Acquired - The NBA

Episode Date: September 30, 2020

On the eve of the 2020 NBA Finals, we dive DEEP into the history and business model of the league behind the world's 2nd largest and fastest growing major sport. How did the NBA grow from merely an excuse to monetize hockey arena off-nights into a global powerhouse with more reach and influence and reach than any other American sport? Tune in!! Sponsors:ServiceNow: https://bit.ly/acqsnaiagentsHuntress: https://bit.ly/acqhuntressVanta: https://bit.ly/acquiredvantaMore Acquired!:Get email updates with hints on next episode and follow-ups from recent episodesJoin the SlackSubscribe to ACQ2Merch Store!New! We're codifying our own Playbook notes and takeaways from each episode, and posting them on our website. Check them out at: https://www.acquired.fm/episodes/the-nbaLinks:Our old LA Clippers episode: https://www.acquired.fm/episodes/episode-36-the-la-clippersThe Last Dance: https://www.netflix.com/title/80203144Allen Iverson Players' Tribune piece:  https://www.theplayerstribune.com/en-us/articles/life-and-times-of-allen-iversonCarve Outs:David:Phil Libin and Mmhmm on Joe Sweeny's Just Raised podcast: https://overcast.fm/+hJ7uJqHMABen:Meow Wolf + documentary https://meowwolf.com/explore/origin-story

By 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. Welcome to Season 7, Episode 4 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-focused 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. And halfway in, we realized 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 realized 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 from 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. Yeah, spoiler alert, it is quite appropriate that the NBA is playing in the Disney bubble right now because so much that we've covered about Disney on these shows over the years is going to 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 6x 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. Yep. All triggered by Steve Ballmer's $2 billion purchase of the Clippers. What? Five-ish years ago? Yeah. It was 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 reading 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 aren't 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. Okay, listeners, now is a great time to tell you

about longtime friend of the show ServiceNow. Yes, as you know, ServiceNow is the AI platform for business transformation. And they have some new news to share. ServiceNow. Yes, as you know, ServiceNow is the AI platform for business transformation, and they have some new news to share. ServiceNow is introducing AI agents. So only the ServiceNow platform puts AI agents to work across every corner of your business. Yep. And as you know, from listening to us all year, ServiceNow is pretty remarkable about embracing the latest AI developments and building them into products for their customers. AI agents are the next phase of this. So what are AI agents? AI agents can think, learn, solve problems, and make decisions autonomously. They work on behalf of your teams, elevating their productivity and potential.

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Now into the episode on the NBA. Time indeed. All right, so one caveat before we dive into the history of Vax. A lot of 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. Did you really? Just wasn't, wasn't pretty. Oh yeah. Like rec league. Uh, I think I scored, um, 10 points one season. Oh, 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 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. And it went in and switched. 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 where I did run the scoreboard at basketball games in Minnesota. Oh, nice.

Yeah. That's a 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 in 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. I 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 go back earlier than you, but nope. Any chance I have to go back to the 1800s is like fantastic. All right. So what are we talking about? James Naismith, Canadian American. Yep. Who was he? Well, he was a Canadian American in, 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 phys ed teacher there. He was trying to find ways to keep his gym class active during these cold, dark, harrowing New England winters. And so he goes through kind of 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, uh, 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 have 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 soccer 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. Isn't that 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. When once you touch the ball and you had possession of it, you had to stop. You couldn't move. 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 that'd be a crowded space. But nonetheless, there's some magic to this little game. And on half court ball, that sounds like that'd be a crowded space. But nonetheless, there's some magic to this little game and people like it. And it ends up spreading like wildfire through YMCAs 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 Naismith invents this, the game lands in China through the YMCA organizations there. Actually 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 YMCAs in China before 1900? I know. God, amazing. It's crazy to even think about that. This is 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. I 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 full

contact. So people could easily get on board with the idea of this is good, it's healthy, but it won't injure you. But distribution is the reason why 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 America. Oh, wow. Yeah. And then it's played in colleges. Unlike the other major American sports,

has a long history of both sexes 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 embraced basketball in China were college students, Western-minded scholars, and most importantly, members of the Communist Party who loved the sport for its cohesive power. During 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. Hey, who's the number one ambassador to North Korea these days? Dennis Rodman. But no, it's I mean, we're going to 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, on the product market fit, they do eventually, uh, within the first 10 years or so of, 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. It's shocking that the Ivy League students thought that they could, you know, find a loophole in the rules that they could exploit to advantage themselves. And then the number of players, 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 so you 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 Naismith is also credited with inventing? Ooh, I don't know that. Am I actually going to get one that David Rosenthal has not? I think you are. We'll 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, 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 actually started as a barnstorming squad, uh, 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, two other teams that start of exhibition games around the country. And of course,

two other teams that start right around the same time we're 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. 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. And then a team that actually was from Harlem was the New York Renaissance Five or the Wrens. So both the Globetrotters and the Wrens 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, you know, great professional basketball. And 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 two, 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 by 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, you know, make it 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 go Seattle Kraken. But like, what an incredible reversal that that's why they started the NBA. Let's let's monetize these off nights for the hockey teams. I didn't even think about this growing up. You know, 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, all like hockey and basketball teams 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. But I am certain that any basketball arena that was around when you were a child was more built to be a basketball arena than a hockey arena. Yeah, probably. Oh man, the Spectrum in 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, like there weren't, they didn't have access to big enough arenas where they could attract large enough fan bases to support economically the teams and, and the league, the American hockey league was the league that founded this. They take the current commissioner of the AHL, Maurice Podoloff, and they say, Hey man, we're going to give you some extra job responsibilities. So like go set this thing up, um, you know, make us some money on the off nights. And this is really, you know, we're going to talk about this here and amazing how much, uh, wonderful, how much things have 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, uh, Jackie Robinson wouldn'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 globetrotters in the wrens, 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, nah, we don't want any of that. Crazy, ridiculous. So nonetheless, on the next year, actually no, that same year,

the first professional basketball game in what would become the NBA takes place in Canada, appropriately, given Naismith's origins, in Toronto, where the Toronto Huskies hosted the New York Knickerbockers at Maple Leaf Gardens in 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, you 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 the name of this merged league to the National Basketball Association. And thus, the NBA is officially christened in August 1949. And in a more typical boneheaded owner fashion in this time, it takes them five years to come up with the idea for a shot clock. So unlike the Globetrotters and the Wrens where they're playing real basketball, in the NBA at this time, whatever team was leading in the fourth quarter would just sit there and hold onto the ball as long as possible. Whereas 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 implement it and decide 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. And 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. Wataru Misaka in 1947, 48. So a couple of years before that. Yeah. crazy. 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 Knickerbockers, but whoever the teams were in the largest geos basically said, uh-uh, we're not doing this thing. Couldn't help themselves from violating. Yeah. And it didn't come back until the 1984-85 season. So then we went like 40 years with no salary cap. Brainchild of one David Stern. So anyway, the league bumps along for another few years.

