NBA Reaches 9-Year, $24 Billion Media Rights Deal with ESPN/ABC, TNT

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I have a request. I write posts which I believe are unique, more in depth and more insightful than I can otherwise find elsewhere. I hope you agree. I therefore ask that you please not simply copy my ideas without proper sourcing. It feels rather awful to see my work being exploited. If just you ask, I am more than willing to help out anyone and everyone. 

The central question of the 2011 lockout, endlessly paltered, parsed and probed was whether the league was actually losing money. While it was a key point of negotiation, its importance was somewhat overstated. A new CBA shapes the future of the league; it doesn’t necessarily need to address the past. It must be asked: How much of the lockout, then, was about owners feeling poor in 2011, and how much of it was about owners trying to get rich in 2016?

2016 is when the NBA’s current national TV deals expire – eight-year agreements that promise pro basketball a total of $7.44 billion from Disney (ESPN/ABC) and Turner (TNT) starting with the 2008-09 season and running through 2015-16, an average of $930 million per year. The deals were originally signed in June 2007.

The NBA was cratering back then. New stars had struggled to grow in the darkness of Michael Jordan’s ever-enveloping shadow. The Shaq-Kobe drama had breathed temporary life into the league, but their eventual break up left the NBA to slowly wither in its wake. Big market teams like the Lakers, Knicks, Celtics and Bulls were brands lacking a product, with no signs of future improvement. The Spurs had just pummeled LeBron’s Cavaliers in the finals, a dismal four-game extermination that limped its way into the record books as the lowest-rated series in NBA Finals history. Things were getting ugly.

An eight-year, $930-million-per-year combined deal? Sold!

Then-commissioner David Stern had negotiated for an increase of more than 20% from the previous average of $767 million despite declining viewership (which itself represented a nearly 25% increase over the $614 million per-year deal signed in 2002, then, also, despite declining viewership). The networks were more than willing to comply with what amounted to a modest 2.5% compounded annual growth rate in rights fees in exchange for an atypically long eight-year deal. The preceding six-year 2002 deal had been the longest one Stern had ever signed.

The agreement looked even better for Stern and the league as the economy got even worse. In 2008, credit froze because mortgage insanity stirred by (us) Wall Street evil-doers planted massive hidden debts packaged in complex synthetic financial products throughout the business world. The ensuing global economic meltdown blazed its way into the NBA, spurring widespread layoffs and igniting fears that league revenues could collapse by, as Stern described it, “maybe as much as 10%.” The league seemed fortunate to be able to cling to a $930 million lifeline every year.

Times have certainly changed. 

The NBA is currently at a post-Jordan popularity high, blessed with record ESPN and TNT television ratings.

Basketball certainly isn’t alone in riding a viewership wave. Just about every sport is thriving in the television landscape that social and streaming media sculpts, resulting in record rights fees over the past four years. Each new TV rights deal makes all previous ones seem outdated: In 2011, the NFL increased its previous take from ESPN, Fox, NBC and CBS by two-thirds! In 2012, MLB doubled its previous take from ESPN, Fox and TBS! In 2013, the NHL more than doubled its previous take from Rogers Communications in its core Canadian market after multiplying its old deal from NBC in the U.S. by 2.5x!

With all other major professional sports locked in beyond the turn of the decade, the NBA was to be the only big-time brand coming up for bid for a long while. And with new national sports cable networks such as Fox Sports 1 and NBC Sports Network thirsting for live game programming to solidify their identities in an ESPN-dominated world, networks were well aware that they needed to back up the brinks truck to secure rights to one of the few remaining DVR-proof properties on TV. The NBA was about to enjoy the fruits of a massive bidding war.

It never got that far.

Leveraging an exclusive negotiating window until the middle of next year, Disney and Turner once again shattered our perception of reality by coming to an agreement with the NBA on mind-boggling new deals that will extend their partnerships for an additional nine future seasons, starting with 2016-17 and running through 2024-25. The league’s new media rights deals will provide a whopping $23.4 billion to the NBA over those nine seasons, an average of $2.6 billion per year! That’s a near triple!

