N.B.A. Raises 2010-11 Salary Cap Projection to $56.1 Million

David Stern dramatically altered the landscape of the summer’s free-agent market on Friday. At the league’s board of governors meeting in New York, he revealed that his latest projection for the 2010-11 salary cap is now $56.1 million – a robust increase from its already-increased earlier projections.

The salary-cap amount is determined in large part by the league’s revenues from the previous season. If the league had a good year, the cap goes up a lot the next season. But the league didn’t expect this to be a good year. Due to the worldwide economic downturn, Stern notified teams in a memo last July that the 2009-10 cap was to be set at $57.7 million, a 2% drop from $58.67 million the year before, because revenues weren’t meeting expectations. He then lowered an even bigger boom, warning teams to expect the salary cap for the 2010-11 season to fall even further, all the way down to between $50.4 and $53.6 million, which was based on an expected 2.5% to 5% decline in revenues.

It was forecasted to be the biggest drop year-over-year drop in the cap in N.B.A. history, and by a long-shot. Prior to that day, since the N.B.A. instituted a salary cap starting with the 1984-85 season, the cap had only ever declined one time from the previous season, in 2002-03, and that was only due to the allocation of a massive new ABC/ESPN television contract which was to pay out $4.6 billion over six years, far more than the previous NBC contract, but allocated less to 2002-03 than NBC paid in 2001-02. Now the league was looking at two consecutive drops, totaling as much as 14%.

The N.B.A.’s advice to teams at the time was both simple and ominous: Be aware of this projected decrease and plan accordingly.

Many teams headed that warning. The gloom-and-doom projections led to teams being more conservative, selling off assets at bargain prices in order to create additional cap space. In that regard, the players’ union might have a bone to pick now. They can’t be too happy that teams were forced to take such action based on preliminary projections that are turning out to be nowhere near true. They’ve even threatened to file a collusion lawsuit if the league did not have a good-faith basis to predict such a precipitous drop.

The league periodically revises its projections as the season progresses based on economic conditions and revenues. At around the All-Star break, it revealed that the cap likely would fall on the high side of the earlier projections – somewhere in the $53-54 million range.

A cap as high as $56.1 million comes as a complete surprise. It still represents a drop of about $1.6 million from the current cap, which translates to an approximate 0.5% drop in revenues from last season. But it makes a huge difference for teams that were hoping to use the huge 2010 free-agent market to build a perennial powerhouse.

Teams that were a little short of being able to offer the full maximum salary to premier free agents will now find themselves with sufficient cap room to do so. Teams that were resigned to letting go of their own free agents to create cap room now have the ability to hang on to a player or two – signing a free agent and preserving some of their depth at the same time.

The revelation mattered most to the teams that dreamed the biggest. Teams with significant cap space that will be positively affected by Friday’s news include the New Jersey Nets, New York Knicks, Chicago Bulls and Los Angeles Clippers.

Teams that are hurt the most by the revelation are the teams that had the most to lose, namely the Cleveland Cavaliers, who now have to compete with a host of other teams that can offer some fairly compelling packages for the ongoing services of LeBron James.

Nowhere is that more true than with the Miami Heat. The latest cap projection puts the Heat within a mere $1 million of being able to offer three full maximum contracts. It makes the once-thought-to-be-ludicrous dream of pairing James, Dwayne Wade and Chris Bosh in South Florida, for the first time, an imminently real possibility. It was a quietly huge revelation for Heat fans everywhere!

The finalized salary cap numbers will be determined in the first week of July.

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