AssociationThe Forthcoming of the IBA National Basketball Association Expansion Overseas Prepared for David Stern, NBA Commissioner Adam Silver, COO and Deputy Commissioner Heidi J. Ueberroth, President, Global Marketing Partnerships and International Business Operations NBA Headquarters Olympic Tower, 645 5th Ave. New York, NY 10022 United States Prepared by James Blankenship SVP Team Marketing and Business Operations NBA Development and Expansion Team National Basketball Association December 4, 2008 MEMORANDUM TO:NBA Commissioner, David Stern and League Advisors FROM:NBA Development and Expansion Team DATE:December 4, 2008
SUBJECT: National Basketball Association Expansion Overseas Here you will find the report you requested on November 8 including information on the feasibility of expanding the National Basketball Association overseas and our recommendations for a plan of action. During the expansion feasibility analysis, our team considered and researched many wide-ranging factors that are essential to the successful expansion of the NBA overseas. We researched the world-wide popularity of basketball in the past decade, professional basketball leagues throughout the world, possible expansion cities, and potential profits in overseas markets.
Recently, the globalization of basketball produced foreign competitors that were once nonexistent for the NBA. Anticipated profits in foreign markets suggest the NBA should invest in expanding franchises overseas. The research conducted for a potential expansion of the National Basketball Association overseas has directed us to recommend a specific plan of action for a successful implementation. Business in the world today has no bounds; it is an interrelated world economy. Basketball is one of the most popular sports in the world.
Its popularity is increasing exponentially overseas, and there are several professional leagues thriving financially. In order to remain the leader and figurehead as the best professional basketball league in the world, we suggest that the NBA expand overseas and further enter the world market and be called the International Basketball Association, or IBA. With the use of appropriate marketing campaigns and effective implementation techniques, the NBA has great potential to penetrate the international market. The analysis in the report came from several helpful on-line resources and James Bryant, a professional sports agent.
The popularity of not only American professional basketball, but international professional basketball is increasing exponentially throughout the world. With a new world economy in the sport, it is important that the NBA make all necessary efforts to gain a competitive advantage. Our research leads us to believe that expanding the NBA overseas and calling it the IBA is likely to be a profitable decision, and for many reasons. For example, the marketability of candidate cities suggests that NBA franchises could undoubtedly survive in those regions.
Likewise, the cost of the implementation would be manageable, and the revenues that would transpire would provide a profitable return. In addition, such concerns as traveling, scheduling, and game facilities are thoroughly addressed and solved with a well thought out expansion plan. The popularity of basketball is no doubt evident in many countries throughout the world; the emergence of European professional basketball has forced the NBA to be progressive in an effort to remain atop professional basketball organizations.
The implementation of NBA franchises in international markets is both a monumental and historical step for the continuous growth and popularity for the game of basketball and the NBA. To ensure a successful expansion, we recommend the following implementation plan: 1. Have an IBA forthcoming date set for 2014. •Evaluate international markets and choose 11 candidate cities that would benefit the NBA expansion best. •Insure traveling plans, scheduling, and game facilities are appropriate. •Develop an effective marketing plan for the international basketball fan. Expand the current NBA development league to European countries by 2010. 2. Expand the 29 teams in the NBA to 40. Adding 11 teams and separating into two conferences. •Keep the conferences divided into East and West like they currently are. •Add The 10 European Expansion Teams to the new IBA’s Eastern Conference. •Move five of the teams that are currently in the NBA’s Eastern Conference to the Western Conference. The result would be 2 Conferences, an Eastern Conference and a Western Conference, each containing 20 teams, 10 teams in the East would be located outside the United States.
Our suggested implementation plan will undoubtedly increase the NBA’s long-term profits. We view international expansion as an opportunity cost that will eventually benefit the NBA. Expansion of NBA franchises overseas instead of within the boundaries of the United States is much more expensive, but the potential profitability and marketability of the selected franchise cities overseas outweighs increased costs of overseas expansion implementation. Introduction It is imperative for the NBA to remain the leader in world professional basketball.
Recently, there has been a surge of foreign competitors in professional basketball. David Stern, Commissioner of the NBA, formed a specialized development and expansion team to analyze the feasibility of expanding the NBA overseas. Purpose and Scope The purpose of this report is to analyze the feasibility of expanding the NBA overseas and to recommend a plan of action for the successful implementation of NBA franchises in international markets. The proposal explores the expansion’s potential for success and makes recommendations to ensure the success of NBA franchises in Europe.
