Analysis of the National Basketball Association

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Introduction

The National Basketball Association (NBA) is one of the leading sports organizations in the United States, which forms the league of the 30 most successful basketball teams in the country. Even during the 2020 pandemic, which resulted in a 10 percent loss of profits, the organization raised $ 8 billion in sponsorship and merchandising (Wojnarowski and Lowe, 2020, para. 1). In the 2020-2021 season, the NBA is rapidly recovering its performance, having already received a record 1.46 billion in sponsorship revenue (Young, 2021, para. 1). The NBA is one of the most famous and successful sports organizations in the market, and it had global recognizability among sports fans and even people who are not interested in sports. For this reason, this paper will analyze The National Basketball Association (NBA) using such tools and concepts as Porter’s Five Forces, VRIO, strategic alliances, and corporate social responsibility to determine the reasons for its success.

Porter’s Five Forces

The first tool used to analyze the NBA is Porter’s Five Forces as it will determine the organization’s place in the market. Porter’s Five Forces include such aspects as competitive rivalry, supplier power, buyer power, the threat of substitution, and the threat of new entry (Pathak, 2020, p.47). In fact, all these elements determine the impact of external forces on the company’s activities and its ability to resist them. While these aspects are more challenging to apply to the operation of a sports organization than to retailers of products or services, the NBA can still be analyzed using them.

Analysis of the NBA’s competitors in the market demonstrates the strong position of the organization. Firstly, in the basketball category, the NBA has almost no competitors, since the American Basketball Association has lost its status after merging with the NBA, and since 2000 it has been a league for student and semi-professional teams (Moore and Bontemps, 2017). However, one can consider professional leagues of other sports as competitors of the NBA, since they mostly share the same target audience. Consequently, the main competitors of the NBA are The National Football League (NFL), The National Hockey League (NHL), and Major League Baseball (MLB). Simultaneously, all organizations show a high level of rivalry, according to Porter, as they are balanced, show market maturity with high attendance, and have high exit barriers and high fixed costs due to contracts with teams and sponsors (Pathak, 2020, p.47). Consequently, the NBA operates in a highly competitive environment and takes an advantageous position.

Analysis of customer power shows that while the NBA is heavily dependent on customers, dividing them into three groups partially reduces the company’s vulnerability. The first group is the fans, who create the main customer power as ticket sales, merchandise, and advertising depends on them. The NBA’s teams pay 6 percent and 45 percent of ticket sales during the regular season and playoffs, respectively (Jin, 2021, p. 707). However, basketball fans are more socially diverse and committed to sports and teams than baseball or football fans (Wakefield, 2021). Thus, they have a limited impact on ticket prices and other organizations’ services because they are less likely to refuse to visit the NBA’s games.

The second group of customers is media companies that pay the NBA for the right to show games. This category gained more influence during the pandemic as the only way to stream games was on TV and the Internet. However, since the broadcasts were for fans, this category has a significant impact on NBA profits but is limited by fan’s demand. Another important group of buyers is corporations, which are the main sponsors of the NBA, generating a significant portion of the profits. Their activities are also related to fans as they invest to receive advertising or dividends from the sales. Nevertheless, as the experience of the pandemic shows, even with low income from fans, sponsors can boost the NBA’s revenue by investing in future development (Young, 2021, para. 1). Consequently, NBA profits depend on three groups of buyers that are relatively counterbalancing to each other in short-term projects; however, the most power belongs to the fans, which are the target audience of the NBA.

The power of suppliers in the NBA is quite limited as the league is the most prestigious in the country, and all professional basketball players dream of playing on its teams. Consequently, the NBA has power over the suppliers, that is, the players, since they have little choice if they want to be famous and successful. The exception is the top-performing legendary players, such as Michael Jordan or LeBron, who can insist on their terms and receive more salaries than all the players on the team. However, in general, the NBA determines the teams and players that play in the league and can exclude them. At the same time, the NBA’s fame and brand, as well as its resources, make it nearly impossible for new basketball organizations to enter the market. Other sports organizations also basically have no chance due to competition from the NFL, NHL, and MLB as this requires tremendous costs for promotion, recruiting, and organization.