And then in 1957, the big moment happens. The Celtics draft Bill Russell, and he becomes the first. There have been other superstars in the NBA before that, white superstars, but he becomes the first black superstar and the first real modern. I mean, Bill Russell's a legend across so many dimensions of the game uh player in the nba and then the floodgates open after that so red auerbach 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 the coach of the Celtics while retiring during the finals. So Russell becomes, he was the 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 tenure. Just an amazing guy. 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? What? No way. Yeah, crazy.

Two miles from my house. Things you can learn on Wikipedia. That's wild. Here's another thing. Right during this era, speaking of the Celtics that I 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 1969, the Celtics only had two years where they were not the NBA champion and only one year where 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 U.S. sports 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 reigned champion through multiple coaches. Well, then immediately after that would be the beginning of the Celtics

Lakers rivalry. Well, 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 wilt's tenure there and that just like like any listener who knows anything about will chamberlain knows like there's so many crazy stories about wilt and he was a character uh extraordinaire if you don't know about will chamberlain like pause this episode go google him now uh still the only player to ever score 100 points, right? Scored 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.

Oh, my God. I mean, so many stories. My favorite one, though, is so we'll played college ball at the university of Kansas, but he wasn't super happy there and he wanted to leave and start playing professional early, but the NBA 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 the globe trotters at that point, uh, they were still really big at this point. And were they doing like what they do today they sell tickets they come to

it was more of a show than it was like an actual game and uh and this is amazing so during that season in 1958 when wilts with the globetrotters 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 Khrushchev in Moscow. And Wilt, like it's this, you know, crazy Harlem Globetrotters, like zany stuff. There's this part in their stick at the time where, I forget the name of the captain of the team. He would pretend to like faint and pass out on the floor. And then Wilt was like so big and strong that he would go up and pretend like he was going to help him up and instead like literally throw him into the air like wrestling style so they did this

for nikita khrushchev in moscow like crazy believable 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 fifties, but let's, let's just rewind 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 with Seattle. When is that expansion going to happen? By the way, it's been a couple of years out for many years now. So you've got the New York Knicks, the Boston Celtics, the Philadelphia Warriors, which as you said, would go to be the San

Francisco Warriors. First the San Francisco, then the Oakland Warriors, then now back to the San Francisco Warriors. 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 a thousand lakes. The Rochester Royals, who would then go on to become, I think, the Sacramento Royals, and then finally the Sacramento Kings. The Fort Wayne Pistons, which 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 make all the cars. Yeah, totally. I found that in the research too. I was like, why the P-Cities were in Illinois. I 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?

Ooh, is that? No, I don't know. That is the Philadelphia 76ers. No way, I should know that. Yeah, so they were, I think they stayed. When the Warriors left. The Nats, 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 eighties, I think like 1983, the salary cap for a team was something like three and a half million dollars. 3.6 million.

Yep. Yeah. As determined. We're still 25 years, 30 years before that. There's eight teams. You probably make more money cleaning your local gym than you do being the player. This is a labor of love. Will and Russell are in the league.

We're now in the 60s. You brought up economics. They're these big personalities. They'd had great college careers. People love watching them. The NBA does start to gain some in popularity. It's still very much the underdog. American football and baseball, way, way, way bigger than professional basketball

at this point in time. But they do during the sixties, early sixties land a landmark five year, $4 million TV rights deal with ABC and who at ABC gets put in charge. Wait, wait, wait, wait. What year is this? This is, this is in the sixties. 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? Rune Arledge. It's him. Rune. Rune, the legend Rune Arledge gets put in charge at ABC of like, Hey, take this sport and do something interesting with it and of course roon you know had the wide world of sports monday night football the olympics coverage he was he was a genius that

and also um nightline i believe like not just sports but he innovated so much like the the evening kind of magazine news shows uh that he brought 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, our linch believed, was 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, obviously, and the cameras readily caught 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. So all that is huge for the NBA, but still by the kind of like mid-60s, end of the 60s, it's still about 10x smaller than baseball. And seems like it has an overlapping name with a city that is, I don't know, pretty close

to there and a decent rival. So the history of that's got 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 like 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 Suns. 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 super, super seminal and 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 nothing, you know, in these days and baseball was still the national pastime. It was about 10 X 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 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. It 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 is supposed to start.

And this is a big deal. Like early in this ABC contract, Rune Arlo just putting on this big, you know, national television event, play the All-Star game unless Commissioner Walter Kennedy at the time acquiesces 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 Rune 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, they 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 forerunner of what would become the players union,

unionizing, organizing, and making demands of owners. And I think sets the stage for what now the NBA Players Association, 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 to 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 modern economics today. But after this, this is pretty incredible. The top players like Wilt and Russell start negotiating much harder for better contracts and more pay. And in 1968, when Wilt 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 2 million or so, so nowhere near the deals today. But 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 than Major League Baseball. Pretty incredible. I mean, it 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. A, there was no salary cap, no revenue sharing. And Wilt was such a cultural icon. I'm sure that the Lakers, in terms of ad sales, ticket sales, local TV deals, I think were starting at this point in time. They were able to monetize that at probably equal, if not more than what they were paying Wilt. Yeah, makes sense. They were able to monetize that at probably equal, if not more than what they were paying wilt. Yeah, makes sense. The other part of the reason, though, why I think the Lakers were willing to pay him

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 of 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 plucky entrepreneurial guys who start the ABA, they go around to a bunch of people in a bunch of cities and say, hey, 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 either 67 or 68, but I think it was 67 when this was all starting. There was this incredible once in a generationa-generation prospect coming out of UCLA. The doctor?

