The following study is part of an Arts in the Age of Covid research team project. This study is compiled from the research conducted and summaries articulated by Clara Pérez Alfaro and is being published as a three-part series. This case study about the NBA is part 3 of 3. Read part 1 for an introduction to the research and part 2 for a case study on La Liga.

Overview

This week, AMT Lab has been investigating what lessons arts organizations can learn from sports as they seek to provide engaging digital experiences for audiences. The National Basketball Association (NBA) is the most prestigious and well-known basketball league in the world, making it imperative that they continue to engage their fans during the pandemic while securing revenue from broadcasts. They found solutions that would permit fans, specifically younger generations, to continue to interact with each other during the games—something that arts organizations could apply to their virtual performances.

The NBA includes 30 teams from the United States and Canada divided into two conferences, Eastern and Western, with 15 teams each. The regular season runs from October to April, during which each team plays 82 games, half of them at home and the remaining away. The conferences are then split into three divisions, so teams in the same division play each other more frequently than those in other divisions (Kirkwood, 2015). The top eight teams move on to the playoffs, which extend until June. During the playoffs, the teams compete within the Western and Eastern Conferences until the Western Conference winner plays the Eastern Conference winner in the NBA Finals (Kirkwood, 2015).

As of 2019, the NBA was the third highest grossing league in North America after the National Football League (NFL) and Major League Baseball (MLB) (Mathewson, 2019). Additionally, the New York Nicks, the NBA’s most valuable team, is the second most valuable North American sports franchise (Forbes, 2020). The popularity and prominence of the league can also be seen in the latest attendance records. In the 2017-2018 season, more than 22 million fans attended games and arenas averaged 95% capacity (Mathewson, 2019). Despite overall TV viewership seeing a decline, NBA viewership has remained almost immune to this trend (Nath, 2020).

The NBA’s presence in the international entertainment scene is highly noticeable. As the most competitive and well-known basketball tournament in the world, the NBA has made significant efforts to open new markets. Part of these efforts include pre-season tours to China, the annual NBA Africa game, and even a visit to Europe in 2019. Time difference is a factor when it comes to growing in Europe, and the expansion of afternoon games shows the NBA's commitment to this market. During the 2018-2019 season, 42 regular-season games aired in primetime in Europe, a new record (Murray, 2019).

The introduction of the NBA League Pass has helped the league and its viewership grow around the world. By purchasing a subscription, fans can watch games live or on delay, giving them access to content that might not have been available in their regions. As of the 2017-2018 season, the greatest international markets were China, Australia, Brazil, Canada, and Mexico, showing the global outreach of the league (Murray, 2019).

After the Covid-19 pandemic hit the United States in March of 2020, the Golden State Warriors were the first team to announce the barring of fans from home games on March 11 (Cacciola et al., 2020). That same day, the NBA officially announced that it was going on hiatus until further notice (ESPN News Services, 2020). This news came as a shock to the basketball world, as the news was announced just moments before the game between the Utah Jazz and Oklahoma City was scheduled to begin. The NBA saw the pandemic spread up close as Rudy Gobert, a Utah Jazz player, was the first player to test positive (Windhorst et al.,2020).

At the time of cancellation, 259 games were left in the NBA regular-season schedule, amounting to 21% of the season (Paine, 2020). As with the cancellations of other sports, there was an initial optimism that the league would be on hiatus for two weeks. As the virus spread, however, so did the worry about the economic impact the indefinite suspension and possible cancelation could have on the league and its thousands of workers (Bontemps et al., 2020). An anonymous general manager for a franchise argued that if the season was cancelled, the NBA could potentially be impacted for the next five to ten years (Amick, 2020).