The NBA’s only weak point is other competitive switching options. First, sports enthusiasts can choose baseball, football, hockey, or soccer to get the same competition, excitement, and team spirit that basketball offers. Simultaneously, football in the United States is even more important as one of the unofficial national holidays is the Super Bowl, which receives billions of investments. The only advantage of basketball is that basketball players like Jordan or LeBron are more famous globally than baseball or football players. At the same time, since the prices for NBA sports games are pretty high, buyers may prefer other entertainment such as movies, concerts, or TV shows. Hence, the NBA needs to offer incentives to buyers to attract and retain them.

Analysis of Social Corporate Responsibility

A company’s corporate social responsibility is one of the most important aspects of any organization as it shapes its reputation and influences the perception of customers. Customers who perceive the company as socially responsible are more likely to purchase its goods and services (Friedman, 2017). Consequently, the company will be able to attract partners, sponsors, and investors because of their confidence in the reputation and profit of the organization. At the same time, the options for manifesting social responsibility are diverse, from providing suitable working conditions for all employees in the supply chain to dealing with global problems (De Agüera, 2021). Analysis of the NBA demonstrates that the organization participates in various social initiatives, which strengthens its brand and defines it as a socially responsible company.

The main factor that shows the NBA as a socially responsible company is its project NBA Cares. NBA Cares is a program aimed at implementing various initiatives that contribute to solving social problems in the United States and the world. During its existence, NBA Cares has provided more than 5.8 million hours of hands-on service, has built 1,650 places to live for families in the US, and has attracted 60 million young people to educational and entertainment programs around the world (“Mission,” n.d, para. 2). In addition, these initiatives were implemented not only in the United States but also in 40 countries around the world (“Mission,” n.d., para.2). These data demonstrate that the organization cares about the sustainable development of society.

Moreover, the NBA participates in environmental initiatives and promotes sustainable resource use and waste management practices. For example, the NBA signed the Climate Action Framework, opened an eco-friendly academy in Senegal, and a basketball court made from recyclable glass (“NBA Green,” n.d.). In addition, the NBA has teamed up with the NFL and MLB in Cleveland to develop a sustainable and direct strategy to address social injustice (Cleveland Cavaliers, 2020). These initiatives demonstrate that the NBA cares about the improvement of local communities and global society and is ready to invest money and efforts in their development.

The social responsibility and reputation of the NBA are also influenced by the actions of its teams and players. For example, in 2004, there were scandals due to NBA players fighting with fans during games, and some of them were arrested and charged with misdemeanors that included assault and battery (Gleeson, 2020). The NBA has banned players from league teams to protect their reputation. At the same time, the organization also demonstrates its concern for the employees. For example, when Russell Westbrook got into a verbal fight with a fan using racially tinged language in 2019, the NBA banned the fan from attending games for his life (Yip, 2019, para. 1). Thus, all these manifestations of the NBA’s care for employees, society, and environment show the organization as socially responsible, strengthen its brand and reputation, and attract customers that affect its profit.

VRIO Analysis

The VRIO analysis of the NBA is an essential tool for understanding the success of an organization as it indicates how unique it is and how difficult it is to replace it in the marketplace. VRIO stands for value, rarity, imitability, and organization (Pathak, 2020, p. 56). Determining the core value of the company and its uniqueness helps to understand the main advantage of the organization that makes it competitive in the market. The NBA analysis shows that no other organization can achieve the same success in the market currently.

The core value of the NBA is the teams and players that play in the league. The teams are balanced, making each season exciting for viewers and building a strong fan base that stays on for years. For example, a third of NBA visitors have been fans of the same team for over ten years, and 20 percent say it is a family tradition to be a fan of the particular team (Wakefield, 2021). At the same time, the preferences of visitors are divided into the love for one team or player. For example, such teams as the Los Angeles Lakers, Golden State Warriors, Chicago Bulls, Boston Celtics, and Cleveland Cavaliers have been at the top of the 2019-2020 season and over the past years (Lewis, 2019, para. 13). In addition, 59% and 73% of fans will never change their affiliation and will be fans of their team despite their success, respectively (Wakefield, 2021). These figures indicated that teams are the most important for fans as tradition and uniting power.