Assumptions Our recommendation is based on the assumption that the candidate cities we have selected will remain economically stable. Sources and Methods In preparation for the feasibility study, our NBA development and expansion team gathered information from numerous online resources, as well as financial reports from the NBA. A personal interview with James Bryant, a well-known sports agent, was also a very useful source of information regarding the NBA’s current state. Limitations Our research was limited to on-line resources and an interview with James Bryant.
Likewise, time was an issue regarding an exact cost analysis for overseas implementation. Report Organization This report provides NBA background information and evaluates recent trends in the NBA and professional basketball overseas. In addition, the report addresses potential NBA expansion concerns and analyzes the vital characteristics for potential franchise cities. The Global Attraction That Is Professional Basketball The popularity of professional basketball is evident throughout the world. In recent years, popularity of basketball in foreign countries has increased immensely.
Still, American professional basketball is the highest grossing professional basketball league in the world. Nevertheless, with a heightened interest in European professional basketball and an increase in foreign talent, the NBA is battling competitors for the first time in the league’s illustrious history. With globalization evident in all facets of business, it is predictable that the NBA, too, has experienced its effect. Like the majority of professional businesses in the world, the NBA has to distinguish itself from its competitors.
Indeed, the NBA has never faced severe competition and must attempt to gain a competitive advantage to maximize profits. It is evident that professional basketball’s popularity is increasing exponentially, and competitors are rapidly eliminating the gap between the NBA and other professional leagues. In effort to battle competitors and increase profits, the NBA must expand overseas. The NBA could undoubtedly benefit from the increase in basketball’s global popularity outlined in this section. NBA Invades Europe In 1988 the NBA played its first game outside the United States.
The Atlanta Hawks defeated the Soviet Georgia All-Stars 85-84, in what would be the first of many international NBA games to come (“Fact Sheet”). Since the opening game in 1988, the NBA has staged games and exhibitions in the following countries: • Spain (1988, 1990, 1994, 1996) • Italy (1989, 1994, 1999) • France (1991, 1994, 1997) • Germany (1993, 1996) • England (1993, 1995) • Russia (1988, 2004) The NBA has already had 2 campaigns in foreign countries, and now has an opportunity to expand its already established foreign interest with a third tour.
When this year’s campaign is completed, NBA teams will have played 47 games in 18 different European cities (“NBA Europe Live”). Playing games overseas aids to the world-wide popularity of the National Basketball Association, which would be a necessity in implementing franchises overseas. If expansion takes place overseas many European professional basketball fans will have already seen a NBA game. An implementation of the NBA overseas would not be a “foreign” concept. The NBA has played games in Europe for many years now.
There is undoubtedly an established fan base, and with correct marketing tactics the popularity of the league could increase even more so before the expansion begins. In addition to the NBA playing games in Europe, another contributing factor in analyzing the feasibility of expansion is the recent increase in foreign born NBA players. The Escalating Trend of Foreign Born NBA Players Foreign players have increased heavily in the NBA the past 20 years. In the last 5 years, foreign born players made even more of an impact. Several foreign players were honored in the NBA’s All-Star game.
Last year, Pau Gasol, a Spaniard center, played in the All-Star game and was a starter for the Las Angeles Lakers NBA Finals team (Simpson). Other foreign players honored with prestigious awards include, Dirk Nowitzki, a German power forward for the Dallas Mavericks, who won a MVP in 2006, and Manu Ginobli, an Argentinean guard for the San Antonio Spurs, who won newcomer of the year in 2004 (Crum). The success that many foreign players have had makes selecting foreign players in the draft a trendy move. For that reason, the NBA continues to add more and more overseas players each year.
In 2007, one in every five players in the NBA was born outside of the United States, 76 total active players. According to Steve Koss, co-founder of sports management and consulting firm ABI, “The smart teams are going after international players. If I were Commissioner Stern, I would take this as an opportunity to market the NBA as a breeding ground for international competition (Crum). ” This invasion in foreign talent is a perfect indicator of the leagues growth throughout the world. Likewise, NBA television ratings and revenues are at an all time high in recent times as well.
There is no doubt a positive correlation between the increase in foreign born players playing in the NBA and the increase in the excitement and popularity of pro basketball in the United States. It is apparent that the NBA’s increased revenues were aided by the talent and skill that foreign born players brought with them from overseas. In addition, the recent increase in foreign born NBA players resulted in an increase in international interest and popularity, which in turn will benefit the NBA if an expansion is employed.
