle Arena, I suppose, is one of the ones. Well, it depends as Cloud hosting a pure commodity. I think that probably stands out as probably a third exception, but we'll have to see over time. Great analysis. That's my analysis of why all of these arenas have such freaking uninspiring names. All right, so power. Why is the NBA good business? And specifically, why is it so freaking profitable? And why will it continue to get more profitable as time goes on? So David, give me your step. Oh boy, this is interesting. So there are a few dimensions to look at this. One, I think this is actually outside of power itself and is more just like being a first or a best mover.

2:14:36Execution-wise on a market with the international expansion like a huge amount of the value creation in the MBA has been international expansion over the past decade plus and they've just executed on that way better than the other American sports leagues, but I don't think that in and of itself is power in Hamilton sense. So if you think about power like You could think about in two dimensions. The less interesting one is power versus other forms of basketball of which there's the NCAA and you know the Chinese Basketball Association and plenty others and I think the power there is cornered resource where they have the best players that play in the league. So if you want to see the premiere marquee players

2:15:29You gotta watch the NBA. So that's my number one, but I have it at a much more fundamental level. Like, there exists an asset called professional basketball or called the Game of Basketball. Like, it's a product with product market fit with fans because it's a thing that's fun to watch. And they seem to have a monopoly on it. They have cornered that resource in America. They're the only people who can deliver that product at a professional level to consumers. Yeah. Now, there is the NCAA, which is a competitor to that, but it's nuanced, right? It's like more of a co-op petition, right? Right. Also, I'm going to go on the record. They are professionals. We should be paying them like 100%. Oh my God. I'm well with this. I cut this from the scripts episode is already too long, but one of the things I found from the early days of this episode is longer than the NBA playoffs. Yes, seriously. Yeah, like I found out the history of the NCAA. So.

2:16:28Teddy Roosevelt was actually the one creating, but he pressured the, in like 1905, I'm dead serious here. In 1905, Teddy Roosevelt pressured colleges to create the NCAA to regulate football because too many people were like getting hurt and dying playing football. So that's the origins of it. But yeah, it's become like, in my mind, the most awful, corrupt, worst organization out there. It's so ridiculous.

2:16:56College athletes are professional athletes full-stop like they're being monetized their labor is being exploited. Why don't we get to find one of these things we disagree on because we're just like straight up in the same boat over and over again. I love it. Okay, so my question on before we move on to other power so on corner resource like why can't something like the ABA happen today to threaten the NBA and force a buyout? Oh interesting Certainly one part of it is just cornered resource on real estate like with the exception of Seattle Like and maybe one or two others like what cities in North American like Vancouver probably like could also just be served by Seattle could support and deserve an MBA team and a professional basketball team and don't already have one that served by the MBA as a competitor league You'd have to be mostly going into cities that there already existing MBA teams in and

2:17:54That's an uphill battle. Right. Right. And you'd have to fight them in a counter-positioned way. Like, you'd have to do something. You'd have to be like the XFL and be like, we're providing this sport that's like the existing league would have to destroy themselves trying to match us and they wouldn't do that to their massive revenue line. Ooh, that just makes me think, by the way, there is a massive counter-positioning opportunity for a new professional baseball league right now. Baseball, but over and a half hour.

2:18:23Yeah, well, and there's a model for this, which is Indian Premier League cricket, which like you and probably many listeners have never watched an IPL game, but like probably a lot of our listeners have, I have, it's awesome. Like I love IPL. It's so compelling. They took cricket, which was like, dead or them baseball and like added like insane fireworks and like crazy crowds and crazy rules and like, it's Actually, like in terms of global viewership, IPL is on par with the MBA. Whoa. Yes. Huge. Also streamed free on Twitch. Interesting. Anyway, that's a digression. I have another interesting lens to look at power, though, that I think this episode is brought out, which is what about relative to the other sports leagues? Like what's what's MBA's real competition? It's the NFL major league baseball.

2:19:19uh, Premier League soccer, Indian Premier League. Increasingly, the MLS. Yep, increasing the MLS. What if any power does the NBA have relative to that competition? And I'm not sure it has a ton, but one thing that thinking about this strategy of making the players the stars that could Start to introduce probably I think already has started to introduce an element of a network economy power where if your players have much larger and much more engaged social media followings and are relatively happy and evangelizing the sport, then they're going to be winning and converting fans and especially younger fans at a higher rate than leagues that

2:20:14don't have that. And so as time goes by, and I think you're seeing this with the MBA, and you end up in a situation where like young people in America, what would you say 57% their favorite league is the MBA? Yep. That's insane. And what 4% for baseball and 13% for the NFL. Let's see if you nailed that. You nailed that exactly. Good memory. Wow.