Lou Alcindor. Oh, Lou. Okay. Correct me if I'm wrong, but doesn't 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-Jabbar. He ends 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 of you. It's got to be best and final. That's it. I'm taking it. The 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, you actually meant that? That it was like best and final? How about they offer him $3.6 million for a longer term contract? Remember, it was just like that same year that W 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 signs Dr. J. So like we're in the middle of there's been sort of like three chapters of modern basketball history undergoing like great eras of transformation. We're like deep in the first one right now in sort of this NBA versus ABA battle. And we're going to 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, it's almost think about it like the XFL, but they're not being exhibitionist about it. Their pitch really is the NBA should be bigger and it's

not and they're slow. So we're going to 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 get 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. It'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, Ben, 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 do interesting things. The NBA up until this point, it was like a big man center dominated game. You know, Bill Russell, Will Chamberlain, Kareem in his own 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 but it wasn't fast like it's big and bruising today but it's fast like the nba is like you know think about it like the tree style of like i'm gonna stand and i'm gonna move my arms around and i'm gonna block your shots but i'm not i'm not driving the lane, muscling through and knocking

guys over. Yep. So the ABA is actually the league that first invents and implements the three-point line and perimeter shooting and fast breaks. Well, fast breaks had 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 what would 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 like, you know, sends every, but like Rune Arledge is loving every minute of this. Right. Yeah. He wanted a television spectacle that he could put in slow-mo. There's nothing

better than slam dunk footage for that. Totally. And that it wasn't until after the merger, I think that the three point contest would be added in some of the other stuff around all-star 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 televisable. 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 a bunch of different other types. And I think... Oh yeah, there's the skills thing. the WNBA. And they even changed the way that the game itself works in the last couple of years. Yeah. 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 actually before the dunk contest in 1971, the NBA waves the white flag says, all right, fine, we give up. Let's just merge and do this thing. And they'd both basically been gunning for the same cities at this point. The 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 the Buffalo Braves, which is another Buffalo team that moved that's now the LA Clippers.

Oh, we covered that on our clips episode. Yep. Yep. 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 declare truce, they stop 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, as 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, and 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're doing. And that lawsuit really makes you think like they were right. Like there was a competitive market for their talent. And it 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? Or I'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, Ben? They're an association. It'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 NBA 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, that 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 for 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. It ended up being held up and he had to spend the first season as a, he played for Oakland as Oakland's TV announcer before he could actually start playing in the, in the games. Um, so when he agrees as part of the settlement to get rid of this, this is huge. So like now free agency is opened up and this really begins the modern era in baseball. The 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 NBA 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. Like 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 for 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, it 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 started to fatigue. There was deal fatigue that happened. 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 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, well, including but except for St. Louis. Did you find out about this, Ben? 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 a- Oh, is this the draft? No, no, even better. Okay. 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? Yeah, through 2009, they had been paid over $150 million from this settlement, which is just crazy.

Oh my God. So what, in 2009, finally, the NBA was like, okay, we have to renegotiate this and it doesn't matter. from this settlement, which is just crazy. Oh my God. So what, in 2009, finally, the NBA was like, okay, we have to renegotiate this. And like, it doesn't matter. I think it's still ongoing. The only reason through 2009 is 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 St. Louis like saw the writing on the wall and was like, you know what, I'm gonna cut And like, I think the rights to have two championship rings, if the Clippers ever win the championship in perpetuity forever. It's crazy. It's like, I want all this stuff because my husband was a crazy racist and, uh,

Steve Ballmer 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, that'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. So 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.

Now you're just anyone with a team on the street who wants to join our league. This is just rude. This is not the way it happened in the NFL. But 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, uh, 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. 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 received 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 also got no votes related to the distribution of basically ticket sales or the alignment of those NBA divisions.

So 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 crazy second-class citizens that I think the Nets owner had this quote that said something like, the merger agreement killed the Nets as 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. J was playing for the Nets. 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 everyone basically sold their soul for the privilege to play in the NBA. It's kind of amazing. If listeners like this, we'll have to do an episode on the Spurs someday because it's kind of amazing that the Spurs overcome this decades later it takes to be able to build the dynasty that they have. The Nets, frankly, never really recovered. And it's not like these other teams went on to become amazing dynasties like Indiana, of course, when Bird coached them 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 Lakers or something like that. Yeah, totally. So at the

end of all that, as the dust settles, right when the merger is officially happening just after is 1979, which is a momentous year for two reasons. One, because that's the year that where we finally have all the teams we know and love. We finally have the biggest rivalry, you know, the biggest like two superstar players coming in. And on top of the ESPN thing good idea. So yeah, they finally had the three-pointer bird and magic. And with 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 SportsCenter, you know, SportsCenter covers all sports, of course, and like all sports have highlights and whatnot. But what sport is more tailor made for two minute highlights with enthusiastic anchors on SportsCenter 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 SportsCenter 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,

and the 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 on 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 SportsCenter 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. Great year, of course, because that's the year I was born. So it makes sense that it would be

pivotal year. Even 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 could argue maybe it's hard, but I think they're both of kind of equal importance to the NBA. And both of these two people are maybe the most impactful people, individual people on sports and sports business ever. It's a big claim. It is a big claim. point gets its first more than not totally incompetent leader in David Stern becomes commissioner of the NBA. And we'll get into everything that Stern does, but, uh, you know, 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, but 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 Jordan's 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 Olajuwon. 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 Hakeem Olajuwon, like fine. With the second pick, the trailblazers draft Sam Bowie. Like what? So ESPN has labeled... My shoes do not have that guy's outline on them. Oh my gosh. ESPN has labeled this literally the worst draft pick in sports history globally and for all time.