The NBA should endow in the growing European basketball market in order to maximize the potential fan base and increase revenues. Likewise, the large amount of foreign players in the NBA has undoubtedly created a heighted international interest in professional basketball. Professional Basketball Goes Global Make no mistake; the recent influx in the popularity of basketball is no coincidence. The NBA made immense efforts to increase the popularity of the game in the past. In 1990, the NBA became the first American professional sports league to schedule regular season games outside of North America (“Fact Sheet”).
The early jump on global expansion is really starting to pay off, as we continue to see more and more NBA games played overseas each year. The increase in games has led to an increase in the games popularity in European markets. Last year alone, seven NBA Europe games drew more than 10. 3 million viewers, 75,000 spectators, and were supported by 23 marketing partners (“NBA Europe Live”). That being said, it is no surprise that other leagues outside the United States have been established, and are successful. These leagues are becoming more and more of the threat to the NBA.
With globalization evident in all aspects of business, it is no surprise that the NBA has fierce competitors that are ready to pounce on any opportunity to gain advantage. The NBA too, needs to be ready to pounce on profiting opportunities. All evidence in the recent years indicates that expanding the NBA to Europe would undoubtedly be a successful way to expand popularity and increase revenues, while at the same time, drawing away from its competitors market. Not only are players from foreign countries a factor in the expansion decision, but now some USA born players decide to play overseas, which is a contributing factor as well.
Players Going Abroad to Threat NBA It is true that there has been an increase in foreign players entering the NBA, which has been great for the NBA, but on the reverse side of the influx in foreign players is something that does not benefit the league. European franchises, which do not have a salary cap and can pay players whatever price necessary, are paying enormous amounts of cash to entice NBA players to play in overseas leagues. As of today, there are many players that are going overseas to make more money.
True, the NBA is able to pay its top players vast amounts of income, however the lower-end and middle of the road players do not make substantial amounts of cash—that is the market in the NBA. Therefore, brilliant and very wealthy Russian owners have been luring NBA players to Europe to be superstars, and they are paying them superstar caliber money (DeStefano). Josh Childress, a contributor on one of last year’s NBA playoff teams, left the NBA for a 3 year 20 million dollar deal with a Greek team. This amount is twice the amount that he was getting paid in the NBA.
More and more NBA players are leaving for overseas basketball every day. Now, with an increase in NBA players playing overseas, and an increase in the sports overall popularity in Europe, wealthy team owners with no salary cap have much bigger targets on their minds. Superstars like Kobe Bryant are now saying that they are not opposed to accepting European deals by any means. At least they are eyeing the possibility of playing abroad, and why wouldn’t they when there are former NBA players like Boki Nachbar signing 50 million dollar deals to play in Russia.
Nachbar stated about the current situation of players going abroad, “the NBA had better be careful, European teams are offering a lot of money. Much more than someone like me would make signing at the midlevel exception in the NBA (DeStefano)”. It is true playing professional basketball is a game, but before the word basketball comes before the word professional, and it is exactly that—a profession, a business, and above all these players have the interest of making money.
With the professional international basketball scene on the rise, the NBA must take action to ensure that it remains the premier professional basketball league in the world (DeStefano). The NBA must be aware of the many factors that are aiding professional basketball’s competitiveness on a world-wide scale. The NBA must devote all necessary efforts to establish a large international fan base and keep players from going to outside leagues. An expansion allows the NBA to gain a competitive advantage by benefiting from the rewarding European market. Addressing Concerns of NBA Expansion
There are very few business proposals that are problem free. The NBA’s looking into the profitability of an expansion overseas undoubtedly has many potentially troublesome factors. Discussions of an expansion have many appealing benefits, but on the other hand there are several concerns that should be addressed in analyzing the feasibility of expansion overseas as well. Perhaps the most apparent concerns are the traveling logistics and the potential scheduling difficulties. The NBA could greatly benefit if it properly addressed and battled the concerns outlined in this section.
Travel Logistics and Scheduling Concerns NBA expansion to Europe would be rather difficult for a number of different reasons. Above all, travel between the United States and Europe would undoubtedly be an issue. European teams would have several trans-Atlantic treks a season and teams located beyond the East Coast would have epic journeys half way around the world (“NBA Players Cautious Over European Expansion”). Jet lag, loss of sleep, and other factors could affect quality of play, as well as create reluctance amongst players to cross the Atlantic Ocean to play in Europe.