2:20:39That is like the biggest thing if I'm the NFL or the MLB, like I am terrified right now. Well, I'm basically looking at game over in 10, 20 years. And so what are they really competing for? They're competing like ultimately things come down to dollars. Obviously they are competing for attention share, but like are the NBA and the call at NFL going after the same contract dollars for the broadcast rights? I think they actually are because If you look at it this way, there's an arbitrage opportunity available for the network to go and buy the rights to broadcast something at some price because they feel that they can get more advertising dollars out of those rights than anybody else because of some way that they're uniquely positioned and so they have a certain amount of money to spend securing rights and they're going to seek which is a fixed pool right and that is the biggest source of revenue for any of these leagues.

2:21:37One way or another, all of these revenue streams are attention-based revenue streams, either advertising or ticket sales, or you're monetizing the attention of consumers, both US and global. That's a fixed pool, and the amount of dollars that are willing to sponsor that attention is also a fixed pool. So again, it's very much a competition between the leaks.

2:22:06The only other big one that I had was scale economies for a bunch of reasons, but you can't compete with the NBA without first getting to scale. types of contracts that they have in order to attract the types of players, they have like, it's just really hard to imagine what the laddering up strategy is there. And the fact that they have scale enables them to do the sort of like collective bargaining and group negotiating that they do as a league that just I can't imagine being an upstart fighting against that. Totally. The only league that has a chance is is the CBA, the Chinese basketball association, right? Like, you know,

2:22:48600 million basketball fans in China. Before last fall, I think probably the strategy of the CBA set by both Yao and the party was partner with the NBA. Yao had actually talked about it. I think Yao and Adam Silver had talked about they'd love a future where the champion of the CBA is playing the winner of the NBA Finals every year in a global championship.

2:23:16But now, like, is that what they want? Or do they actually want to try and build the CBA up into its own big competitor? Yeah, that's a good question. Question. Do you want to go to Playbook? Yeah, let's move on to Playbook. So the way I want to frame Playbook, because there's a lot of directions we could go here, is let's say I bought any given NBA franchise in 2010, and I now have had a 6X return in 10 years on my investment.

2:23:43What is it that the NBA did and what seeds did they plan over the last 30 that have led to this dramatic increase in value? Like what's what's the playbook they executed to do that? I mean to me it's it's the three things we kept harping on that are basically With some fudging on the first one the Disney playbook of Content i.e. Let the players be the stars internationalization and technology. Yep I think that's a good way to sum it up. I have some others that are little offsuits from that that we've discussed, but I think it's worth tying a bow on them. I think they made very intentional decisions to attract young fans. And so that investment, like to the extent that anything is valued as the discount of future cash flows, there's just a lot more years in the future in the average age of the NBA fan versus the average age of the lifespan of yet human who likes the MLB. So I think that like

2:24:43Literally the number of years of future cash flow that you can pull forward to today to do evaluation like they It's it's kind of an easy It's an easy way to make the value go up expand the number of years the other big one I think is and I can't figure out if this was intentional or not but the NBA franchises Have managed to attract a younger and much more sort of tech and business savvy group of owners. I mentioned before that 16 are tech VC or PE people who made their money in those ways, and lots of entrepreneurs. Very few have the league. Yeah. Inherited family money. The average age, I know this is going to sound old, but it's relatively young compared to other leagues. The average age of an owner is 65 years old. It has people as young as, let's see, who's the grizzlies all owner? Robert

2:25:39Para who started ubiquity he is only 42 years old now and was 35 I think when he bought the team and so you have this like get the acquired MBA franchise car totally and so you have this like For whatever reason, you know, when you compare it to like the NFL ownership groups that seemingly get passed down from generation to generation that are a lot of sort of inherited wealth that are lots of time. Brenners. Yeah, yeah, exactly. And a much more old, you know, stodgy ownership group, there's sort of been this self-fulfilling prophecy in the NBA.

2:26:17Being willing to be more experimental because the commissioner has more leash from the board of governors who is elected by the ownership group and the ownership group themselves have been entrepreneurs and are younger. You know, I think there's just a lot to following the incentives and the people who ultimately have control are the owners. And so a lot of the, even if they're not the most sort of progressive group, a lot of when you compare them to other leagues, a lot of the things that the MBA has been able to do is because the owners are okay with it. Totally. So that was the only two additional playbook items I want to call up. Great. All right, listeners.