However, some fans can change their preferences for teams depending on the players. For example, over the years of Stephen Curry and Kevin Durant playing for the Warriors, the team has attracted the most fans, and LeBron’s transfer to the Lakers has drawn significant attention to it (Lewis, 2019, para. 14). Nevertheless, in any case, this loyalty and interest from the fans demonstrate that the core value of the NBA is skilled teams and famous players.

In terms of rarity, this value is high-priced as all the strongest players and teams are usually recruited by the NBA. The NBA is the only basketball league in the United States with sufficient resources and a brand to attract the strongest and most successful players on whom the teams’ success most often depends. The strongest players are also a rare resource, which makes them unique and ensures success. Even in relation to other leagues, basketball players are more famous among sports fans, and they are more loyal to these players (Wakefield, 2021). Moreover, this resource is inimitable because even if other leagues have equally strong teams in terms of brand and success, they belong to other sports, skills, and personalities that may not suit basketball fans.

Moreover, the NBA has a mature organization that enables the company to manage resources, retain value, and generate profits efficiently. The NBA has mechanisms for selecting the best players to join the NBA’s teams, processes for attracting sponsors, and rules for all participants. For example, teams have autonomy as they determine the composition, training, interaction with fans and media. In addition, each team has home bases for games, and during the pandemic, each of them determines the number of visitors to the stadiums (NBA.com Staff, 2021). However, the NBA can ban a team, individual players, and fans from games for a short period or a lifetime for breaking the rules. Thus, the NBA has a strong position because of the brand, the resources, and the organization of work that provides them with value in the form of the most successful players and teams, which competitors cannot replicate. This value, in turn, attracts loyal fans who generate profits and draw on NBA resources.

Strategic Alliances of the NBA

Strategic alliances are one of the most common tools in business as the collaboration of several companies with different and similar target audiences, specializations, and resources help to achieve goals that are not available for one company. As Elmuti and Kathawala (2001) point out, strategic alliances allow companies to gain benefits in markets that would otherwise be uneconomical. The combination of financial, time, and human resources in this type of collaboration is a critical aspect. Organizations use strategic alliances to expand into new markets, master new technologies, overcome government constraints, or share experiences (Elmuti and Kathawala, 2001). The NBA is no exception as the organization’s brand and popularity allow it to forge alliances with the most successful companies.

An overview of the NBA’s activities demonstrates that the organization uses collaboration and strategic alliances in a wide range of activities. First, the NBA works closely with various television companies in 195 countries worldwide, which brings the organization millions of dollars as companies pay to broadcast games (Jin, 2021, p. 707). In turn, TV companies profit from attracting viewers to the channel and broadcasting advertisements. Second, the NBA has alliances with global apparel brands such as Nike, Reebook, and Adidas, as well as product companies such as Coca-Cola and McDonald’s (Sun, 2015, p. 184). Such alliances help draw attention to the NBA and its players while simultaneously increasing consumer interest in products; for example, Nike’s Jordan line of sneakers is one of the most popular. Other alliances are also effective; for example, McDonald’s created NBA-themed figurines and cups that had significant fan success. Thus, such strategic partnerships help the NBA not only generate revenue from sales but also attract public attention to basketball and key players.

Moreover, in the digital era, the NBA strives to forge alliances with tech companies that drive a wider audience reach. For example, in 2020, the NBA signed a deal with Microsoft that allowed fans to attend teams’ matches virtually (Young, 2021). The NBA also intends to expand its presence in the world of audio streaming. This year, the NBA partnered with the Chinese streaming platform Tencent Music Entertainment (TME) to stream podcasts and attract fans in the US and China (Prakash, 2021, para. 1). Since the NBA is still underrepresented in China, this approach will allow the organization to expand its market presence.