Determining an effective schedule and analyzing travel discrepancies will be a major issue with the implementation of the NBA in Europe. Under the current structure of the NBA, there is often times when teams play a road game one night, and then have to travel home after the game because of a game that is scheduled that next night. It simply is not feasible for the Los Angeles Lakers to play a game in Moscow Russia one night then make it back for a home game the next, there is a severe time difference and the traveling alone would discombobulate the entire schedule of the season.
For one game a team would absolutely need 2 travel days because of the severe time-difference. Not only are traveling logistics a concern, but there are several cultural and economic issues that could greatly affect the success of the NBA expansion in Europe. Cultural and Economic Issues Another large factor of successful implementation is dependent on the adaptability of current NBA players, as well as future IBA players. We spoke with James Bryant, a sports agent for ProServe management, who has represented many professional basketball players, including Marcus Camby and Stephon Marbury.
He was very informative in addressing concerns that players might have. During an over the phone interview, Bryant stated this about potential expansion, “professional athletes are creatures of routine, they thrive on a schedule that allows them to be competitive on a daily basis, I don’t know have players will react to some of the negative aspects of an expansion overseas (Bryant). ” Adversity would undoubtedly have to be conquered by many of these players to have a successful expansion.
In addition to facing difficulties with adapting to European culture, another major economic issue is the lack of NBA caliber arenas for game play (Simpson). Not to mention, it is difficult to estimate if a market city will be able to support and sustain an NBA franchise, merchandise pricing, as well as other financial and economic mishaps could potentially disrupt a successful expansion overseas. Executives worry if opportunity cost will allow a European sports from buying tickets to a NBA game instead when perhaps the only game they can afford is a soccer game.
Although, the NBA has taken, and will need to take further steps in promoting its league to an international market, there is still a great deal of concern for this topic. Another potential economic dilemma is the corporate tax rates that are present in the prospect cities the NBA selects. In most cases, the NBA will benefit more from foreign tax structure, but in many cases, preventions on free enterprise could complicate the suspected profitability of the new IBA. All business proposals should address potential difficulties the proposal could run in to.
The NBA feasibility report is no different. There will be a strong correlation between the success of the IBA and the minimization of cultural and economic issues as well as well battling traveling and scheduling logistics. Vital Characteristics of Franchise Cities and Trade Regions European basketball is more popular than ever, and European soccer clubs already outpace American pro sports in terms of revenue (Simpson). There are many cities in Europe that demonstrate key characteristics for a successful franchise city.
There are huge franchises that exist in many of our prospect cities, just not in basketball. Addressing demographics and sociographics of the common NBA fan helps to better understand what the target audience might be like overseas. The IBA could undoubtedly benefit from a successful implementation if it were to select cities based on the information outlined in this section. City Size All of the current NBA franchises that are located in the United States (one is located in Canada) are located in cities that are in the top 50 population wise in America (Wilson).
It is important that the cities selected for overseas expansion be cities that are large enough to support an NBA franchise. Game attendance by fans will be a major contributor to the success of the league as well as a major source of revenues. There is a correlation between the top NBA franchises in terms of revenue and the attendance per game that these franchises experience. In addition to market city population, another important factor for a market city is characteristics of the people in the city. Figure 1.
The top and bottom attendance per game franchises in the NBA. The top 6 are also in the top 10 in revenues (“Fact Sheet”). The NBA Fan The NBA fan is educated; more than 50 percent of fans that attend NBA games have a college degree. Likewise, an NBA fan is 40 percent more likely to be male than female, however, compared to many other sports the NBA has a large female audience (Wilson). The NBA fan is most likely lower middle class; a game is a big experience for the common NBA fan. Often times the game they will go to is a big event for the family.
Price of tickets do not allow for many “common” NBA fans to attend games, however a great deal of the merchandising the NBA reaps revenues from comes from the lower and middle class. It is important to establish a successful ticketing price that overseas fans can afford in order to maximize the potential success for the league. Undoubtedly the NBA can make a successful jump to an international market. Perhaps the most important factor in this decision is selecting appropriate cities that would be able to sustain a NBA franchise.
The characteristics for franchise cities should help the NBA maximize profits when an expansion takes place. Conclusions and Recommendations The National Basketball Association has long been the world-wide leader in professional basketball, the players, coaches, and fan base has always been and will remain being the most outstanding professional basketball association in the world. The expansion of the NBA overseas to Europe would only aid to the success of the National Basketball Association’s profitability.