Also, besides Jordan, of course, which is who we're talking about, Charles Barkley and John Stockton are also in this same draft. And the Blazers pick Sam Bowie. Okay. we're talking about, Charles Barkley and John Stockton are also in this same draft and the Blazers pick Sam Bowie. Okay. All right. So we're going to come back to MJ, which of course the Bulls drafted third in June of 1984. But okay, so first Stern. So how did Stern become the commissioner of the NBA? Well, he had been a lawyer in New York who originally did a lot of work with the NBA 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 NBA. And in March of 83...

By the way, this story so far, his background is identical to the Major League Baseball commissioner. He was outside counsel, worked at a law firm, eventually went in-house counsel with the MLB and rose up. Oh, no way. I didn't know that. I think this is actually a pretty standard path to commish. Silver, of course, was Stern's deputy, but I think he also started as a lawyer before joining the NBA. He mostly needed to do lawyer stuff, So it 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 kind of going to come back to the economics of the NBA that sets the stage for today. In this agreement, the NBA agrees to that in aggregate, it will pay the players in any given year, 53% of the total gross revenue, revenue, not profit that the league makes in exchange for they finally,

as you said, Ben 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. And this deal is like a major landmark because remember 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 each individual team. But they're really partners.

Players are essentially equity partners now in the league. Yeah, 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 players. And that's before all the arenas, the staff, 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 53 cents on the dollar for every single dollar. So that's scary. Like that. Spotify music business model, not the Spotify podcasting business model. Right. 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 to today. But if you're on the player's side, 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 there to be a salary cap right i i tried to stay away i guess i i don't want to directly say lebron of the era equals mj because i don't want to make that comparison or uh have us quoted we already 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 wade into that debate. But yeah, it's just this fascinating deal. And like you said, David, it really, even though they're not equity partners, it effectively, because the future cash flows are so intrinsically tied and scale 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 costs and expense and whatnot. Revenue is a fact, profits an opinion. Exactly. Exactly. You need to get John Malone in here. And this is kind of incredible. When you said this earlier in the episode, Ben, so this salary cap is $3.6 million 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 keep that in mind. So Stern negotiates this deal. And then in February of 84, he gets promoted. He becomes the commissioner of the league. Let's just contextualize the $150 million in revenue against some startups. So it's making basically what a pre-IPO startup is making in revenue, except the NBA is actually profitable and not losing money. So that's the type of... Debatable. I think some teams are profitable, some teams are losing money, but yeah.

Okay. So they're likely better than a break-even business on the whole, but call it 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 had negotiated a new TV deal with ABC that I believe was about $20 million a year in terms of payments for national broadcast rights to the NBA 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 a 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, concessions, 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 stern took over wow so that's do you say 200 million a year in tv revenue yep i think it's like 220 ish a million yeah so there we are the player is getting 120 million a year in revenue that they otherwise wouldn't have like like commissioner was a great thing for the players total great thing for the

business which ended up being a great thing for the players. Total 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 NBA 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 eighties, the NBA,

just like most of the rest of American society, had a huge drug problem. And this has been cataloged 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. I was tragic and terrible, but endemic of, you know, what was happening in, in the league at this time, like cocaine had just totally infiltrated the league and many other sports. Michael talks 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 a, as everyone knows. So Stern, this is a big problem. So Stern puts in place a drug testing policy and a three strikes and you're out policy. So literally, you know, first offense, you get rehab and a warning. Second offense, you get a big fine. You do, you get caught a third time with any kind of drugs in your system. You are literally lifetime ban from the NBA. So a few players actually do get lifetime bans. The combination of this and 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 Naismith days, but he internationalizes the Naismith days. Stern internationalizes not just basketball, but the NBA. So obviously, you know, anybody who was alive at the time, and probably most people who don't are going to remember the 92 dream team in the Olympics that was Stern. So like, I didn't realize this until doing the research, you know, it was, 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 NBA to go global, you know, not just in terms of recruiting players and developing talent but also for

consumers of the product had the olympics before had just college players or like second-rate amateur so fiba the international governing body for basketball had only allowed amateur players to play an international competition so that of course barred all the NBA players. So what did 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 dream team. 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 until 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 NBA opened up offices and 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 NBA and international players, but also just selling the product. And 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. And there had been talk around the NBA and 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

in, 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? Each team was owned either by the NBA as a collective organization or by its NBA counterpart in the city it was in, if there was an NBA counterpart in the city. Oh, interesting. So the owner of the Cavs would have owned the Cleveland WNBA team. Yep. Like the Storm was owned by the Sonics. So then after eight years, they then spin it out and recruit independent owners for the teams. But that all happened in his tenure. And then of course, he would also embrace technology and launch League Pass and streaming in 95.

Whoa. Yeah, pretty early. So 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, about 15 years before he retired. That was only in the first half of his career. Yeah, almost 20 years before he retired. So that's Stern. On the flip side of that, though, he's also responsible for a lot of the very highly criticized cultural... Oh, yeah, the dress code. Yeah.

Like that. Cause for listeners who don't know, at some point there was a dress code where I gave him, am I spoiling 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 planning to 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, what you were saying at 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 totally tied up in the Nike story and there's a better time and place for that. But Jordan, he signs 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,

considering the billions of dollars that Jordan brand has produced today at Nike. This is crazy. We're going to 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 fly out. I don't remember. I think they were like fly out and meet Phil. Ah, that might've been, well, we're definitely going to 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 like non-acquisition deals. IP deals or licensing. Yeah.

