How Basketball Became A Global Brand
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!
More on the episode
Playbook Themes
1. Distribution.
Great product-market fit is necessary but not sufficient for outsized success; you also need great distribution.
- Basketball had great product-market fit from the beginning — it was an indoor sport that could be played in any weather, didn't require lots of specialized equipment or setup, was relatively safe and provided a great player and spectator experience.
- However basketball's rapid dissemination was helped enormously by its origin within the missionary context of the YMCA organization, which quickly spread the new game to its branches around North America and the world (including and especially China) — all 50 years before the NBA's founding.
2. Hobbies.
A corollary to Paul Graham's idea that great markets start as toys: finding the right business model to professionalize an amateur or "hobby" market with a large or rabid fan base can yield massive business opportunities.
- Basketball was hugely popular for decades before the NBA came along. College and independent professional teams (like the Harlem Globetrotters and New York Rens) proved people would pay to watch great talent; the NBA simply provided the right league structure and real estate to serve that demand at scale.
- Other examples: personal computers and Apple, electric cars and Tesla, video game streaming and Twitch, bitcoin and Coinbase, etc.
3. Influence = Power.
The NBA's strategy to "make the players the stars" has succeeded tremendously, and stands in stark contrast to the other major American sports leagues.
- NBA players both individually and as a whole have an order of magnitude more social followers than other major American athletes and, relatedly, have also accumulated an order of magnitude more wealth: 7 current and former NBA players have ~half billion wealth or more, compared to only 1 from all other American team sports.
- Nike's Jordan deal + creation of the Air Jordan brand wrote the blueprint for the modern influencer endorsement (pre-Oprah!), and is perhaps the most successful non-acquisition deal of all-time.
- Social influence is a compounding network economy: because NBA players have more followers, they win over more fans (and especially young fans) and aspiring athletes than other sports leagues, which leads to new players and stars getting more influence, which repeats the cycle and widens the lead over other sports.
4. Internationalization.
The world is a big place. Much more potential talent and customers exist outside any country's borders than inside. The wider you cast your net, the greater rewards you can reap.
- Starting with the Dream Team in 1992, the NBA embarked on a deliberate campaign to internationalize its image, both with players and fans. The result is this past season 1 billion people watched the NBA (the vast minority of whom were Americans), and 25% of NBA rosters (and probably 50%+ of its young stars) are international. No other major American sport is anywhere close.
- Regular Acquired mega-theme reminder: China is ALWAYS bigger and more important than you think it is. 600m people in China watch basketball and 300m people play basketball. That's an entire Unites States' worth of developing players, and two US's worth of fans. Whether the future value of those players and fans accrues to the NBA or the CBA (Chinese Basketball Association) will shape everything about the game going forward.
5. Cinematic Universes.
The best media properties create and support whole ecosystems around the core product and across mediums.
- Non-game content like All-Star Weekend and the Slam Dunk Contest, as well as short-form and behind-the-scenes access like SportsCenter highlights, Inside the NBA, etc. provide the NBA with additional compelling (and monetizable) content, all while building the game's reach and deepening fan relationships.
- Unsurprisingly, this echoes the core of the Disney flywheel. Technology only amplifies this dynamic: social media, over-the-top distribution and direct fan relationships provide more opportunities for the best properties to increase their share of customers' attention.
6. Younger customers = More Future Cashflows.
57% of US 13-17 year-olds list the NBA as their favorite sports league, compared to 13% for the NFL and 4% for MLB. Assuming those numbers hold for this cohort (and younger), the impact on relative future cash flows (and valuations) for the respective sports is enormous.
7. Beachfront property.
That said, valuations in any market aren't just driven by the discounted sum of future cashflows; scarcity also matters. Nowhere is this better exhibited than NBA team valuations.
- Average NBA team valuations have risen 600% in the past decade. Part of this is due to the League's incredible growth. But perhaps as much or more is simply because lots of people want to buy NBA franchises (see e.g., Ballmer) but there are only 30 properties, and ~0-2 are available for purchase at any given time.
Links
Carve Outs
- David: Phil Libin and Mmhmm on Joe Sweeny's Just Raised podcast
- Ben: Meow Wolf + documentary