Large Market Advantage: The National Basketball Association & the Relationship Between Market Size & Success

Abstract

The National Basketball Association (NBA) has a fundamental problem with their business model; not every market is created equal. Even though the league is widely popular, after the Financial Crisis of 2008, the majority of teams were losing money. Existing research on financial success factors in the NBA have generalized results across all teams. Using regression techniques, population has been shown to have a significant, positive relationship with a team’s revenue. In December of 2011 a new collective bargaining agreement was signed in order to increase the likelihood that small market teams could better compete both financially and competitively. This study intends to decipher whether the CBA is having its intended effects by utilizing a multivariate regression model. Dummy variables will be employed in order to show the interaction between market size and the new CBA to discover if market size is becoming more or less important to both financial and on-court success. After identifying whether or not a difference between market sizes exists, I will attempt to reconcile the findings by looking at the fabric of the current league and identifying what type of teams are succeeding and why.