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2:27:56All right, David, take us into grading. All right, grading. So for this one, it's interesting. You'd think when we're starting literally, if it was 130 years in the past, we could render a grade on this one. But we talked about it before and I think the more interesting thing, like, yeah, look, are we going to grade the MBA over its existence? A, for sure, right? Like they went from the underdog to this incredible position. I think the more interesting.

2:28:24question is, is do what we do with companies that we're looking at more real time of what are the scenarios where there's an a like middle of the road CC minus or an F over the next five years for execution for the MBA because I think it really is at a at a major crossroads here. I can paint scenarios for for all of them. That's how good you been. Yeah, let's do it. Let's start with the F. How could this Not payoff. I think the way that this really goes off the rails, which was hard to see before doing the episode, but could be a real scenario is China becomes a disaster scenario here. And US-China relations continue to deteriorate, which is outside of the NBA's hands, but both it's so important to the NBA, all of those basketball fans there.

2:29:23And not just fans, but there hasn't been a lot of Chinese talent coming into the NBA after Yao, but there's so much latent talent there that especially now that Yao is running the CBA is going to get developed within China. Where's that talent going to go? Is it going to come to the NBA? Is it going to go to the CBA? If that talent goes to the CBA and China continues to crack down on the NBA and other American businesses, well, that's the That's the only viable competitor scenario I see for the MBA being started and maybe overtaking the MBA over time. Yeah. And even if they don't necessarily attract a US audience, like they could attract other sort of non-US countries who become huge fans, they may do a great job actually of marketing to the US and figure out a sort of like TikTok-like situation for it to be an amazing US product developed and owned in China. What I think that's what's

2:30:21interesting about doing this episode of I've come to realize is like, yes, you know, just like with Facebook and social networks and lots of other businesses we cover on this show, the US audience of the MBA monetizes at a much higher rate than the international audience right now. But that's going to continue changing over the time. And just purely in terms of numbers, the US doesn't really matter. If a billion people watched the MBA last year, how many of those were Americans?

2:30:5110%, 15%, like, yeah, I would have heard if that went away, but like the vast majority is non-US. So if China captures that, like that's... Terrible for the NBA. Yeah, it's worth calling out that the value of these teams effectively comes from three things. The future growth from international, the future growth from youth sort of spending at the level that you expect them to spend and continuing to be NBA fans. And then what we haven't talked about is beachfront property where owning an NBA team is incredibly scarce.

2:31:28unlikely that they'd be competing for the same set of billionaires to buy the teams. But if you have 30, 40, 50 new pieces of beachfront property, when they're really only have been 150 total available to US, you know, team purchasers, all those parts. Right. Like the intrinsic value of these NBA teams, I mean, the intrinsic values, whatever anyone's willing to pay for it. But you look at a team that's worth $45 billion, like a lot of that comes from the fact that There is only one New York next. Yeah, it's like real estate. Well, I mean, that's the look no further than bomber and the Clippers, right? Like bomber was hellbent and determined to own an NBA team no matter what he was going to pay whatever it took and him paying two billion dollars ended up actually being a momentum trade and making every other team including his own more valuable after he set the new high water. Yeah, totally totally

2:32:22Okay, so I think that's the other thoughts on you. Yeah, and to specifically call it out, it's their strategy of letting anybody have their own voice being directly in conflict, or at least proving to China that it could be in direct conflict in the future, and they shouldn't put too many eggs in the NBA. They can't contest, yeah. Yeah. And then, you know, the next Janus, the next Luca, the next Joel and B, they're going to play in the CBA, not in the NBA.

2:32:52Yeah, I think that's a good thing to flag. The other one that I'm little, I don't totally understand the profitability of each team. I know there's some, a handful of teams that aren't profitable, the vast majority are, and then there are some teams that are crazy profitable. I do wonder if there's some situation where...

2:33:10because you're paying the players so much. And the question is, is there like rising costs on the team ownership side, where it can cause some teams to sort of crumble and owners to not be willing to continue floating the teams? The good news is the NBA is actually in a better position than any other for that with all the revenue sharing. Yeah, the revenue sharing and the collective bargaining agreement, right? Like, I don't know, I'm sure you could make arguments on both sides, but it feels to me like it's pretty fair with the players, right? Like it's based on revenue. So as revenue grows, It gets shared between the owners and the players. The players get 50%. Great. Like it's locked in. You know, it's not like, I guess there's a risk that in the next round of negotiations, the players have so much leverage they end up demanding 70% or something. They want the Instagram followers, man. Right. They have the Instagram. Well, that MBA account is 80 million. Yeah. The answer is the owners need to become influencers too, just like Cuban. So. Yeah. Well, because a C scenario is boring, what's the A plus scenario?