Yeah. Deal gets done in 84. I believe it was 2.5 million upfront 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, has 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 a hundred percent sure, but I think this is true. Last 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? Uh, Nike, it's the parent brand plus the Jordan brand. Their market share of the performance basketball market is 86%. Their market share of the lifestyle basketball market, which is mostly our 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. So the legacy of this period, you know, and these two men, We should mention he was like a pretty good basketball player too. 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, it was kind of everybody in the team, front office and players. I think that was the big takeaway. Yeah, right. Well, it does take a village, that's for sure. 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 and alumni are, one, the highest paid athletes in the world as a group, which a lot of which stems from that 1983 collective bargaining agreement that Stern 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, football for all of our non-American friends is actually bigger than, than basketball players in terms of social following. But within the U S

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 last element of this is that the current and former NBA athletes have wealth at a level and have 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 there 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 ventures and influence. And 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 seventies and eighties. And he founded Bridgman Foods after retiring, which is one of the largest, I think Chili's and maybe Wendy'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 John's, which is amazing. Had to put that in there. Amazing. And then another $400 million net worth former player, Vinnie Johnson, who played for the Sonic Spurs and Pistons in the 80s. After he left the Pistons, he founded Piston Automotive Parts, which is one of the largest independent automotive parts manufacturers in America. Wow. That's a big jump. Yeah. Incredible. So these are all black-owned businesses, black entrepreneurs, all a legacy of the NBA and the amount of wealth that these people were able to A,

generate during their playing days, but B, also just had the influence and ability to- Yeah, 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 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. So no other teams were so football, NFL, Nope. Except for Staubach. Major League Baseball, nope. Hockey,

nope. Basketball is the only team sport that has produced these incredibly wealthy alumni. As one more measure of incredible 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 this stat out now because I think it's interesting. I'll 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 there exists 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 is a billionaire. Yep. So obviously, well, anybody who owns a majority of an NBA 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. Whoa, interesting. He bought the team that Bubba Wallace drives for. Oh, fascinating. Well, he had a nice little return here on buying the Hornets because in 2010, he bought majority control of the club. And I think it went

for $175 million. And he just sold 20% of it that valued the company at $1.5 billion. So he's gotten some nice appreciation over the last decade 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 NBA 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 in 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 uh narrative which a lot of people believed 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 iverson thing and is this when they had the brawl yeah Yeah. The malice at the palace, malice at the palace with Ron Artest, the fans that instigated it were like drunk, depressed, like off their rockers saying terrible racist things. Like, and you know, the whole Allen 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 player 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 wore 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, um, I was just trying to be me. Like I just wanted to be me. And it's kind of amazing that what that's turned into, fortunately, I think is what so many NBA players, exemplified best by LeBron, are today. They are them. 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 at the palace and dealing with Iverson and all of this stuff, before the 2005-2006 NBA season, Stern institutes what he terms, these are his words, a liberal and easygoing dress code that mandates that players wear business casual attire when participating in team or league activities. The code also prohibits headgear of any kind, as well as chains, pendants, or medallions worn over the player's clothes. And 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 Iverson in his quote about it at the time, I think actually says it best. What he doesn't say that other players 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 kid's 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? And, you know, the NBA was, of course, at the forefront of it with these, you know, young, incredibly talented people that were playing. How 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 happened, 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 embrace it and they're like, all right, great. You say we got to dress up. We're going to dress to the nines. And that's when, you know, it really transformed into this, uh, you know, every arrival at the arenas for NBA games and postgame 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 be like you, yeah. Like you, David Stern, we're going navels. We're going to like be like you faster. Yeah. Like you, David Stern, we're going to be fashionable. We're going to 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, clothes, 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 MBA and really all of them. We have to give credit, you know, 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. And three 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 Iger 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, you started in the nineties and early two thousands, getting some of this happening with of course, Tony Kukoc and some of the other great uh vladivac and some of the other great european players yep dirk nowitzki for the mavs of course becomes like huge superstar from germany in the early 2000s and then steve nash

from canada debatable whether that's international but we'll give it to him we'll give it to him we'll give it to him and then in 2002 you to him. We'll give it to him. 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 NBA draft. The first international player ever selected with the number one pick without first playing US college basketball. And yeah, this was just 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.

Wow. He's already in the league but he's still in the hall of fame an incredible player wow he's already in the hall he's yeah he was like first ballot for sure all he's already in the hall so he brought of course china to the nba but even more important he brought the nba to china so the rockets after they draft yao become the most popular sports team in China. 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, 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. That's insane. It's crazy. 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 Alibaba episodes, 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. And 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 Giannis, the MVP from the past two years. There's Joel Embiid with the Sixers. There's Jamal Murray, again, Canadian, you know, maybe, maybe not, but there's Jokic as well on the, on the Nuggets. Um, and then of course there's, there's Luca, right? Like, I mean, we could be redoing an NBA episode in five years and talking about Luca as MJ. Ooh, that's a bold call. Bold call for sure. But I can't think of a more promising young player in the league right now. 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 informed conversation with you here.

This is actually probably a good point to tell listeners. If we are talking about the Cavs from 2005 to 2008, I can have a very informed conversation with you about every little bit of minutiae in the league. Outside of that, I am not going to have a player-by-player conversation with you. And of course, 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 got 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 gameplay knowledge right now.

Good point. We'll tone down the player talk and come back to the business. 2018 season, there were literally 1 billion people around the globe who watched the NBA that season. And obviously, the vast majority of those came from outside the US. You know, we're going to talk about the NBA's business and business model in a minute. But right now, they still trail the NFL. I was going to say, they're the third highest revenue US league. That's the crazy thing about this. You're talking about this incredible global appeal and this explosion and all this attention from every corner of the earth, and they don't make as much as the MLB or the NFL in the US. Totally. So 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 NBA 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 U S but it, 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. That's going to be a challenging future for it. And they're trying. I mean, there was a Seahawks game in London a couple of years ago, and I think they're doing these sort of one-offs. It is very much a copycat game now of trying to figure out how to execute a global strategy as good as the NBA. And David,

your call, I think, is right. If you want to be a part of the popular sport five, 10 years from now that the world is talking about, you should invest your time in caring about basketball. Or 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 NBA launched their league pass offering. Interestingly, not in-house. So they went a different route than baseball. Of course, we covered the BAM. They partnered with turner so yeah the nba partnered with turner so turner still operates league pass for the nba 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 own streaming service it's powered by BAM Tech. They're kind of beholden to nobody. Disney, they're in a good spot. 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 the 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. And more importantly than that, you may have more detailed stats than me on this, but I believe among the 13 to 17 year old. Oh, 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. Oh man. Yet another reason why five, 10 years from now, the picture is going to look very different. Yep. Okay. So back to technology. So MLB, I believe they may have added born now, but I believe it's just the games. Here's what the NBA 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 league pass and NBA TV. They have all sorts of other content too. So they're basically recreating everything ESPN does in terms of content, highlights, features, behind the scenes, 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 look, you know, the MLB, like, like we said, they're, they're in a pretty decent spot. I 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 DirecTV. Only available on DirecTV. So if you have any other pay TV provider, you can't get it. Yeah, like how do I get an NFL Sunday Ticket equivalent if I have cable? So here's what you do.