ESPN/ABC will reportedly account for about $12.6 billion of that total — which equates to an average of $1.4 billion per year, up from a $485 million average in its previous deal. Turner will account for the remaining $10.8 billion — which equates to an average of $1.2 billion per year, up from a $445 million average in its previous deal.

In exchange, ABC will will televise up to 15 regular season games on an exclusive basis, while ESPN and ESPN 2 will televise up to 85 regular season games. ABC, ESPN and ESPN2 will also televise up to 30 playoff games in the first two rounds, while ESPN will feature exclusive coverage of the conference semifinals games it televises and up to seven games for one of the conference finals each year. ABC will broadcast the entire best-of-seven NBA Finals in primetime. That’s a total of up to 100 regular season games and up to 37 playoff games per season across the ABC family of networks. ESPN will also have exclusive coverage of the NBA Draft and NBA Draft Lottery each season.

TNT will televise 64 regular-season games in primetime on an exclusive basis, up to 45 playoff games during the first two rounds, including exclusive coverage of the conference semifinals games it telecasts, and up to seven games for one of the conference finals each year. TNT will also offer exclusive presentation of Opening Night, the All-Star Game and All-Star Saturday Night.

Therefore, in addition to coverage provided by regional sports networks, NBA fans will now be able to watch up to 164 regular season games and up to 96 playoff games, up to 260 games total, per season on ABC, ESPN, ESPN2 and TNT. NBA TV will cover an additional 100 games or more per season.

ESPN has also worked out new deals with the NBA that extend over to the WNBA and the NBA Developmental League, increasing exposure for both NBA offshoots. ESPN will allocate an additional $600 million to those efforts over the nine-year period. However, these monies will not be directed toward NBA teams, and are thus not subject to sharing with NBA players.

In total, the new deals just executed call for ESPN to pay $13.2 billion (a $1.47 billion per year average) and for TNT to pay $10.8 billion (a $1.2 billion per year average), bringing the total outlay to $24.0 billion (a $2.67 billion per year average).

The new deals will have huge implications for our future cable bills as well as for owner profitability, player salaries, future salary cap levels, and even on the possibility of a lockout in the years ahead.

Why Networks Are Paying So Much

NBA TV Rights Deals Over Time

NBA national TV rights deals over time.

When a network acquires rights to such programming, it makes money off selling advertising during those games. While ESPN/ABC and TNT may not generate enough ad revenues to cover their costs in these new deals, at least not in the near term, there are hidden benefits to overpaying for the privilege of attaching themselves to such a hot property.

Sports programming is the single most important form of content for networks. It allows them to pummel millions of viewers with in-game ads that flaunt their channels’ latest, and far less expensive, programming choices — whether they be pregame shows, news shows, shows where people are tempted to attack each other or cheat on each other or fall in love with each other or whatever else seems to be grabbing the pulse of the nation — and, in turn, dig a deeper moat around and solidify their brands.

For cable networks like ESPN and TNT, which reap revenues not only from advertisers but also from subscribers, it also serves as a way of delivering increased value to justify the ever increasing subscription fees charged to their cable distributors, who then pass it on to their customers in the form of larger monthly bills. ESPN’s average affiliate fee (what cable networks charge cable distributors per user per month) was $5.93 in 2014, over four times more expensive than the next highest cable channel (which, as you might’ve guessed, is TNT, at $1.40) and compared to an industry average of just $0.26. It can justify such high charges because the billions it spends on sports leagues and college conferences to get its hooks in the NFL, NBA, MLB, championship golf/tennis, college football/basketball and dozens of additional offerings create must-see programming that cable distributors can’t possibly live without. There’s such an enormous demand for ESPN programming, cable distributors are virtually powerless to stop it. It’s what makes ESPN a $50 billion company!

But don’t think for a second that cable providers won’t pass on the astronomical fees from ESPN and TNT to us in the form of a higher monthly cable bill. It seems all but inevitable.

