Sunday, February 14, 2010

Changing Advertising Market Leads to NBA Losses

NBA commissioner David Stern must have turned heads when he disclosed the estimated $400 million loss for the basketball league and its teams this season. It is not because the league is losing fans. Attendance at games has been trending downward, but only slightly, and the television audience is holding its own, thanks to improved HD picture quality. The problem is that the advertising doesn’t have the reach that it did just a few years ago.

Television advertising during game broadcasts pays for most of the costs of operating the NBA, with most of the money going into salaries for players, but advertising spending is down because the impact of advertising is shrinking. It is not just the switch from the cathode ray tube of old-style video screens to the less-hypnotic flat screen displays. Consumers are paying less attention to advertising in all forms. The recession has added to the pressure on consumers and reduced the amount of time they can spare for advertising messages, but so far there is no indication that this will let up when the economy improves.

In hockey, the NHL faced a similar predicament six years ago and ended up missing a season. The NBA and its players’ union had hoped to avoid that by starting their discussions early, two years before the current collective bargaining agreement expires. But a third of that time has already gone by without any sign of progress, and if either party is delaying and hoping for the TV money to come back before the deadline, the early start might not make any difference.