You 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. What?

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 DirecTV 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 like the network? Well, here'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 American sports league. Oh, they make just a truckload of money. Like they make 10 point something. I think it's more like 13, $14 billion, something like that. I'm thinking of their TV deal alone. Yeah, the TV contract. So it's all the TV contract and all of 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. This isn't going to matter. They make 13 billion dollars a year compared to the NBA's 8.8, but they make $6.8 million 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 the NBA and baseball are just like so much better positioned to this. So as this happens, all of that TV revenue over time is just going to start to erode. And especially now that ESPN has started to, and Disney have started to say, Hey, yep. 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. The 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 e-sports. So NBA 2K is, I believe by a pretty significant margin, the most streamed sports video game on Twitch. So not, not most streamed video game period, but adaptation of a real world sport, the NBA 2k franchise is heads and shoulders i think above anybody else fifa is is up there but um of 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, uh, the WNBA and now the, yeah. And now the two K league, which is, you know, kind of crazy. Like you go to the, the NBA's website, you see their four big brands along the top. And one of them is the two K league. So 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 NBA 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, I think you're squinting a little bit to call this sort of the like unique and compelling content because you're trying to put it into Iger's language.

Exactly. I think 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 or maybe even the league. It's not only not invest, they actively discourage. Right. And you look at, what number did you find on the LeBron social media following?

I think the important thing to note here, this is 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. 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, on Instagram. Yeah. So just to put that in perspective, that's more followers than Donald Trump. So, uh, who's, you know, whatever you think of him, no slouch on the social media influencer department. So LeBron, I mean, literally has more influence than the president. In some sense. In some sense, would that it would be even more. But so that's, that's LeBron. The NBA accounts, social media accounts themselves, like the official NBA accounts, they have 80 million

followers across Twitter and Instagram. Steph, Steph Curry has 45 million. Kobe's accounts have 35 million. The air 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 too. I don't actually have a good sense of like Taylor Swift and the like, or Kanye, like how many followers they have in real time. All right. You do that in real time. I'm going to talk about the other leagues to just illustrate what 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 pitcher for the Mets named Marcus Stroman, who has about 3.5 million followers. The only reason he's the top influencer is because he's apparently the only guy who actually posts anything. Bryce Harper has 3 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 idea of like go build a brand

totally so like the top follower 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 uh cam newton has five million it's just like yeah 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, you're past LeBron territory. It's like 140 million on Instagram alone. And then 190 million on Instagram alone. So like what, 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. Geez, nowhere is this better illustrated than the widely 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 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 in 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's 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 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, I don't know if that's their explicit strategy, but the idea of like, let the players lead and we will follow on this stuff. But the fact that like, we will follow, like 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 thing morally and in terms of You could be like, oh, 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 posts something on Instagram where he's in his Lakers jerseys that wish has sponsored. Well, guess what? That's a new ad impression for 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,

potentially the next great super superstar in the league, 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 wanted a whole diatribe about how i don't know okay ben doesn't know that's the moral of the story anyway they post something kids in this 13 to 17 yearyear-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 a 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, I definitely mark 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. There'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, duh. That pretty much brings us to the end of the modern day today. One last coda that we would be remiss if we didn't talk about is really interesting drama that we'll see how it plays out in the coming years. And that's back to China and this tension between these two elements of really, on the one hand, you've got these two, 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. Right. So last fall, as most listeners probably know, Daryl Morey, 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, Communist Party, postponed those games. China television dropped NBA programming. I don't know what happened with the Tencent streaming deal, but I believe that might have been paused or at least delayed as well. Yeah, there was some hiccup there. Hiccup there. So Adam Silver, in terms of economic impact,

estimated that the league lost $400 million in revenue as a result of this. But even more importantly... It could have been like tens of billions of future revenue or still right it was still maybe even more importantly though like it put silver and 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 was kind of like, either way, you're going to win and you're going to lose. Well, it's their 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 uh disagreement with the chinese government and they have their own voice your 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 coaches and participants. So, I mean, like Silver apologized twice and said he disagreed with the sentiment twice and Daryl Maury deleted the tweet. But 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, Sulphur did issue a statement saying, you know, that was kind of trying to be the diplomat here,

but siding with Maury, 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 please think hard before you do this.

All of us are at risk when you do that. Yep. Yep. Totally. So the super interesting coda to 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 Meng. And Yao's last two years with the Rockets, who was the GM. Daryl Morey.

Daryl Morey. Wow. Oh, that's amazing. Isn't that amazing? So there's a lot more and probably years worth of more events and things to happen and evolve on this level, but Yao has a very, very close relationship, of course, with Silver and with Stern before Stern passed away and then with the NBA as a whole. Should we go into power and into exploring the business model of the NBA today? Yeah, let's do it. All right, listeners, our next sponsor is a new friend of the show, Huntress.

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and response again this summer. Yep. So if you want cutting-edge cybersecurity solutions backed by a 24-7 team of experts who monitor, investigate, and respond to threats with unmatched precision, head on over to huntress.com slash acquired, or click the link in the show notes. Our huge thanks to Huntress. 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 define 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 what 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 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, just 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. Like, 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 you're looking down from such a high mountaintop. It's the funny thing about exponential charts is it's flat until it's vertical. Yeah. But where does this money come from? So, David, 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. But 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 the salary cap works. But in principle, 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 and 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 Lakers. Right. And importantly to know this salary cap, because it's tied to that 50%. So the league sort of figures out, well, how much money are we 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 it, cut it by 30? So this year, the cap is set at 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 up at like $150 million in payroll. So it's a soft cap. That's the takeaway here. But that leads into the other interesting aspect of the MBA is there is a revenue sharing agreement amongst the teams. So the luxury tax and 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 revenue. Basketball-related income. Basketball-related income, which basically covers all the major buckets that Ben's going to go into. And so for 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. And 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 Mavericks, well, not that Dallas is a small market, but like Spurs, Spurs are a great example, or the Bucks or, you know, relatively smaller market teams to remain competitive with the Lakers and the Warriors. And well, I'm not even going to say the Knicks 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. I mean, literally Chamath is one of the co-owners of the Warriors.