Effects on the Owner Profitability, Player Salaries, and Future Salary Cap Levels

The new media rights payout to take effect during the 2016-17 season will increase the league’s average take by a whopping $1.7 billion – from the current $930 million to the elevated $2.6 billion. The effect of that increase, however, is probably less than you’d think. It is actually something of an illusion in that way. These contracts have escalator clauses built into them, to more directly align the payouts to the projected growth in the underlying advertising and subscriber revenues they produce. The current TV rights deal will pay out more than its $930 million average in its final season, just as the new deal will surely pay out less than the average payout in the first season.

The current agreement will pay out just over $1.0 billion in its final season in 2015-16. According to a memo distributed by the league to its teams earlier today, the new agreement starts at $2.1 billion in 2016-17 and climbs to $3.1 billion by 2024-25. In that way, the $1.7 billion average increase will produce just shy of a $1.1 billion initial jolt. Still, the effects of that jolt will be dramatic.

Effect on Owner Profitability

If you’re one of the league’s owners, you get 49% of that jolt. That’s $535 million of incremental revenues kicking in during the 2016-17 season. That’s an extra $18 million per team, increasing the league’s share of national TV money from around $17 million in the last year of the current deal to around $35 million in the first year of new deal. Increasing every year. Cost free. For just short of a decade.

Six years after they locked out the players and petitioned the world for sympathy over mounting theoretical losses in a supposed unsustainable business model, owners could see their collective profits soar $535 million on the strength of this new deal alone, and potentially past ten figures overall.

Is there any wonder why NBA team valuations are crossing into the billion-dollar range?

Owning an NBA franchise is no longer the hobby of billionaires. It has become a primary source of wealth!

Effect on Player Salaries and Future Salary Cap Levels

Owners won’t be the only ones to benefit. In fact, the players will benefit even more.

While owners are getting $535 million of the initial near $1.1 billion jolt, the players are getting the other $560 million.

That’s because under the terms of the current CBA, players are guaranteed to receive between 49% and 51% of the league’s gross revenues — the exact percentage is tied to the league’s financial performance relative to initial expectations – in the form of salaries and benefits. This new media rights deal will ensure the players receive the full 51% for the remainder of the agreement, which lasts through the 2020-21 season.

It all works itself out via the salary cap system. Since the salary cap is set based on a percentage of league revenue, a bigger media rights deal means a higher salary cap. A higher salary cap means all of the league’s teams are allowed (and required) to spend more money on their players. Through the increased spending (and backstopped by the guarantee of a check for the difference should salary spending not ramp up enough), the players acquire their agreed-to split of revenues.

A near $1.1 billion increase in national TV revenues would by itself vault the 2016-17 salary cap by a whopping $16 million, over and above the increase in the cap caused by growth in areas other than national TV revenues. Lest we forget, other growth sources should also be strong. By way of example, 2016-17 also happens to be the year during which a new local TV rights deal for the Los Angeles Clippers will take effect. If such other sources add, say, $250 million or so of incremental revenues, it could vault the cap by another $4 million.

In July, the NBA provided teams with early projections for a 2015-16 salary cap of $66.3 million, based on about $4.9 billion of revenue. Adding in another $1.1 billion plus another $250 million, taking total revenues to $6.3 billion, would cause the 2016-17 salary cap to reach $86 million. That’s a nearly $20 million year-over-year increase!

That, in turn, would vault maximum salaries for players with at least ten years of experience to more than $28 million!

This new TV rights deal has already had (and will continue to have) a dramatic impact on how upcoming free agents – LeBron James among them – will consider their futures.

James said earlier this year that he was amazed, and a little jealous, when he heard Detroit Tigers star Miguel Cabrera signed a (ludicrous and idiotic) contract that guarantees him $292 million over the next 10 years.

“I said wow. I wish we (the NBA) didn’t have a salary cap. It’d be nice to sign a 10-year deal worth $300 million.”

