Basketball and sportswashing I: Lessons from LIV and the NBA's inflection point

How will global basketball shift, with Middle Eastern wealth flooding into professional sports, and how will it impact Australia?

As the world of professional sports becomes an increasingly high-stakes monetary dance, I can’t help but notice the potential pitfalls looming for Australian professional sports leagues. Outpaced by billion-dollar valuations and Gulf States, our leagues, particularly the NBL, face a Herculean task: evolve economically, or be swept away in the tide of 'sportswashing'.

Today presents the first of our two-part series looking at the uncertain economic future facing basketball, Australian sport and the lessons can be taken from the financial explosions witnessed in golf and soccer.

So, what is the problem?

Professional sports in Australia requires an influx of capital to survive the sportswashing generation. Let’s stick with men’s basketball as we pull on this thread. To be clear, this is not criticism of the NBL or any Australian sporting entity; they are doing the best with what they have. It’s not a question of why these challenges exist. The answer is basic economics: Australia lacks enough economic units (ie human eyes and ears) and wealth to resonate on a global scale.

The AFL and NRL are too culturally engrained to fail. In this regard, it’s lucky for Australian Rules that nobody cares about the sport around the world; their audience is concentrated into one marketplace. There will be a different battle coming their way – it will become harder to attract talent to the sport, when there are infinitely greater riches on offer from global sports. That’s not to mention the concussion lawsuits flooding into courts around the country. The AFL is facing its own cultural revolution over the coming years, albeit with absolute power that comes monopolising the marketplace.

Basketball as a concept in Australia is secure. Participation numbers continue growing and that will secure the sport’s future in the zeitgeist, although that fact further speaks to issues at Basketball Australia (BA). Dissent across different levels in Australian basketball is the biggest threat to the sport’s continued rise. As this century evolves, BA must mature to become a true governing body; one that is a professionally integrated organisation across all states and territories. It’s less a question of whether Australians will continue playing basketball at record numbers, because that appears likely. The bigger unknown, is how domestic leagues pivot.

How can the NBL elevate to the next level financially? This is the biggest issue facing the league. Talk of expansion sounds great in theory, but that alone won’t generate riches needed to sustain the league. We are producing local talent, but that is only part of the equation.

The lesson from LIV

The world of professional golf has me worried about the long-term financial sustainability of Australian sports, basketball included. For all the gains being made on court, Australian sporting leagues are financially lagging on global elites. Take our beloved NBL for example. There are NBL clubs in major markets, struggling to find major sponsors. Financial discourse focusing on selling league-owned clubs like Tasmania or debating whether to make player salaries public are severely missing the point. Don’t stress over pennies, when there are macro issues lurking in the background.

Back to golf briefly, and some quick background is needed. The Saudi Public Investment Fund (PIF) is Saudi Arabia’s sovereign wealth fund. It manages over $700 billion in assets, and is tasked with diversifying Saudi Arabia's economy by investing across the globe. The PIF is a shareholder of many blue chip companies, including Facebook, Uber, Boeing and Disney. This is a legit fund with unfathomable wealth. The Athletic does a great job of outlining the PIF and its intentions here.

How does golf fit in? Back in 2021, the PIF decided that golf was their target. A cynical mind would point to golf being a pastime synonymous with wealthy males, noting this appears to be the perfect anecdote for a regime with questionable standing on social causes. Count me among those who share this cynicism, although the financial power play deployed by PIF was stunning in its simplicity. The PIF directed their resources and flooded the zone, to borrow an American football trope. They created the LIV tour, paid professional golfers ungodly sums of money and disrupted an industry along the way.

This all came to a head in early June, when it was announced that LIV had “merged” with the PGA tour, being the entity who has controlled the sport for almost a century. In basketball terms, the PGA tour is the NBA of golf. The use of quotes over the term “merged” above is deliberate. The PGA handed over ownership and control to the PIF. Press releases and media content deflect the narrative, but here’s the lesson: the PIF targeted golf with immense wealth, leveraged wealth into power and then exercised power into control over the entity that governed the game. The PGA tour merged with the LIV tour because their cash reserves were being eroded. It was a double dose of financial pain. In the short term, the PGA was forced to increase player purses at tournaments to keep up with global inflation (ie because of LIV). With the prospect of endless courtroom battles against LIV, and the wonderfully efficient legal fees that follow, threatening to linger for the remainder of the decade, the PGA had to merge with LIV. All the virtue signalling in the world goes away, when your balance sheet is under genuine threat.

How does this apply to basketball?

Golf was uniquely setup for massive disruption. The sport has an unregulated labour market – golfers have historically been rolling free agents with the capacity to play anywhere in the world. It is an individual sport without team motives or traditions. Tennis is another clear opportunity for the LIV blueprint to succeed, but basketball is becoming ripe for the picking.