So 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 And by doing this really unbelievably large revenue share, like the fact that half of all of their basketball related income revenue goes to be re-spread around to everyone else. I mean, imagine any business where you did that with your direct competitors. Yeah, it's ludicrous. Yeah, it's literally, I mean, it is the same analogy. If like Facebook and Twitter said, hey, you know, 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. Yeah, 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's just a big, morass-y 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? Well, of this $8.8 billion that they make per year, the most widely publicized number that we know for sure is that the league, being an association and having contractual relationships with all the teams, has negotiated a bulk deal, 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. That's for the national TV rights. Exactly. So that leaves the local TV rights for

any given team, which I think there's about a 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 basically think about $5 billion of that $8.8 billion probably comes from 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 league 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're the Lakers selling LeBron jerseys or you're the Bucks selling your

bench players jerseys, all of those get paid into the same pool, which I also found was fascinating. And that deal is with Nike. Yes. Well, so the Nike deal alone is worth $125 million a year, but all the other licensing that they do in total sums to about a125 million a year, but all the other licensing that they do in total sums to about a billion dollars a year. Hats, 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. For 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. Yes, those are sold by individual teams. Yeah. In the same way that the individual teams are allowed to sell the rights to their arena, or I guess whoever owns the arena is allowed to sell the rights to the arena. It's sort of negotiated that way. That, of course, leaves one more huge pillar, which is tickets. That, our best estimates are $1 to $2 billion a year.

Obviously, it 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 5. Best estimates are that will at least double 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 broad 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 rights deals, both streaming and linear television outside the US. There's obviously China, which is its whole thing, but there's Europe, there's Africa, there's the rest of Asia. 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. Cause it's always really bothered me that like we switched from, you know, really great names, like, you know, the garden or the palace, the palace, or, uh, and I know this is an MBA, 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, Fiserv forum or the AT&T center or talking Resort Arena. That one always cracks me up. Is that the Suns? Yes. And do you know what the Talking Stick Resort is?

Is it a casino? Yeah. So 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, Fiserv, Golden One, Rocket Mortgage, Scotia Bank. I think I said that right. TD Garden, like, you know, it 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, an 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 to 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. Amazing. In which category do you put Oracle? Depends if this TikTok deal goes through or not. Yeah.

Yeah. No, I think Oracle Arena, I suppose, is one of the ones. Well, it depends. Is cloud hosting a pure commodity? I think that probably stands out as um yeah 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 so 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. Yeah. 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 execution wise on a market with international expansion, like a huge amount of the value creation in the NBA 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's 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 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 premier marquee players, you got to 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. 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. Yep. Now, there is the NCAA, which is a competitor to that, but it's nuanced, right? It's like more of a coopetition, right? Right. Also, I'm going to go on the record. They are professionals. We should be paying them. Like a hundred percent. Oh my God. Well, I cut this from the script because this 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 yeah seriously uh yeah like i found out the history of the ncaa so uh teddy roosevelt was actually the one oh my god he didn't

create it but he pressured the he 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 like, yeah, it's become like in my mind list, like the most awful, corrupt, like worst organization out there. Like it's so ridiculous. Like these college athletes are professional athletes full stop like they are being monetized their labor is being exploited like when are we gonna find one of these things we disagree on because we're just like straight up in the same boat over and over

and over again on these but i love it um wait okay so my question on but before we move on to other powers 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 in one part of it is just cornered resource on real estate, like with the exception of Seattle, like, uh, and maybe one or two others, like what cities in North America, like Vancouver probably, like could also just be served by Seattle, could support and deserve an NBA team and a professional basketball team and don't already have one that's served by the NBA.

As a competitor league, you'd have to be mostly going into cities that there are already existing NBA teams in. And that'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 in a half hour. Yeah. 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 deader than 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 NBA. Whoa. Yeah. It's huge. Also streamed free on Twitch. Ah, interesting. Anyway, that's a digression. I have another interesting lens to look at power though, that I think this episode has brought out, which is what about relative to the other sports leagues?

Like what's, what's NBA is real real competition it's the nfl major league baseball premier league soccer indian premier league increasingly the mls yep increasingly 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. if your players have much larger and much more engaged social media followings and are, you know, 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 don't have that. And so as time goes by, and I think you're seeing this with the NBA and you end up in a situation where like young people in America, what would you say? 57%

their favorite league is the NBA. Yep. That's insane. And what 4% for baseball and 13% for the NFL. Let's see if you nailed that uh you nailed that exactly good memory wow that is like the biggest thing if i'm the nfl or the or mlb like i am terrified right now like 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, they're competing for attention share, but are the NBA and the, call it 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. Right. I mean, it's one way or another, all of these revenue streams are attention based revenue streams, either advertising or ticket sales or what, like 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 yeah, it's very much a competition between the leagues. The 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. Between starting your business and getting to NBA scale in order to negotiate the types of contracts that they have, in order to attract the types of players they have, 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 collective bargaining and group negotiating that they do as a league. 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, 600 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. And Yao had actually talked about, I think, I think Yao and Adam Silver had talked about like, 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. But 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. 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 in 2010 and i now have had a 6x return in 10 years on my investment what 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 let the players be the stars, internationalization and technology. Yep. I think that's, I think that's a good way to sum it up. I have some others that are little offshoots 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, 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 a human who likes the MLB. So I think that literally the number of years of future cash flow that you can pull forward to today to do a valuation, it's kind of 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 are- That's half the league. Yeah. Inherited family money. The average age, and 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 owner? Robert Pera, 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... We got to catch up, get the acquired NBA franchise going. Totally. And so you have this like, for whatever reason reason 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 steinbrenners yeah yeah exactly um and a much more old you know stodgy ownership group there's sort of been this self-fulfilling prophecy in the

the nba being 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 NBA 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 out. Great. We want to thank our longtime friend of the show, Vanta, the leading trust management platform. Vanta, of course, automates your security reviews and compliance efforts. So frameworks like SOC 2, ISO 27001, GDPR, and HIPAA compliance and monitoring, Vanta takes care of these otherwise incredibly time and resource draining efforts for your organization and makes them fast and simple. Yep, Vanta is the perfect example of the quote that we talk about all the time here on Acquired. Jeff Bezos, his idea that a company should only focus on what actually makes

