• The NBA is approaching a critical stretch of its season with annual Christmas Day games on Saturday.
• Those games are in jeopardy due to Covid outbreaks that have forced postponements and hard decisions for professional sports leagues.
• The NBA told CNBC attendance is down 5% on a two-year basis, its last normal season.

A bizarre melodrama.

That's how sports business professor Patrick Rishe summed up how best to describe the National Basketball Association's 75th anniversary season.

During the NBA's 2021-22 campaign, Covid outbreaks have postponed games and sidelined star players. The Golden State Warriors are back, the talk of the league, and millions watched Stephen Curry break the three-point record in New York. And now the Warriors are anticipating the return of star Klay Thompson.

Also returning is Kyrie Irving. The Brooklyn Nets did a reversal and welcomed back their unvaccinated star. Elsewhere, Russell Westbrook's return home to Los Angeles hasn't lived up to expectations, and the Philadelphia 76ers still haven't traded Ben Simmons. The Minnesota Timberwolves were fined $250,000 for holding workouts at Alex Rodriguez's home. And the Phoenix Suns have a winning record, despite the unclear status of its owner Robert Sarver who is accused of racism.

"A bizarre melodrama" said Rishe, the director of the sports business program at Washington University in St. Louis. "And I fear that if they don't have a smoking gun via video or audiotape, that Sarver may not see a severe punishment."

Next up are the Christmas Day games on Saturday, which mark a critical phase in this bizarre melodrama of a season. Those games are in jeopardy due to Covid outbreaks that have forced postponements and hard decisions for professional sports leagues.

With the NBA season at this critical juncture, here's a year-end glimpse of business not so usual.

NBA wants to move forward

On Tuesday, NBA Commissioner Adam Silver used his time on ESPN to tell fans the league wouldn't be pausing its season like it did in March 2020.

With vaccines and booster shots available, and public health experts calling for shorter isolations for those who test positive for Covid-19 after vaccination, the NBA doesn't see the "logic" in halting its business again.

Silver noted omicron took over as the dominant strain among 90% of the NBA's recent positive tests, which includes a large group who received the Johnson and Johnson vaccine. He stressed that 97% of players are vaccinated and 65% have received booster shots. Silver then called for the third shot to hit more than 90%.

"Maybe we can demonstrate that there's a way that people can move forward, again recognizing that this virus unfortunately isn't going anywhere," he said. "It's just going to become part of our lives for the foreseeable future."

One day after Silver spoke, the NBA announced two postponements: the Toronto Raptors against the Chicago Bulls on Wednesday and the Nets contest against the Portland Trail Blazers on Thursday.

"They're definitely taking their lumps right now, there's no question about it," said Scott Rosner, sports business management director at Columbia University.

NBA attendance is down

Silver projected $10 billion in revenue this season, a notable bump-up from the last two seasons when fan attendance was limited or nonexistent.

Revenue slipped from $8.8 billion for the 2018-19 season to $8.3 billion for the 2019-20 season. And revenue for that shortened 72-game season was down about 35%.

During the pandemic, NBA said attendance money makes up 40% of its revenue. So if $10 billion is the overall goal, $4 billion in attendance-related money is one of the targets.

But pandemic attendance is down in all four pro sports, and in the case of the NBA, arena signage revenue is affected if clubs don't meet in-person attendance targets. 

"It's something everybody is keeping their eyes on," said Rosner. "But Covid has made an analysis on it a little bit tricky because different districts have different regulations in place."

The NBA told CNBC attendance is down 5% on a two-year basis, its last normal season. That figure is in the range of the 4.9% decline research company Morning Consult reported in its sports attendance report on Tuesday.

"Given the environment, we think that's a good place to be," said NBA executive Amy Brooks.

The NBA is averaging 16,741 people per game this season with 189 sellouts, and roughly 7.6 million people attended games, according to the league. This season, the NBA is projecting 21 million fans, though one sports executive projected that number could be more in the 19 million-to-20 million range as Covid cases continue to surge.

The projections are a decline from the record 22.1 million attendance of 2017-18. That season the NBA averaged 17,987 fans per game and had 741 sellouts. For the 2018-19 season, the NBA attendance total was 22 million, including a record 760 sellouts.

The NBA provides tickets sold for attendance stats to media outlets. But team executives use scanned tickets in their accounting, which is seen to be more accurate. The NBA said it doesn't publicly release those metrics.

Warriors Chief Operating Officer Brandon Schneider pointed to Covid as the attendance-draining culprit. He said 7% of surveyed fans are unvaccinated, making them unable to attend games, with 12% of fans unwilling to attend a sold-out game.

"If you tell any company you've lost 19% of your customers, that's not good," Schneider told CNBC. "Once we get through Covid, I think you'll see – certainly in the NBA – attendance get to be at or above where it was."

But with the new omicron variant circulating, the NBA faces a new attendance-metrics test.