What are we seeing in professional basketball globally? Mobility. From NBA superstars, to NBL leading men, to fringe NBL athletes wanting a bigger role; player contracts are lucid and mobile. Long-term commitments offering guaranteed money have historically not dissuaded superstars from moving out of situations deemed undesirable.

Those wanting to elevate into the NBA from fringe leagues rightfully demand NBA out clauses in their contracts, should the offer present. This generally applies to the best athletes playing domestically in Australia and Europe. Then, there are those in the NBA’s middle class. This cohort is getting squeezed thanks to the NBA’s recent collective bargaining agreement, and are being forced onto shorter contracts.

Jock Landale’s recent deal with the Houston Rockets is a great example.

On paper, Landale received a four-year, US$32 million contract, but only the first season is guaranteed. In more accurate terms, Landale received a guaranteed US$8 million in year one while giving Houston the right to pay him the same again in subsequent three years, but the option rests with the Rockets. Fans of the NFL will know this contract structure all too well; this is not a four-year commitment, but rather a one-year pact with team-controlled strings attached. It's a new form of NBA contract that I am dubbing the Promise Ring contract – a general commitment until a better offer comes along. Loyalty at both ends —across both ownership and the playing cohort— is a thing of the past, and rightfully so, it must be said, given the financial implications for all involved. The NBA is a trendsetter for basketball leagues, and these techniques will filter down to every level of global basketball, Australia included.

There has been fracturing of the player ecosystem over the past decade. The path to basketball riches had historically been NCAA college into the NBA, with a series of regional leagues like the NBL on the fringes. Look again at the options available for young men in 2023. Getting into the NBA is still the ultimate ambition, but the pathways have been disrupted. There is the NBL (Josh Giddey), NCAA college (Tyrese Proctor soon), EuroLeague (Victor Wembanyama), Overtime Elite (Ausar and Amen Thompson) and the G League (Dyson Daniels, Mojave King).

The NBA remains entrenched atop the pyramid, but it’s now a free for all to secure second tier playing talent. Australia is well-placed, but it has one clear disadvantage: there is no money! Hyperbolic, sure, but relative to wealth floating around the world, Australian sporting leagues like the NBL are financial minnows. This is where the threat comes into play. Because many of the features attracting basketballers down to Australia —lifestyle, English-speaking, professional facilities, getting paid on time— will be overridden the moment a Gulf State throws their financial clout into basketball. It’s my opinion that this imminent development is a question of when, not if.

Basketball is rife for economic disruption over the next decade. And like everything in global basketball, the NBA is the impetus for change.

The NBA’s inflection point

Valuations of NBA clubs have arrived at an inflection point - there are only a handful of people alive who can lead acquisitions. Michael Jordan’s Charlotte Hornets —a team widely accepted as one of the least performing franchises in North American sport— are in the afterglow of getting sold for a US$3 billion valuation. That’s beyond staggering; it’s a 50% increase on what Steve Balmer paid for the LA Clippers in 2014. What are the Clippers worth today? Consider the New York Knicks, or even the Golden State Warriors?

The days are coming when NBA clubs will be worth eleven figures. It’s hard to comprehend the sheer weight of these valuations, so grab a pen and write down a one, followed by ten zeros. These are numbers that go beyond generational wealth or family business – this is wealth that only global elites have access to. Better yet for current NBA governors (the league’s term for team owners), the league has yet to (officially anyway) align themselves with Gulf States like Saudi Arabia or Qatar. That too, is likely just a matter of time.

FIBA recently awarded the 2027 World Cup to Qatar. This looks a strategic copycat of policies from FIFA, soccer’s governing body. Again: monetary gains override virtue signalling. The 2022 FIFA World Cup served as an excellent showcase for soccer athletes, with all facilities concentrated in one area, luxurious accommodation, and a financially robust economy seeking to boost their global reputation by associating with renowned athletes. FIFA’s 2022 tournament was, on the field, a wonderful showcase for the sport – the quality of play was tremendous. The dollars paid to influencer athletes, most noticeably David Beckham, were eyewateringly large.

Imagery of Lionel Messi’s accepting the FIFA World Cup trophy while wearing a Bisht (being a traditional Arab cloak) should stimulate the financial motives of basketball superstars. Any high-profile athlete with a shrewd financial advisor will be on the plane to Doha in 2027 – winning that World Cup will carry the greatest financial reward ever seen in basketball.

The NBA’s trial balloon

Letting FIBA go first is a great public relations move from the NBA. The Association can stand back and bloviate (more on this shortly), while FIBA tackles the backlash of being the first global basketball body to place blue chip events into the region, a trial balloon at accessing financial riches of the Middle East. This financial clout is something the NBA is also keen to leverage. Preseason games have been awarded to the region over the last ten years.