Baseball, of course, does not have a salary cap. The NBA does, and players are prohibited from signing contracts longer than five years in length. James, having signed with the Cavaliers this summer, can only sign for as many as four in the summer of 2016. But he could have the chance to sign a four-year contract that guarantees him a much higher average annual value than what Cabrera just locked in.

If James were to sign a long-term contract with the Cavs in the summer of 2016, he could be eligible for a four-year deal with a starting salary of more than $28 million. That equates to a roughly $125 million contract, with an average salary of $31 million!

Commission Adam Silver said it best in his press conference to announce the new TV rights deals: when massive new TV deal kicks in, “it will lead to a substantial increase that year in the salary cap.”

Silver went on to say that there is precedent for “smoothing that increase in.”

It was a perhaps overlooked but critical statement. Smoothing is vital, for reasons that can get rather confusing.

Salary Cap Smoothing Is Necessary

This abrupt influx of spending power would produce a windfall for the free-agent class of 2016. But it could cause some big-time trouble as well:

It could leave past free-agent classes in the lurch. When the salary cap increases, so too do minimum team spending requirements and maximum salaries. Players whose contracts are up in 2016 could see a substantial increase in salary based solely on timing, so much so that an average player could wind up making substantially more money than, say, a superstar player who locked in a full maximum salary contract in 2015.

It could leave future free-agent classes in the lurch. If so much cap space is being spent on long-term contracts for the 2016 free-agent class, there may not be much cap space left over for the summers that follow. This could have a particularly damaging effect for higher-priced free agents in 2017 and beyond.

It could cause players to continue to sign short-term contracts so that they can join the 2016 pool. This could pose significant risk for players trading off long-term security now for the prospect of additional compensation in 2016, as well as substantial instability for teams planning for their futures around such players.

It could magnify any perceived lack of competitive balance across the league. A huge influx of spending power allocated exclusively toward one summer could cause NBA teams to gut their rosters in preparation. There are only so many quality free agents whom will come available that summer, and only so many teams that can grab them. Many will be shut out, and left to pick up the pieces.

These risks, however, are both uncertain to occur and manageable if they do.

More importantly, it could cause wild and unexpected swings in future salary cap levels. Teams will certainly not be able to ramp up their spending on player salaries quickly enough to accommodate the elevated salary cap levels produced by the new TV deal (even if every team in the NBA were to spend $10 million more on player salaries than wherever the salary cap will be set in 2016-17, the players still wouldn’t get their guaranteed share of revenues). That, in turn, will leave the players with less than the share of league-wide revenues to which they are entitled. The players would still get the money to which they are entitled on the back end, but it would still pose massive problems. That’s because the salary cap calculation contains an adjustment mechanism whereby if the league doesn’t pay the players their guaranteed share of revenues in any one season, then the shortfall, divided by the number of teams in the league, is added to the salary cap in the following season. Alternatively, if the players were paid more than their guaranteed share of revenues (pre-escrow) and the system is getting close to exceeding what the league can get back through the escrow system, then the salary cap in the following season may be reduced in order to put on the brakes. Ultimately, since it will be virtually impossible for teams to ramp up their spending quickly enough to accommodate the elevated 2016-17 salary cap, the current salary cap calculation methodology will cause a huge one-time upward spike in the cap in 2017-18 as well, which will then cause a huge drop in the 2018-19 salary cap as the one-time spike is burned off.

If we racked our brains together, we could probably come up with a list of additional issues longer than anyone cares to assess.

The league wants to avoid such instability. It is pushing to “smooth out” the effects of the TV deal.

The possibilities for doing so are limited only by the mind’s imagination. But such scenarios are fraught with complications.

Players are entitled to a guaranteed 51% share of league-wide revenues. The split of league revenues is the single most critical collectively-bargained element of the CBA. Neither the players nor the owners will allow any salary cap “smoothing” mechanism to alter the integrity of the split. Therefore, smoothing inherently creates a diversion between what players are being paid and the salary cap levels which largely determine their salaries.

