Short N.B.A. Playoff Series Affecting the Salary Cap

N.B.A. commissioner David Stern projected last month that the league’s 2010-11 salary cap would be about $56.1 million when figures are released in early July, but he admitted they “might have to hustle to get it.”

His projection came just before the start of the playoffs. Since that time, things might not have gone quite the way he expected.

Six of the 12 playoff series in the first two rounds ended in four or five games. Those first two rounds had the fewest number of total games played, 63, since the NBA expanded to a best-of-seven first round format in 2003. That’s down from the seven-season average of 67.7. The previous low was 64 during the 2007 playoffs.

The Conference Finals aren’t doing us any favors either. As of right now, the Boston Celtics have taken the first three games of the series with the Orlando Magic in the east, and look to sweep at home on Monday. In the west, the Los Angeles Lakers have taken the first two games at home against the Phoenix Suns.

Since the expansion in 2003, the playoffs as a whole have lasted as few as 79 games and as many as 89, with an average of about 84.7. This year’s edition can finish in as few as 75 games or as many as 84 – although 84 would be a stretch. A more likely total is 80 – which would rank this year’s playoffs among the shortest since the first round expanded.

But how do so many short playoff series affect the league’s salary cap outlook?

Fewer games means less revenues. That, in turn, means a lower cap.

The salary cap is set by calculations based on projected amounts for revenue and benefits for the upcoming season. Barring any adjustments that are necessitated, they typically use the set amount for national broadcast rights (which is determined in advance), plus the revenues for the previous season (other than national broadcast rights), increased by 4.5%.

The salary cap calculation takes 51% of the league’s projected revenue, subtracts projected benefits, and divides by the difference by the number of teams in the league. Adjustments are then made if the previous season’s revenues were below initial projections – the difference, multiplied by 51% and then divided by the number of teams in the league, is subtracted from the cap.

Thus, the lower the revenue this year, the lower the salary cap in 2010-11. 

The revenue generated by a single playoff game varies widely, depending on the playoff round and the city in which the game is played. One playoff game can take in as little as $500,000 or as much as $2.5 million, according to a league executive.

If we assume this year’s playoffs will finish in 80 games, then we will have about five fewer games than average. Taking the worst-case loss of $2.5 million per game, it means the league will have taken in $12.5 million less in revenues than Stern might originally have expected.

How will this affect next year’s salary cap?

First, since the majority of the projected revenues for this season (off of which the current $57.7 million salary cap was based) were, by rule, based on a 4.5% increase to the actual revenues from last season and, due to global economic factors, league-wide revenues will certainly not reach those levels, a downward adjustment to the 2010-11 cap is necessitated. Therefore, a further $12.5 million drop in revenues for this season will increase that downward adjustment – $12.5 million, multiplied by 51% and then divided by 30 equals an additional $212,500 downward adjustment.

Second, if revenues for this season decrease, projected revenues for next season (which, again, are based on a 4.5% increase from this season’s actual total) will drop accordingly. So a $12.5 million drop in revenues for this season equates to a $13.1 million drop in projected revenues for next season. Taking 51% of this revenue reduction, multiplying it by 51%, and then dividing the result by 30 equates to a further $222,063 drop.

Therefore, $12.5 million less revenue for this season means the 2010-11 cap will be about $435,000 lower (i.e., $212,500 + $222,063, then rounded). In other words, instead of a $56.1 million cap, we might have one that is about $55.67 million.

For the Miami Heat, who are trying to squeeze three maximum contracts within the confines of the cap, every dollar counts.

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