2:34:10Okay, A-plus scenario, they land the plane with China, Yao and Adam Silver and LeBron have a love fest. And at some bright date in the future, there is a world championship played between the CBA and the NBA and dad $1.5 billion deal with Tencent for streaming in China and goes to $15 billion deal for streaming in China. That's one element.

2:34:40I think the next element is, you know, when we're talking about LeBron, we're talking about Steph, we're talking about the NBA counts in their, in their influencer followings, like the up level, again, to Kim Kardashian, Kanye West, Taylor Swift territory. Would you kind of feel like that's going to happen, right?

2:35:01both for them and for the next generation. Like I don't see that not happening. Yeah. I've been trying to figure out. So like I just listened to this great podcast episode from 2018 with Steph Curry on the Bill Simmons podcast and Steph's talking about just how incredibly demanding the NBA schedule is and playing 82 games and how hard it is on the body. Like people have talked about a 70 game season to lighten the load on the players a little bit and increase longevity. I do wonder if.

2:35:30Not that but something like that happens that enables the players to do more outside the game rather than solely being focused on the game so that they can be more personalities and less like players who have the opportunity to be personalities during the offseason and then retirement like to truly get to Kanye level you need to be able to like have some spare cycles to be Kanye. You know what though? I actually think this is this is gonna happen naturally like Lebron's probably going to retire within the next five years, right? Yeah. There's no doubt. He'll win another championship or two and hang it up. Lebron full-time focused on Lebron and his businesses, like watch out, like, you know, every successive generation we've seen this, like, well, Jordan did it best, right?

2:36:22Kobe, Shaq, you know, these guys like post retirement, Charles, Bargley, they're like, they're building their presence. But LeBron staff, these guys, when they retire, you know, social media native come enough to like, they're, they're going to take it to a whole new level. Well, I think, I think that's the right take. I think the last thing I would say is based on valuations.

2:36:43a lot of this stuff has to go right in order to justify some of the prices that these owners have paid because if you look at the average MLB sort of price of a team, it's about five and a half X their revenue. The NFL has a premium to that and it's about six and a third. The NBA ranges anywhere from seven to 14 times their revenue for the price of a team. So I would say the owners are as bullish as you are, David, on the the future of the league and owning these assets.

2:37:11A plus is a little baked in at this point. Yeah, that's interesting, right? Like, in and of itself, is the A plus already priced in? If so, like, man, you need a lot more than that to get a real A plus, but I mean, this doesn't, it just doesn't fit into the normal acquired paradigm of like Like, there is no A plus situation, frankly, of going and buying a team for $4 billion now and figuring out what you could sell it for at some point. Like, I know that the team prices have six X in the last 10 years, but like, they were way under price before. And now they're that market. Are these teams going to, are you going to 10 X, say you buy a team for $4 billion? Are you going to get $40 billion for that at some point? Like, that does seem like a,

2:38:01Trash. I don't think he's the intrinsic value of these assets compounds like technology compounds. Yeah, it's more like real estate. You know what it's like? This is like Seattle real estate. There was like it was vastly underpriced. It matched. It was a tracker for Amazon stock for a while until everyone realized actually it's real estate, not a tech company. Yeah, but but that appreciation happened because there was a from what like probably 2009, 2010 until what 2016, 2017.

2:38:31people are still valuing Seattle real estate like pre back when Amazon was like 5,000 people in one building. It was way underpriced then. Like then the market corrected and now it's at a sane rate again. And it seems like the NBA teams will probably be that. Let's revisit this in five years and figure out if we're going to eat those words. Totally. So. Okay. That feels like a great place to wrap. Yep. Carvouts. Carvouts. Let's do it.

2:39:00I have a very exciting one on today's show, which is a new podcast called Just Raised that has been started by acquired listener and friend of the show Joe Sweeney. So excited for it. It's already great. He's four episodes in. So proud of Joe for starting this. It's a podcast with founders who literally just raised their seed or series A and they tell their stories about How there is, what the company is, what their needs are, what they're hiring for, what their story is, and he's had some amazing founders, so the most recent episode is with Phil Liban and his new company, but of course Phil has a long history of the original Evernote founder and CEO and just a...

2:39:49wildly entertaining human. So go check it out. I remember this was a twinkle in Joe's eye on an LP call that we had in a few months back and it's just amazing. There is nothing cooler for David and I than someone on an LP call or in the Slack or something spitballing a project that they want to do and then seeing it come to life. We need to start doing this again. We didn't do it on the last one, but we had pitches that anybody could pitch an idea or ask for feedback at the end of an LP call and Joe piped up and said he had this idea for a podcast and so cool. See it out there in the wild. I love it. I love it. Mine is something from a couple of years ago that may not be relevant to you now, because I don't think it's open now in the coronavirus era, but hopefully will in the future. And I was thinking I must have done this as a carve out at some point. And when I realized I hadn't, I was like, I have to talk about this in the show. So David, do you ever recall me telling you about Meow Wolf? No.