But smoothing is necessary.

Three of the more prevalent alternatives for salary cap smoothing (each of which containing countless permutations) include:

  • The league could take some of the $23.4 billion in TV money that kicks in for the 2016-17 season and push it back into 2015-16, thus raising next year’s cap from the its current $66.5 million projection. For example, the league could reallocate $550 million toward 2015-16, causing the 2015-16 cap to increase to a projected $74 million. If the remaining $22.8 billion were then to be allocated normally, the 2016-17 cap could increase to $85 million (vs. the $86 million projection from above). The league would achieve its desire for smoothing in the form of cap increases from $63 million (this year) to $74 million (2015-16) to $85 million (2016-17), with steady growth thereafter.

This approach could be problematic for owners. Increasing the 2015-16 salary cap (the year prior to the TV money kicking in) would cause the players to receive more than their 51 percent share of revenues for that season (because the cash that underlies the cap increase would actually be paid out by the networks in future seasons). While the situation would resolve itself over time, the owners would in effect be funding an interest-free loan to the players that isn’t returned in full for nearly a decade.

The CBA has an established mechanism for dealing with this issue: 10 percent of each player’s paycheck is withheld and placed into escrow until the end of each season; if the players have made more than their fair share, the overage is given back to the owners, and the rest is returned to the players. But with such a large artificial increase in the 2015-16 salary cap, withholding 10 percent of players’ paychecks would not come anywhere close to resolving the massive overage. The league would need to dramatically increase the size of the escrow to wipe out the interest-free loan. That’s unlikely to happen. And even if it did happen, it would still effectively mean that the owners would be fronting a large sum of cash (not necessarily to be given directly to the players but rather to be placed into escrow) that they would only receive back at the end of the season.

Even if the owners were to move past these structural issues, the approach could create dissension within the owner ranks as to how funds returned from escrow would be disseminated. The current CBA requires that the excess funds be returned to the owners in equal shares. But we would be dealing with a substantially larger overage to be returned than is normally the case, and distributing those funds in equal shares would essentially be taking money from higher-spending teams (who contributed more to the escrow account) and giving it to lower-spending teams (who contributed less to the escrow account).

Also problematic is that teams have been planning around a $66.5 million 2015-16 cap for many months now. Vaulting it higher as the result of a concession on smoothing would undermine those planning efforts.

  • The league could gradually phase in the $23.4 billion in TV money that kicks in for the 2016-17 season across multiple future seasons. For example, the league could phase it in over two years by artificially removing $550 million of the TV money from the 2016-17 cap calculation, causing it to reduce to $78 million. The league would achieve its desire for smoothing in the form of cap increases from $66.5 million (next year) to $78 million (2016-17) to maybe somewhere in the neighborhood of $90 million (2017-18), with steady growth thereafter(3).

This approach would be problematic for the players. Artificially decreasing the salary cap would cause the players to receive less than their 51% share of revenue for the seasons that are being smoothed (because the increase in cash paid out by the networks would not cause a corresponding increase in the salary cap, which would reduce teams’ spending power).

The CBA has an established mechanism for dealing with this issue: if the players receive less than their 51% share of revenue, the league simply cuts them a check for the difference at the end of the season. But think about what would be happening here. This approach effectively amounts to artificially decreasing the salary cap in future seasons with no corresponding increase thereafter. It also means the players would effectively be giving the owners an interest-free loan for each season which has an artificially depressed salary cap (i.e., a significant portion of the money they are owned for the services they perform throughout the season would only be paid after the season is over). Why would the players ever agree to that?

Even if the players were to moved past these structural issues, the approach could create dissension within the player ranks as to how any check(s) cut by the league at the end of the season would be disseminated. When this situation last occurred in 2010-11, the $26 million shortfall was distributed to the players pro rata. But we could be dealing with a substantially larger shortfall this time around, and distributing those funds pro rata would essentially be taking money from higher-paid players and giving to lower-paid players. It is also possible that the union could hold some of the funds back, as a war chest of sorts for what’s expected to be a labor fight in 2017.