For the most successful implementation of the expansion to Europe it is our recommendation that the NBA follow these suggestions: We recommend that the NBA take the necessary and appropriate steps to ensure the most successful implementation of the NBA overseas is carried out. In doing so, there are several key factors that will allow for the smoothest implementation process possible. Expand the Current 29 NBA teams to 40 IBA (International Basketball Association) Teams, Including 11 New IBA Franchise teams to be located in Europe. 1. )Select 11 new franchise cities that would become part of the new IBA Eastern Conference. As you know the NBA is currently divided into 2 conferences, the East and the West. This conference division would remain the same; however the “new East” would contain the 11 European franchise teams. The West would receive 5 of the “old Eastern conference” teams, giving each league a total of 20 IBA teams. The IBA Eastern and Western Conference division plan would no doubt aid to the successful implementation of the expansion.
With a Eastern Conference containing 10 Eastern Conference American and Canadian teams such as: Boston, New York, Toronto, and 7 other old Eastern Conference teams, as well as the new 11 European franchises, and having the “old Western Conference” gain 5 “old Eastern Conference” teams would allow for very easy traveling and scheduling as well. 2. )The two conferences would play only teams within their conference within the regular season. This would be very similar to the current set up of Major League Baseball.
In the MLB there is an American League and a National League; each league plays only teams that are within their conference and at the end of the regular season the top teams from each league meet in the championship. It is our vision and recommendation that the NBA implement this same kind of league division. It would aid to the easiness of the traveling and scheduling concerns, as well as give an additional appeal to the professional basketball fan. 3. )Create a league much Major League Baseball.
The “New IBA” could implement interleague play during one week out of the year. For one week during the regular season a division from one conference would be matched up with a division from another conference. For instance, assume that an Eastern Conference division has teams such as Moscow, Paris, Berlin, and Madrid, and a Western Conference division includes the teams Denver, L. A. , Sacramento, and Phoenix. One week out of the year during the regular season these two conferences could be matched up to play a series of games.
Otherwise, teams would only play those teams within their respected conference, for scheduling and traveling purposes. 4. )Set IBA forthcoming date to opening day 2014. This is a reasonable but aggressive date for implementation of the expansion. To ensure that this date is successfully adhered to, it is necessary that all appropriate implementation steps are completed prior to this date. Such steps include: provided adequate arenas and game playing facilities for the new IBA expansion teams, some target cities will have to have new arenas built.
Provide necessary marketing traits to European’s to gain fan base prior to the implementation, and create and establish the proper training program that will allow local workers in new franchise cities to be employees of the new IBA. 5. )Take the necessary pre-implementation steps that are vital in the success of the expansion. The current NBA Development League, or NBA D-League, will undoubtedly need to expand overseas as well. It is our recommendation that the NBA begin to implement D-League teams into the European market by 2010.
For expansion to be a success it is our belief that we must begin to gain a fan base before the official implantation of the expansion teams. To do this, we recommend starting 4 NBA-D League teams in locations that will have future IBA expansion teams. This will allow for at least 4 franchise target cities to build a fan base prior to the actual implantation of the IBA. Although there are many strategies for an expansion of the NBA overseas, it is our belief that these recommendations would undoubtedly provide for an easy an easy and successful transition into a world basketball association.
Our research suggests that the recommendations we have offered to implement an International Basketball Association would benefit the NBA immensely. Fan base would increase; profits would be at an all time high, and most importantly the NBA would remain the world leader in professional basketball, all aspects of the game considered.
Works Cited Crum, Rex. “NBA Turns to the World for Help. ” 7 Nov. 2007. 18 Nov. 2008. . “Fact Sheet. ” 2008. National Basketball Association. Nov. 2008. . “NBA Teams to Tour Europe…. EA Sports. ” National Basketball Association. 27 March 2008. 9 Nov. 2008. . DeStefano, Michael. “Role Players Cashing in Abroad. ” 24 July 2008. 18 Nov. 2008 . “NBA Players Cautious Over European Expansion. ” 15 Feb. 2008. 20 Nov. 2008 . Wilson, Davis. “Soccer Teams Out Pace US Sports Teams in Revenue. ” 19 Feb. 2008 20 Nov. 2008. . Simpson, Gordon. “European Basketball on the Rise. ” 9 Sept. 2003. 20 Nov. 2008. .