2:40:47Okay. You've told me about a lot of things, but I don't recall this one. So this is an experience in Santa Fe. It is the craziest, like, art exhibit full immersive experience, Disney Land, Chuck E. Cheese combination. You could possibly imagine. And the story goes- It's null and push null involved.

2:41:11Close. It is actually bankrolled by George R.R. Martin. So it started as like a little artist collective of these crazy experimental people who kept making wilder and wilder sort of like art experiences in Santa Fe that you could like wander around in and when and it wasn't a business in any way it's just sort of this like crazy group of artists and it function sort of leaderlessly and then there's one guy who sort of rose up to become the leader and started structuring a little bit more and they started being able to raise money for their projects they were doing and they made pirate ships and they did all sorts of stuff and they came up with this really crazy one for basically like a alien invasion

2:41:50like experience that's kind of a mystery and they said we want to fill this whole empty space we found that's an abandoned bowling alley. They pitched a bunch of people and they eventually got George R. Martin to fund it. And it is this just nutty experience that you go and walk. You can spend eight hours in here trying to figure out all the clues and just like explore the whole thing.

2:42:16Har experience or like a mystery like a escape room type thing kind of escape roomy. There's lots of people in it. There's like like weird things happen like you're in a house and it's a dining room but actually then you realize the ceiling is warped and then you realize that like it seems like something might kind of be falling through the ceiling and then you realize every once in a while that TV flicker is you're like why is that TV flickering so you're like in the experience of a paranormal thing happening in this world and there's no recognisable invention or a toilet tower but self-directed

2:42:49Love it the cool thing that you can do now if this sort of sounds interesting to you is there's a documentary that will link in the show notes that they made called origin story of Miaw Wolf tracing them all the way from a group of sort of like crazy indie artist colony to Really what their ambitions are at this point is to become the next Disney and they've sort of like talked about this or like we want to be a real business like we want to start a billion dollar thing We want to create all this really interesting IP and experiences they At least I don't know if they still are with the covid but they were building out experiences in Vegas and I think maybe Denver like second and third locations for anybody who has been there you are definitely nodding your head right now and being like oh my god I forgot about that was such a cruel crazy it's it's really frankly hard to describe you can kind of get a sense for it by going to their website because it's trippy

2:43:40I could go on for a long time about this, but check out. It sounds awesome. Their website, when they're in person, you should do that. And if you're looking for kind of a fun document or to watch to like get you excited to one day go, you should do that too. Amazing. I think that about wraps it up for our NBA episode. Is that enough? Should we do more? I don't know if I could do more. It's late. And yeah, this was such a blast to do. I hope listeners, I hope you enjoy it. We love feedback. We love feedback and we love tech. We love doing.

2:44:10text bed, like all these media episodes, Disney episodes, ESPN, like such a blast, too. And fun to just like realize, too, like just like the intersection of these worlds and how much media pioneered a lot of stuff that has shaped tech. And now it's going back the other way with social media and everything. Really fun. Indeed.

2:44:34Well, if you aren't subscribed and you like what you hear, you totally should. And if you like this episode and you have a friend who loves the NBA or sports in general, or you just think you know someone who would geek out on the business of sports, you should absolutely share this episode with said friend or coworker or just shout it from your local social media hilltop. You too can be like LeBron on Instagram and share the goodwill of acquired.

2:44:59As always, if you love acquired and you want to hone your own craft of company building, you should join the community of acquired limited partners. You'll get access to the LP show where we dive deeper into company fundamentals and investing fundamentals in addition to our monthly LP calls where you two could be like Joe Sweeney and talk about a project that you have in mind and one day bring it to life and get to meet so many other members of the acquired community directly. You'll get access to our book club where we will interview great folks like Hamilton Helmer or Will Thorn Dyke or Emily Chang. And if you join here in the next few weeks, you'll get to hop on with Emily when we all have our book club review with her. If you aren't already a limited partner, click the link in the show notes. Super easy or go to acquired.fm slash LP and start your seven day free trial now. And lastly, if you want to talk all things, tech news, strategy, or review this episode and

2:45:52Correct us. You can do that in the acquired Slack at acquired.fm slash slack. And with that, we will see you next time. We'll see you next time.