  • The league could make no adjustments to future salary cap levels at all. Instead, it could artificially increase the salaries (and cap hits) of all players already under contract for the 2016-17 season by a predetermined amount — the TV money will increase roughly 100 percent in 2016, at which point it will represent roughly 1/3 of league-wide revenues — with corresponding increases to the values of certain salaries and exceptions that do not rise in conjunction with the salary cap, so as to spread the benefit of the increasing salary cap around to all players.

 This approach would seem to be the least controversial to all parties but, thus far, has apparently not been discussed as a possibility.

Any salary cap smoothing arrangement would require the consent of the players’ association.

Impact on New CBA Negotations

When the current CBA was negotiated back in 2011, both the league and the players’ association knew that a new media rights agreement was coming in 2016, and that it would trump the previous figure in a landslide. They therefore built in a mutual opt-out for 2017 – allowing either side to gauge the deal’s effects and notify the other side by December 15, 2016 that it was terminating the agreement at the end of the 2016-17 season.

This was always considered likely, and nothing has changed. But what concessions might be made if and when it happens remains less clear.

Back in 2011, the league opted out of the then-current CBA and locked out the players because they claimed the system was unsustainable – most teams were losing money and, though well-publicized fractures emerged within the various ownership ranks, as a collective group they were prepared to risk canceling an entire season to change it.

Following a heated negotiation, the sides eventually came to terms on a CBA that reduced the players’ share of revenues from 57% to 50% (but could range from 49% to 51%). This massive give-back by the players salvaged a reduced 2011-12 season, and helped fix the league’s finances.

Owners who once leveraged $300 million in annual losses from their $1.6 billion cut of league-wide revenues prior to the lockout reportedly produced hundreds of millions of dollars in annual profits on their $2.2 billion cut of league-wide revenues this past season. A new revenue sharing arrangement, and more penal luxury tax rules, have ensured that such profits are distributed more evenly across all NBA teams.

When the new media rights deal kicks in two years from now, the league could be generating about $6.5 billion in gross revenues, of which teams could be receiving about $3.3 billion – that’s a virtual double in just six years, which could presumably vault collective team profits into the ten-figure range!

Of the extra $1.7 billion or so the owners would be generating over and above what they made prior to the lockout, about $1.3 billion would be coming from the overall growth of the league. The extra $400 million or so would be coming from the adjusted revenue split. Do owners really need to take an extra $400 million from the players, on top of the $1.3 billion and rising they’d already be getting?

The players are bound to want to renegotiate. They’re bound to want to get a little back on the revenue split.

The question needs to be asked: If owners were using claims of mounting losses as the impetus to increase their split of league-wide revenues back in 2011, and six years later they’re no longer losing money but rather making piles stacked to the heavens of it, is it not fair for players to want to adjust the split back down?

The last negotiation was about sustainability. Teams were losing money, and the league fought to replace the existing system with a new one that helped them become and stay profitable. The next one will be about how to best share a windfall.

But, despite their new-found riches, owners may not simply relent. Recent precedent across all major sports leagues is on their side.

Every league has its own idiosyncratic methods of calculating revenues and payrolls, which makes it difficult to compare across sports. But the trend is clear – player allocations of league-wide revenues are decreasing.

The NHL ratified its current collective bargaining agreement in January 2013, after a labor dispute which cancelled 510 games of the 2012-13 regular season. It is a 10-year deal, the longest in NHL history, expiring after the 2021–22 season, with a mutual opt-out provision after the 2019-20 season. It calls for a 50% split of “Hockey-Related Revenue” to the players. Much like with the NBA, it was considered a major financial win for the owners – in the 2005 CBA which preceded it, players were entitled to a share of revenues between 54% and 57%, depending upon the level of league-wide revenues, but were consistently receiving at or near the maximum 57%.