On June 4, the NBA’s Board of Governors approved a plan to resume the season in Orlando, Florida (Badenhausen, 2020). The season was organized to be played at ESPN’s Wide World of Sports Complex where a “bubble” was created to contain the virus throughout the rest of the season. All teams and their staff were to remain inside the complex and follow strict health protocols throughout the remainder of the season. The season was set to resume on July 30, with 22 teams playing seeding games to determine which teams would move on to the playoffs. The eight remaining NBA teams did not participate in the bubble as they had no chances of moving forward to the playoffs. The first round of playoffs began on August 17, the conference finals will begin on September 15, and the NBA finals will begin on September 30 (NBA.com, 2020).

Revenues

As mentioned, the NBA is the third highest grossing league in North America. In 2017, the league brought in $7.4 billion in revenues, a 25% increase from the previous season (Nath, 2020). Most of this comes from TV contracts, merchandising, sponsorships, and gate receipts (Paine, 2020). According to Forbes, 2019 was a record year where every NBA franchise was worth at least $1 billion (Mathewson, 2019). The Nicks, the most valuable franchise, are worth approximately $3.6 billion and generated $426 million in revenue in 2018 (Mathewson, 2019).

Television deals are the biggest source of revenue for the NBA, as is the case for most sporting leagues around the world. Currently, the NBA is in the middle of a nine-year contract with ESPN and Turner Sports. The media rights deal signed in 2016 was worth $24 billion and presented a 180% increase from the previous agreement (Nath, 2020). These TV deals generate $2.66 billion in annual revenue for the league (Mathewson, 2019). Additionally, local TV deals for specific teams and markets can be worth more than $100 million a year, adding to the already prominent revenue stream (Paine, 2020).

Initially, these revenue streams seemed fixed for the NBA even if the league was cancelled. Given that these contracts are multi-year deals, they tend to provide teams and the association with stable revenue streams over time. However, a force majeure clause could have potentially allowed TV networks to get out of their financial obligations due to extraordinary circumstances. Although media partners had already acquired rights, they could have lost millions of dollars in advertising revenues if the league did not resume (Paine, 2020).

It is important to note that the NBA regular-season and the playoffs are seen as separate tournaments in terms of revenues. According to Sam Amick at The Athletic, the NBA could have lost approximately $900 million in television revenue if the playoffs were canceled (Quinn, 2020). Although the league has experienced a decade of prosperity, the coronavirus crisis coupled with a decline in Chinese viewership could cause an unprecedented financial challenge (Golliver, 2020). Although it was difficult to estimate the exact economic hit if the season was cancelled, some team executives argue that the total damage could have been more than $40 million per team if the playoffs were cancelled (Golliver, 2020).

Although in a smaller proportion, matchday revenues are also an important factor in analyzing the impact of Covid-19 on the NBA. Between 20 and 25% of the 2018-2019 season revenue came from ticket sales (Paine, 2020). When considering other matchday revenues from vendors and merchandise sales, a total of 40% of the NBA’s revenue is derived from fans attending games (Quinn, 2020). Without this, virtually all income comes from TV, and with media partners threatening to back down, revenue from broadcasting was the most pressing reason to resume the season (Quinn, 2020).

Broadcasting

Basketball is the second most watched sport in the United States after the NFL, which suggests that both fans and media companies were eager to get the ball rolling again (Southard, 2020). In a poll conducted by Seton Hall University’s Stillman School of Business, however, 72% of Americans said that they would not attend games until a vaccine for Covid-19 was developed (Toporek, 2020). Since a vaccine is still in the development phase, it is likely that it will still be months before fans feel comfortable being back in stadiums.

Empty stadiums do not only bring financial consequences for the NBA and its franchises, but also a decline in product value for broadcasters (SportsPro, 2020). Given that a live audience is an essential part of sports broadcasting, the NBA had to find innovative ways to produce a basketball broadcast. Producing a new, valuable broadcast product was important for creating a meaningful viewing experience for fans. Furthermore, prominent viewership would bring in more sponsors and advertisers, adding more value to the product.