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And thanks to friend of the show, Christina, Vanta's CEO, all acquired listeners get $1,000 of free credit. Vanta.com slash acquired. All right, David, take us into grading. All right, grading. So for this one, it's interesting. You'd think when we're starting literally what was 130 years in the past, we could render a grade on this one, it's interesting. You'd think when we're starting literally what was 130 years in the past, we could render a grade on this one, but we talked about it beforehand. I think the more interesting thing, like, yeah, look, are we going to, 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 question 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, C, C 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 all of them. Does that sound good to you, Ben? Yeah, let's do it. Let's start with the F. How could this not pay off? 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, um, us China relations continue to deteriorate, which is outside of the NBA's hands, but you know, both it's so important to the NBA, all of those basketball fans there and 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. Like 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 only viable competitor scenario I see for the NBA being started and maybe overtaking the NBA 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. Well, I think that's what's interesting about doing this episode.

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 U S 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 U S doesn't really matter. If a billion people watched the NBA last year, how many of those were Americans? 10%? 15%? Yeah, it would hurt if that went away, but the vast majority is non-US. So if China captures that, 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 spending at the level that you expect them to spend and continuing to be NBA fans. And the one we haven't talked about is beachfront property, where owning an NBA team is incredibly scarce. It's unlikely 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 there really only have been 150 total available to US team purchasers. Yeah all the sports leagues. Right. The intrinsic value of these NBA teams, I mean, the intrinsic value is whatever anyone's willing to pay for it. But you look at a team that's worth $4 or $5 billion, a lot of that comes from the fact that there is only one New York Knicks. Yeah, it's like real estate. Well, I mean, that's the look no further than Bomber and the Cl right like bomber was hell-bent and determined

to own an nba team no matter what he was gonna 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 okay so i think that's the international yeah and 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 basket. Yeah. And then, you know, the next Giannis, the next luca the next joel mb they're going to play in the cba not in the nba yep yeah i think that's a good thing to flag the other one that i'm a 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 because 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 have all the Instagram followers, man. Right. They have the Instagram. Well, that MBA account has 80 million. So clearly 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. Okay. A plus scenario. They land the plane with China. Yao and Adam Silver and LeBron have a love fest. And, um, at some bright date in the future, there is a world championship played between the CBA and the NBA. And that $1.5 billion deal with Tencent for streaming in China goes to $15 billion deal for streaming in China. That's one element.

I think the next element is, you know, when we're talking about LeBbron we're talking about steph we're talking about the nba accounts in their in their influencer followings like they up level again to kim kardashian kanye west taylor swift territory which you gotta feel like that's gonna happen right like both 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 not 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 off season 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 going to happen naturally like lebron's probably going to retire within the next five years right oh yeah for sure no doubt next he'll win another championship or two and hang it up like 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 but then

kobe shack you know these guys like post-retirement, Charles Barkley, they're building their presence. But LeBron, Steph, these guys, when they retire, social media native coming up, they're going to take it to a whole nother level. Well, I think that's the right take. I think the last thing I would say is based on valuations, a 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 future of the league and of owning these assets. A 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, 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 four billion dollars now and figuring out what you could sell it for at some point like i know that that team prices have six x'd in the last 10 years but like they were way under priced before and now they're

that market over these teams gonna are you gonna 10x say you buy a team for four billion dollars are you gonna get 40 billion dollars for that at some point like that does seem like a stretch i don't think these 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. It was vastly underpriced.

It was a tracker for Amazon stock for a while until everyone until what, 2016, 2017, people were still valuing Seattle real estate like pre,. 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. Carve outs. Carve outs. Let's do it. I 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 and 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 they raise, 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 Libin and his new company. But of course, Phil has a long history of the original Evernote founder and CEO and just a wildly entertaining human. So go check it out. I remember when this was a twinkle in Joe's eye on an LP call that we had 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 to 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 show. So David, do you ever recall me telling you about Meow Wolf? No. Okay. You've told me about a lot of things but uh but i don't recall this one so this is a um an experience in santa fe it is the craziest like art exhibit full immersive experience disneyland chucky cheese combination you could possibly imagine and the story goes it's nolan bushnell involved uh close it is actually bankrolled by george rr 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 functions 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, like 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.R. Martin to fund 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 like a like a horror experience or like a mystery 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 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 flickers 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 like um recognizable sign mansion or uh twilight tower but self-directed love 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 uh meow wolf tracing them all the way from a group of sort of like crazy indie artists colony to really what their ambitions are at this point is to become the next disney and they've 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. They're 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. That was such a cruel, crazy. 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. I could go on for a long time about this, but check out their website when it's there in person, you should do that. And if you're looking for kind of a fun documentary 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 is that enough should we do more i don't know if i could do more it's late and oh man yeah so great this

was such a blast to do i hope uh listeners i I hope you enjoy it. We, uh, we love feedback. We love feedback and we love tech. We love doing text, but like all these media episodes, Disney episodes, ESPN, like such a blast too. And fun to like realize too, like just like the intersection of these worlds and how much media pioneered a lot of stuff that is, has shaped tech. And now it's going back the other way with social media and everything. Really fun. Indeed. Well, 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. 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 where we dive deeper into company fundamentals and investing fundamentals. In addition to our monthly LP calls where you too 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 Thorndyke 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.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 correct 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. you