Canada cut the Toronto Raptors' attendance capacity due to Covid concerns, and more cities including Chicago, Boston and Philadelphia will require vaccination cards to enter public places, which is likely to put a crimp in ticket sales.

The Morning Consult noted the secondary ticket market for NBA games is down 6.2% for teams who require a vaccination card or a negative test to enter games.

"If the virus continues to wreak havoc and people begin to think twice about attending, you've got to figure out other ways to balance these losses," said Charles Grantham, a sports business professor at Seton Hall and one of the architects of the NBA salary-cap system.

The league could still reach its $4 billion goal, though, as ticket prices are up due to inflation.

Brad Griffith, CEO of secondary ticketing agency Gametime, told CNBC its metrics show average order value of NBA tickets on its platform increased to $240 this season. That's up from $203 during the uninterrupted portion of the 2019-20 NBA season.

New partnerships help balance losses

Also, Rosner noted bigger NBA sponsorship deals would balance attendance revenue losses.

Newer categories like cryptocurrency flooded the NBA in 2021 and are on pace to help it surpass $1.46 billion in partnership money.

Companies like Coinbase landed an NBA deal. The terms of the pact weren't publicly disclosed, but people familiar with the deal told CNBC it's valued at roughly $192 million over four years.

If their game isn't postponed, the Los Angeles Lakers officially debut Crypto.com arena on Christmas Day after its $700 million deal. And FTX landed the Warriors' international rights with a $10 million agreement.

The Warriors deal also includes digital floor ads – another asset the NBA introduced to add local revenue streams for clubs.

"As the NBA's national revenues grow through sponsorships and the next media contract, the less important ticket sales are," said Rosner.

That shift in revenue importance is already showing up in the league.

Even with restricted attendance, the Warriors still made a record $474 million for 2021, according to Forbes. The franchise also increased its value to $5.6 billion during the pandemic. That's more than any other National Football League team except the Dallas Cowboys.

Warriors help drive other NBA business

Attendance aside, Curry and the Warriors are one of the main drivers of other NBA business.

The Warriors are second to the Lakers in NBA merchandise sold across the Fanatics network, including the NBA Store, which it operates.

And Curry is keeping viewers engaged with his Michael Jordan-like popularity and performance.

For example, the NBA averaged 1.5 million viewers for national games this season. And the decision to move TNT games to Tuesday from Thursday to avoid head-to-head competition with NFL TV broadcasts certainly helped.

But when Curry and the Warriors play, NBA viewership spikes.

Curry broke Ray Allen's record for most 3-pointers made (2,973) when the Warriors played the Knicks on Dec. 14. The game attracted an average of 2.3 million viewers on TNT. And last month, the Warriors defeated Kevin Durant's Nets in what could be an NBA Finals preview. That contest averaged 2.2 million viewers on TNT.

In a potential Western Conference finals preview – the Warriors' loss to the Phoenix Suns on Nov. 30 attracted an average of 2.4 million viewers. And the rematch on Dec. 3 averaged roughly 2 million viewers on ESPN.

And the season-opening win against the Lakers remains the NBA's most-watched game with an average of 3.3 million viewers.

"It's promising," said sports media rights expert Lee Berke of the NBA's viewership so far. "There are great storylines. The Warriors look terrific. The Suns look terrific."

With the Warriors down in 2020, the NBA's top Christmas game was the Lakers playing the Dallas Mavericks. The contest averaged 7 million viewers, lower than the 2019 Lakers-Clippers Christmas game, which attracted an average 8.8 million viewers.

The top Christmas game in 2018 featured the Lakers and Warriors, which averaged 10.2 million viewers.

This year's Christmas games include the Warriors playing the Suns, while the Lakers are scheduled to host the Nets. But Covid is putting things in jeopardy.

Top stars including Durant, James Harden, and Giannis Antetokounmpo could miss Christmas games as they've entered the NBA's health and safety Covid protocols. The rules call for players to sit out at least 10 days if they test positive.

If Saturday games are affected, TV impressions may suffer and ESPN could owe make-goods.

To get a sense of the value of Christmas Day games, TV ad measurement company iSpot and search analytics firm EDO data estimate ad spending for 2020 games reached the $42 million-to-$51 million range. That's up from 2019 games when companies spent between $23 million and $28 million.

The NBA is also competing against the NFL's lineup again this year, when the Cleveland Browns play the Green Bay Packers.

The NFL invaded the NBA's Christmas last year, and attracted 20.1 million viewers for the New Orleans Saints vs. Minnesota Vikings game. EDO said that contest attracted $65 million in ad spending. And this year, Fox Sports will lure sports viewers away from the NBA with its John Madden documentary before that game.

On Tuesday, ESPN reported its NBA Christmas lineup could be changed. But with NBA stars out, its 2021 Christmas games are looking a bit dull.

As to the post-holiday outlook, Brooks, the NBA executive, said the prospects were "exciting. "We think business is very bright."

Right now, though, the melodrama is on, with league officials "trying to get through to the next phase, which is the playoffs," said Grantham, .