MLB ratified is current collective bargaining agreement in December 2011. It’s a five-year deal, equal to the longest in history, which allowed play to continue uninterrupted through the 2016 season. MLB has no salary cap system, and no mechanism to ensure that players receive a predetermined share of league-wide revenues. Players received 63% of revenues in 2003, a high in recent history. But, with exploding league-wide revenues, players’ percentage share has steadily decreased over the past decade. By 2008, the players were down to around 52%. It dipped below 50% in 2010, and according to Tribune-Review calculations, it sunk to just 42% in 2013.

The NFL ratified its current collective bargaining agreement in August 2011, after a work stoppage imposed by owners that lasted from March 12, 2011 to July 25, 2011. It is a 10-year deal, expiring after the 2020 season. It calls for the players to receive differing allocations of various streams of revenue, with bands to ensure that, for the 2012 through 2014 league years, the players will receive between 47% and 48%, and for the 2015 through 2020 league years between 47% and 48.5%, of “Projected All Revenues.”

However, these amounts are to be reduced for each league-approved stadium project in the years ahead. This so-called “Stadium Credit” can reduce the players’ share down to as little as, but no less than, 47% of “Projected All Revenues” for each of the 2012 through 2014 league years, 46.5% for each of the 2015 through 2016 league years, and 46% for each of the 2017 though 2020 league years. Under the previous NFL CBA, which was last extended in 2006, the players received around 60% of league revenues, not including a $1 billion “expense credit” for the owners off the top, a structure that approximated a 50-50 split.

And so, despite the massive current profitability of NBA owners as well as the massive influx of incremental revenues to come with the new national TV rights deal – with precedent established for players’ current share of revenues of 42% for MLB, no more than 48.5% for the NFL, and 50% for the NHL – NBA players, comparatively speaking, will still be doing quite well at 51%. Any attempts by NBA players to recapture a greater share of league-generated revenues will therefore surely be met with resistance.

Owners may not wish to concede a portion of the then-six percentage points they will have gained in the current CBA, and may demand significant system changes in return if they do. Or they might concede a few of those points back in order to keep the money train running smoothly. At a potential $7 billion in league-wide revenues, every percentage point give-back will equate to a reallocation of roughly $140 million — $70 million less for the owners and $70 million more for the players — and, in turn, cause future cap levels to rise by $2 million.

One thing seems relatively clear: For purposes of the cap calculation, the players should get at least one percentage point back without league objection. That singular point will not cause any reallocation of monies between players and owners but rather correct for an “error” in the salary cap calculation itself.

The current cap calculation is based on the presumption of a 50-50 split of league-wide revenues. It was designed that way because it represents the midpoint of what the players are guaranteed to receive (between 49 to 51 percent). The calculation is working fine for now because the actual split over the past three years has consistently been quite close to 50-50. The new TV deal, however, will ensure the players receive the maximum 51 percent. At that point, you’ll have a salary cap calculation that is based on a presumption of a 50-50 split of revenues when in fact the players will be receiving a 51 percent share. That’s an “error,” on that perhaps should have been caught and accounted for, and it will cause the 2016-17 salary cap (and luxury tax) to be unfairly low. Any new CBA to come would surely correct for this issue.

As for any additional gains, it’ll be a battle between players and owners. Only this time around, both sides should be rolling in money. Both sides should therefore be incentivized to reach a quick conclusion that eliminates any loss of games (and, as a result, revenue).

However it works out, one thing is clear: We’ve entered into a period of unprecedented success for a league which has never been stronger.

2 Responses

  1. October 27, 2014

    […] cleverly offered Chris Bosh a maximum contract because it would be a bargain in the wake of the NBA reaching a 9 year $24 billion media rights deal with several networks. The amount of money included in the deal surprised no one including the HEAT front office and will […]

  2. April 13, 2015

    […] extended at over US$2.6bn a year, more than doubling the roughly US$900m a year it was under the current agreement. It continues to rate strongly. The NFL rights package is in excess of US3bn a year, nearly double […]

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