The Sports Bubble Is Going To Pop

This blows me away. Whether Kyle Lowry stays with the Raptors or gets a max deal elsewhere, the $41 million or $38 million average annual value contract he will get will make him one of the highest paid athletes in American sports history, along with Steph Curry, who will likely get that five-year max from the Warriors.

Those figures ahead of Zach Grienke ($34 million), LeBron James ($33 million), and every other athlete ever, not including endorsement deals of course. Not even Ronaldo or Messi earn that much in team salaries.

Why is it that 1) any player gets that much money, and 2) that one of them could be Kyle Lowry, a very good if not great NBA player but far from a transcendent superstar?

The sports bubble.

This isn’t a new concept or topic, but a quick primer: Over the last few years, networks have paid BILLIONS to lock up the rights to NFL, NBA and NCAA games, among others. This recent string of spending, which includes local and national MLB deals, represents networks’ last ditch effort to save traditional live TV viewing or at least delay its demise. All that money goes to the leagues, which passes it on to teams through some sort of revenue sharing, which passes some of it on to players commensurate with the salary cap. In short, the more money leagues make, the more players get paid. Most of that money comes from these TV deals. That’s how you wind up with Kyle Lowry, a beneficiary of the NBA’s player-friendly CBA, potentially becoming the highest paid American athlete of all-time.

Most of these contracts are in place for the next few years, but they will start to come up for renewal in the early 2020s. What happens then? You’ve already seen ESPN begin to prepare itself with its recent bout of layoffs. Networks rely on either or both of cable subscriber fees and advertising revenue to pay for broadcast rights, which in turn justify subscriber fees and drive ad revenue, either directly on the games themselves, or indirectly through promotion of other network shows which are highly profitable (CBS promoting CSI or 60 Minutes during NFL broadcasts). This is why so many networks are quick to embrace streaming packages like PlayStation Vue, YouTube TV and Hulu Live, and why those packages largely resemble basic cable packages– the bundle economics compel all subscribers to pay for content they might not want, which provides the ESPNs of the world a safety net against cord cutting. But the ramifications of the shift in viewing habits will impact all networks in some way. Example: ESPN will lose some amount of subscriber revenue, while CBS may lose ad revenue. The spending is unsustainable. Even if Netflix and Amazon come swooping in to bid on those sports rights using different business models to justify it, they likely won’t be spending as much since they can more accurately measure their return on investment and won’t be bidding farcical sums to ostensibly preserve their own existence. All that rolls up to the very high probability that the next round of sports rights deals will look nothing like the current ones, which allow guys like Kyle Lowry to become one of the highest paid athletes of all-time.

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38 Responses

  1. Add to that the seeming reality that the young folks of today don’t seem to care that much for traditional team sports.

    1. This! So Much this. Kids just don’t care. They are too busy playing on their gaming consoles and phones. The bubble will burst for only the NBA and
      MLB however, in my opinion. Football has another 20 years before they have to worry about this issue. Fantasy Football will protect them. Hockey’s salaries are pretty much established and with their hard salary cap there really isn’t a bubble for them that will burst.

        1. Out of the Big 4 American leagues, the NBA has the largest global appeal, right? The NBA is big in China, in particular. When I used to live in Shanghai there was a channel that only aired replays of NBA games, 24/7. NFL football is a curiosity, and hockey has pockets of fandom in some foreign markets. Baseball is popular in Latin America and some parts of Asia. However, NBA players are the most visible and therefore marketable: they’re literal giants, there are fewer of them, they’re faces aren’t hidden by helmets or masks, and they have some leeway to personalize themselves (custom sneakers, headbands, compression sleeves, etc.). Basketball is probably the easiest game to understand by watching the action, and is easier than football/hockey/baseball to pick up and play because it has the least amount of specialized equipment and space needs.

        2. Kyle, in a nutshell, you could reasonably say contracts like Evan Turners 4 year 72 million contract was the reason guys like Jayson Stark, Andy Katz and Dana O’Neill are currently unemployed. It’s an absolute disgrace.

    2. I’ll watch many Eagles games but I can’t remember the last NBA, NHL or MLB game that I sat and watched the entire way through and usually I’m on my ipad messing around with it just on in the background.

  2. Yes, and the fact that less players are on NBA teams than most other professional sports squad so there’s more money to go around to their players. Factor that in with everything you mentioned above and NBA players are going to continue to get the most money consistently. I mean look at all the bags of bones that got huge contracts in free agency this past year

  3. Hey Kyle,

    We both know that rich people are always pretty okay with revenues are down. It’s not really a big deal to them so I’m sure they won’t look to make up the decrease in TV revenues that surely are coming somewhere else. Am I right? Yo, am I right????

    Get ready to pay twice as much for tickets and team gear.

    1. Do you have any idea how supply and demand works? If people are tuning out your product that is not the time to dramatically increase prices and piss off the ones still buying in.

      1. If only sports teams worked on the supply and demand model. Popularity of baseball and golf have been declining for a decade yet MLB and the PGA are still demanding increasing rates from sponsors and television. No one in Atlanta or Las Vegas demanded a new stadium yet the municipality supplied one regardless. In fact, voters in Atlanta were barred from even voting on it in a referendum.

        1. 1) In what world are MLB and PGA declining? Attendance is at record levels.
          2) Atlanta did not vote on it in a referendum because the stadium is in Cobb County you dope.

          1. Hey dunce, next time you want to call someone ELSE a dope, at least know when to use “your” and when to use “you’re”.

  4. 1. He is not getting a max deal from any team.
    2. How much do you think the owners are making if they are paying these salaries?

    1. They aren’t poor, but the players get theirs all in cash. A large portion of the owners’ wealth is tied to the value of the franchise, and what they can sell it for. If the bubble pops then those franchise values go with it.

      1. Apparently you fought your way right out of the league. way to go, hillbilly

        1. I know, what a dumbass. How do get caught on vamera doing dumb shit?

  5. The silver lining in the sports bubble popping is you can expect the Sixers to be sold within the next couple years. The stars are aligned for the Sixers to be at their most valuable right before the crash. That’s all they are to this owner, a buy low, sell high stock.

  6. You are better than this… how can you talk about next round of negotiations and not talk about the high likelyhood of legalized sports betting when that rolls around. That will change the landscape of pro sports for sure and will add revenue streams for the leagues.

  7. how many people actually cut the cord? everyone i know has hulu and amazon and still have cable.

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