The first innovation put forth by the NBA was including virtual fans in the venues. Although fans are not allowed to be physically present at the ESPN Wide World of Sports Complex due to social distancing guidelines, they have the opportunity to digitally interact with each other throughout the game. Each game features more than 300 fans that are invited to appear in 17-foot video boards called “Michelob ULTRA Courtside.” The NBA partnered with Microsoft to remove fans from their individual backgrounds and allow them to share a virtual space that can be seen both in the venue and the broadcast, which will be further discussed in the next section (Burkhardt, 2020).

Image 1: The NBA partnered with Microsoft Teams to bring virtual fans into the stadium. Source: Microsoft.

The lack of fans in stadiums presents an opportunity for new and unique camera angles that have never been seen before (Burkhardt, 2020). This was put forth in collaboration with Turner Sports and ESPN, the NBA’s main broadcast partners (NBA, 2020). Many of these cameras are robotic and can be repositioned closer to the court to showcase new footage that will enhance the viewer experience. Furthermore, additional microphones were placed around the court to capture enhanced floor sounds, such as sneaker squeaks and ball bounces (NBA, 2020).

Figure 1: The NBA included new camera angles to deliver a fresh and unique viewing experience. Source: Twitter.

Fans & Audiences

Although broadcasting innovations helped the NBA and its media partners create a new, valuable product, fan engagement was also a central part of this new strategy. Given that sports are more than a game and are also about creating a community, finding ways to bring fans together played a crucial role in the resumption of the NBA. The NBA partnered with Microsoft to utilize Together Mode, the newest feature of Microsoft Teams. This technology brings people together into a shared background, where it is easier to interact and perceive people’s emotions (Spataro, 2020). Through Together Mode, fans are brought into the stadium on massive screens and are also featured on the game’s broadcast. According to Sara Zuckert, Head of Next Gen Telecast at NBA, “this unique live experience will allow fans to maintain a sense of community as they watch their favorite teams and players” (NBA, 2020).

NBA’s new digital strategy has also been centered around enhancing the fan experience. Fans that are not part of the Together Mode initiative can still take part in the cheering experience at the stadium. Through the NBA App, NBA.com, and Twitter hashtags, fans can digitally cheer for their teams. These cheers will visually impact the video boards with graphics and animations that capture the level of fan engagement (NBA, 2020). Furthermore, NBA Digital, together with Turner Sports, provides customized viewing options on NBA League Pass and NBA TV. Subscribers have access to alternate feeds, enhanced graphics, and can even choose from a series of influencers to give the game a different focus, such as analytics, fashion, and music (NBA, 2020).

Social media also plays an essential role in fan engagement and the NBA has found new ways to include them in the viewing experience (Burkhardt, 2020). As TikTok is growing around the world, the NBA has created TikTok “challenges” that fans can take part in to maybe be featured on the in-venue screens. Additionally, the league has partnered with Snapchat to utilize their ground segmentation AR technology. This feature allows users to virtually tour the official basketball court inside the Orlando Bubble (NBA, 2020).

CONCLUSION

When engaging younger generations, digital strategies play an essential role in both sports and the arts. According to Nielsen, Generation Z is looking for new entertainment experiences as they consume sports in a different way than older generations (Nielsen, 2019). The arts face a similar dilemma with younger audiences. Although the NBA, like the arts sector, has been trying to reach this younger segment for a while, social distancing has forced them to innovate—and to do it quickly. Although most of these innovations were made to improve the viewing experience, they might also have allowed the NBA to reach younger audiences. As Dan Cogen, Senior VP of Octagon’s Media Division stated, if innovation “is going to attract a certain kind of audience or entice a younger audience to tune in because they are accustomed to it, then this is the time to mix it up” (Young, 2020). He continues by stating that “this is the time to try new things.”

The NBA has certainly seen the current state of the world as an opportunity to do so, and has so far been successful at communicating with its fan base and creating new experiences, which makes it a valuable case study for performing arts organizations. Arts organizations could follow suit and implement new digital strategies that create engaging opportunities for audiences as a whole while also attracting a younger generation. This innovation could have lasting benefits for institutions as more and more people look to digital platforms to engage.

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