As a result, these alliances have brought worldwide fame to the NBA and its players. Unlike most teams and players in the football and baseball league, the Lakers and Chicago Bulls are famous all over the world, and the NBA games are broadcast in 195 countries (Jin, 2021, p. 707). Nike sneakers named after legendary basketball players are sold for hundreds and even thousands of dollars, and the basketball players themselves become heroes of popular films. In 2021, a new movie of Space Jam was released with LeBron in the title role. Thus, the NBA uses strategic alliances with the most successful global and local companies, which provide it with promotion and income.

Conclusion

Therefore, an analysis of the NBA from four different perspectives demonstrates the reasons for the organization’s success. First, the NBA has no rivals in the basketball arena, and the competitors in the sports field are strong but equal. In addition, the lack of competition in basketball allows an organization to have power over suppliers, attract significant resources, and make it impossible for new competitors to enter. Secondly, the NBA participates in various social initiatives to develop local and international communities, preserve the environment, promote socially responsible behavior of its employees, and protect their interests. These steps help improve the organization’s reputation among customers, sponsors, and partners and, therefore, make a profit.

Third, the NBA’s market position allows it to create and maintain the value that is inaccessible to competitors and inimitable, namely strong and famous players and teams that attract loyal fans. At the same time, the organization of the NBA allows it to effectively use this value and strengthen its position in the market. Finally, the NBA uses strategic alliances with global brands that bring it worldwide promotion and value. This popularity, combined with the financial benefits of partnerships, has generated significant profits for the company. Thus, the NBA occupies a leading position in the US sports market and successfully competes with organizations representing national sports.

Reference List

Cleveland Cavaliers (2020) ‘Cleveland’s NBA, NFL & MLB teams align to spread awareness and solicit a call to action on community movements and initiatives’, Web.

De Agüera, M. (2021) ‘Corporate social responsibility in organizations’ in Martín-de Castro, G. and González-Masip, J. (eds.) Knowledge management for corporate social responsibility. Hershey: IGI Global, pp.18–44.

Elmuti, D. and Kathawala, Y. (2001) ‘An overview of strategic alliances’, Management Decision, 39(3), pp. 205-218. Web.

Friedman, M (2017) ‘The social responsibility of business is to increase its profit’, in Schwartz, M.S. (ed.) Social corporate responsibility. Oxfordshire: Routledge, pp. 122-126.

Gleeson, S. (2020) ‘‘Metta Sandiford-Artest and Stephen Jackson reflect on ‘Malice at the Palace’: fans ‘started it’’, USA Today, Web.

Jin, Y. (2021) ‘Analysis of NBA business strategy’, Advances in Social Science, Education and Humanities Research, 543, pp.706-709.

Lewis, M.  ‘NBA brand report 2019’, Sports Analytics Research from Mike Lewis, Web.

Moore, J. and Bontemps, T. (2017) ‘The ABA is long gone, but it remains the soul of the NBA’, Washington Post, Web.  .

NBA.com Staff (2021) ‘Where NBA teams stand on in-arena attendance’, NBA, Web.

Pathak, R.K. (2020) Strategic management (for MBA). Agra: Shanti Publication.

Prakash, S. (2021) ‘NBA alliance with Tencent Music Entertainment’, Sports Mint, Web.

Sun, Z. (2015) ‘Brief probe into the brand and marketing strategy of NBA’, Asian Social Science, 11(16), pp.183-186. Web.

Wakefield, K. (2021) ‘Are all fans equal? A league guide to who thrives in 2021’, Forbes, Web.

Wojnarowski, A. and Lowe, Z. (2020) ‘NBA revenue for 2019-20 season dropped 10% to $8.3 billion, sources say’, ESPN, Web.

Yip, S. (2019) ‘’They’re amazingly isolated’: is social media making NBA players miserable?’ The Guardian, Web.

Young, J. (2021) ‘Microsoft among deals that helped NBA set record $1.46 billion in sponsorship revenue’, CNBC, Web.

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BusinessEssay. 2022. "Analysis of the National Basketball Association." December 17, 2022. https://business-essay.com/analysis-of-the-national-basketball-association/.

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BusinessEssay. "Analysis of the National Basketball Association." December 17, 2022. https://business-essay.com/analysis-of-the-national-basketball-association/.