Trust the profits? NBA merchandise leaders reveal a surprising pattern

2018 NBA merchandise revenue leaders suggest that it might be worth tanking after all

The NBA released it’s 2018 jersey and merchandise revenue leaders and there is a bit of a trend: look at how many of the biggest losers recently haven risen to the top of the sales charts over the years.

Of course Adam Silver, long time tank-denier, would be quick to point out that it’s the markets and the superstars who are generating this revenue, both because of their on court success, and because of how exciting it is to watch young stars.

And he’s right.

Losing isn’t why these teams are selling now. Otherwise Sacramento or Phoenix would be higher. But by far and away the easiest way to get a superstar is to draft one. And franchises who have been remotely competent have had some success there. Many of the best teams in the NBA recently found themselves drafting pretty high…over and over and over….

Market Size Matters

Philadelphia, The Bay Area, New York City, Los Angeles, Chicago. These are massive markets. But they’re not all guaranteed spots at the very top of the list no matter what as we’ve seen over the years, sometimes they don’t even make the top ten. The Warriors and Sixers were certainly not this high in the stretches of losing that allowed them to draft their current best-selling nuclei.

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The only teams who seem to be “guaranteed” a spot are the Lakers and Knicks. They’re immune to losing revenue even when their team is a joke for five years like LA or decades like the Knicks.  They sell tons of merch even when they can’t sell hope.

Biggest Losers in the short term lead to biggest winners today?

Check this out, here is how some of the top sellers this year lost big recently. There is nothing mediocre about these seven of the top 10 selling teams in 2018:

1. Golden State was the 5th worst team in the league from ’09-’12.
2. Cleveland was THE worst team in the league between ’11-’14.
3. Philly was THE worst team from ’14-’17.
4. The Lakers ARE THE worst team ’14-’18.
5. The Bucks were the 7th worst from 11-’16.
6. The Thunder were THE worst team from ’06-’09.
7. And of course, The Knicks have been the worst team since 2001.

Why can you be as bad as these teams were and still sell so much gear? It certainly seems that these massive losers are a bit overrepresented at the top doesn’t it? This can’t actually be random, can it? The NBA Draft Lottery rewards losing.

When a big market team like Golden State or Philly can hunker down for a few years and get a collection of young stars on rookie-contracts with the Bird Rights to keep them, it not only attracts other stars (like Andre Iguodala, Kevin Durant, and LeBron James) it creates a winning and fun atmosphere again.

A few years ago, in 2015, here is how the board looked:

Top 10 Most Popular Team Merchandise

1. Chicago Bulls
2. Cleveland Cavaliers
3. Golden State Warriors
4. Los Angeles Lakers
5. Oklahoma City Thunder
6. San Antonio Spurs
7. New York Knicks
8. Miami Heat
9. Boston Celtics
10. Los Angeles Clippers 

The Spurs, Clippers, Heat, Bulls, and Nets (on the 2013 list) have all recently seen their stock dip a bit because of teams who patiently built in the draft like Golden State and Philly. “The Process” trusting Sixers, the Bucks, and Houston have all sneaked in three years later. Houston makes sense, they’re awesome and lead the league in wins this season. But Philadelphia has almost a million less people living in it, they weren’t the best team in the league, and they’ve still sold a pile more gear. Why?

Can it be that having been so starved for victory has lead to a rebound effect? If so, it might be a strong argument for having a longer-view business wise for some teams.

It’s not all tanking of course. Giannis Antetokounmpo clearly has a lot to do with the Bucks rise in profits and he wasn’t someone they really “tanked” for. He was the 15th pick. But they did lose a lot to find him and even more to get him enough help to at least be a playoff team. And winning games with a star sells. It doesn’t so much matter how you got bad, as long as you did and drafted well for profits and wins.

Big market teams just need to be pretty good. Of course, there may be some untapped potential here. If the Knicks who always sell a lot even when they’re awful could simply be “meh” they might dominant profits for years to come. The bar is lower for them.

See? Here is how the list looked in 2013, the last time the Knicks were in the playoffs:

The top-10 selling team merchandise:

1. New York
2. Miami
3. Los Angeles Lakers
4. Brooklyn
5. Chicago
6. Boston
7. Oklahoma City
8. Los Angeles Clippers
9. San Antonio
10. Philadelphia

The lesson is kind of clear: if a big market can string together a few losing seasons and draft well, the sky is the limit. Philly and Golden State are good examples. Completely ignore fans who bemoan tanking and the trading away of guys like Michael Carter-Williams for future picks.

Pay no mind to fans who boo the new owner ’cause he promised a trip to the playoffs and then changed his mind and traded away fan-favorite Monta Ellis for a guy who’d be hurt for almost a full year, Andrew Bogut. Just do whatever it takes to keep your picks and don’t keep beloved members of the “We Believe” like Stephen Jackson team just ’cause you might continue to eek out some ticket sales.

Scorched earth, long term greedy. Think liquid rich and dynasty not modest earnings or spirit. Gordon Gecko type stuff.

For smaller and middle markets, stringing together numerous losing seasons has worked well also. Consider Cleveland after LeBron left or Oklahoma right when they left Seattle. Would Ray Allen or Rashard Lewis have made fine floor-spacers and developmental mentors for young Kevin Durant? Probably. But forget that. Trade Allen for a good pick, tank, and aim higher than the 8th seed. No wonder OKC doesn’t vote for lottery reform. Even Toronto was a top 10 seller recently a year ago.

The Raptors were actually the 6th worst team from 2008-13. They weren’t so bad they were able to make selections in the top 5 each year, but these lost years were non-coincidentally the years when they built the nucleus of this current dynamic 1-seeded Raptors team with Kyle Lowry, DeMar DeRozan, Jonas Valančiūnas, and some of the other higher picks they used to acquire Serge Ibaka via trade.

So if you feel forgiving of your team’s front office for desperately flailing to make 8 seeds recently, like the Pistons (5th worst team since 2009) or Hornets (3rd worst team since 2005), or Knicks (worst since 2001) maybe try tanking a little harder and be willing to disappoint your fans, rather than striving to please them in the short term. Teams have some good models now that they might actually make more money in the long-run this way.

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For all of the owners complaining that “The Process” was costing the league big money in revenue sharing models, it seems like things may already be turing around and they’ll be pretty grateful for the players all of that losing accumulated.

Isn’t that kind of what Warren Buffett suggests anyway? Be willing to stomach some short-term losses for big long-term gains? If you’re a small market team like Oklahoma City or a big market team like New York, it just may pay big to lose even bigger. As long as you don’t trade away all your picks also. Money talks. Trust the profits.