WNBA commissioner, Cathy Engelbert, had a personal faux pas in June, when she intimated that the WNBA would consider hosting games in Saudi Arabia. The hypocrisy here is too large to quantify, given the league’s stance on equality and the nation’s stance on gender rights and same sex relationships. It’s the latest reminder to never fully trust public messaging from sporting leagues. They are businesses first, social causes second. Follow the money, always.

This tweet from Larry Gottesdiener, managing partner of the WNBA’s Atlanta Dream distills my sentiment in less than 280 characters. Maybe this was a reflective answer to a media question… maybe? It’s more likely in my eyes, that Engelbert let slip of the long-term financial plan. FIBA and the WNBA (which is governed by the NBA) are floating balloons into the media space, and you can guarantee the NBA public relations machine is paying attention.

The PIF has become the Scrooge McDuck of the sporting world; wealthier than everyone and willing to flaunt their wealth. As a region, the Middle East is now the stalking horse for every fan wanting more investment into their club. Manchester United is the current soccer example – a Qatari backed ownership group is attempting to purchase the club and all media highlights are focused on the potential price. This is how the discourse will begin inside the NBA. The next time a blue chip North American franchise hits the market, keep an eye out for the erroneous media reports linking the PIF or Qatar Sports Investments (the Qatari backed fund) to the sale process. It is good for business at a macro level, and will only drive the price higher and higher.

Middle Eastern ownership is coming to the NBA. The Washington Post reported in June that the Qatar Investment Authority is seeking to buy a minority stake in the group that owns the NBA’s Washington Wizards, the NHL’s Washington Capitals and the WNBA’s Washington Mystics. This deal would make it the first foreign sovereign fund to own a portion of any major United States team sports franchise.

There was radio silence from the NBA on this report, until Adam Silver faced the media at Las Vegas Summer League. ESPN’s Tim Bontemps did a great job of summarising what the NBA commissioner said on the topic of sovereign wealth in the NBA:

NBA commissioner Adam Silver said Monday there is no pathway "in the foreseeable future" for sovereign wealth funds to become the controlling owners of an NBA franchise.

"I don't want to say what could ever happen, but there's no contemplation right now," Silver said during a question and answer session at the Associated Press Sports Editors convention. "I mean, it's very important to us, putting aside sovereign wealth funds that individuals are in a position to control our teams, be responsible to the fans, be responsible to their partners and to the players.

"It's very important to us that there be a person [in charge], and this is independent of sovereign wealth funds. I think that in terms of the connection with the community, the connection with the players and their other partners in the league."

So, what to make of Silver’s comments? It’s the classic double negative, so let me attempt to translate: “I don't want to say what could ever happen” is a well-crafted way of Silver saying, not right now. As Bontemps points out in his article, current rules governing NBA ownership require the controlling owner own at least 15% of the franchise, and any sovereign wealth fund can only have a passive investment in a team of no greater than 5%. Silver can hide behind these regulations for the time being. They provide suitable resistance for the time being, especially as FIBA incubates their Middle Eastern World Cup. But these ownership guidelines will likely eventually fall.

I simply do not believe in the future that Silver is selling. Moreover, I do not believe that Silver will have any say in the matter. There is too much money at stake for incumbent owners and NBA players. And, there is no blame to be passed towards key NBA actors as this situation evolves - they are merely acting in their own interests. A quote from the late Hans Rosling about assigning blame, in his book Factfulness: Ten Reasons We're Wrong About The World - And Why Things Are Better Than You Think has been front of mind as I put this together:

It’s almost always about multiple interacting causes – a system. If you really want to change the world, you need to understand how it actually works.

This is where the conversation veers away from sport and into business.

There are fewer and fewer individuals capable of acquiring NBA teams at their current market rate, a fact that Silver acknowledged in July. At the same time, Silver trumpets that franchise valuations are rationally rooted to economic fundamentals, not inflationary bubble tactics. That is a sentiment I agree with. If we assume both arguments to be true, Silver is starting the process of backing himself into an impossible corner.

Rising valuations plus economic validation for these valuations equals increased demand. It’s a simple economics equation. As demand increases, the supply will drop and upward pressure will be applied to the pricing. Then, the onus will be shifted to current NBA governors. Do they accept the current mandate from NBA laws that restrict sovereign wealth funds acquiring full control of an NBA franchise? Do they accept lesser bids from individuals the NBA deem fit for ownership? These are rhetorical questions. The history of American capitalism allows me to comfortably stake my entire reputation on a belief the NBA ecosystem will choose the path that offers them the greatest financial windfall.

Sure, it is theoretically possible that the NBA will stand on its collective morals and restrict the influx of Middle Eastern capital. But I am going to have to see it before I believe it.