Potential Financial Implications of the Suspended NBA Season

In the midst of a global coronavirus pandemic, the NBA has been thrust into a great deal of uncertainty. The league has suspended the 2019-20 season indefinitely. Nobody truly knows when or if to expect a resumption of the season’s play, or even how any such a resumption would be implemented, which very much depend upon factors well beyond the league’s control.

What is clear is that the league, rightfully, has prioritized the safety of its players and fans by shutting down play, which could have serious financial consequences for the league, its teams and its players.

The league is currently in the midst of assessing what the financial consequences could be. According to ESPN’s Adrian Wojnarowski, the NBA will likely provide its member teams projections as to the financial costs of three primary scenarios: shutting down the season entirely, restarting with no fans in the arena, and playing playoff games with fans.

Prior to the coronavirus outbreak, the NBA was projecting 2019-20 revenue of about $8.0 billion.

So how much revenue could be lost?

The league is very protective of the confidential nature of its revenue streams. I am not aware of anyone outside of the league office itself who has access to them. The last reliable detailed breakdown that I have personally seen is from more than 15 years ago, which is essentially irrelevant. But we do know certain things, so we can make reasonable estimates.

We know that the largest single revenue stream for the NBA comes from its $24 billion national TV rights deals with ESPN/ABC and TNT, which will pay out about $2.4 billion this season. These funds should continue to flow despite the shutdown. (I believe that while there are contractual obligations related to number of games, they can be made up in future seasons.)

We also know that, of the remaining $5.6 billion, the bulk comes from gate receipts, local TV rights deals and merchandising/sponsorships. This is where playing games without fans, or missing them entirely, would have the biggest impact.

Potential Revenue Losses From Playing Games Without Fans

Playing games without fans in attendance would put at risk the league’s second largest revenue stream – gate receipts, as well as corresponding parking, concessions, souveniers, etc.

There are 259 games left in the regular season (which is about 21% of the 1,230-game regular season total). If you figure that each one brings in roughly $2 million, you’d be looking at around $500 million of gate and related revenue losses (assuming season ticket holders would get reimbursed). And this doesn’t factor in the dwindling crowds from before the suspension of play.(1)

Playoff gate receipts are even more lucractive. Since the first round expanded to a best-of-seven series in 2003, the playoffs have averaged 84 games. If you figure that each one brings in an average of $3 million (this, by default, needs to be a very rough estimate, because it varies widely by market and by round), you’d be looking at at least another $250 million in gate-related revenue losses.(1)

So the league could be facing as much as $750 million in revenue losses, more than half of its total exposure, just if games can’t be played with fans in attendance.

Potential Revenue Losses From Not Playing Games At All

Not playing games at all could come with further revenue losses – including losses from regional sports network television contracts, merchandising/sponsorships, etc.

Revenue losses from local TV rights deals, which generate well over $1 billion cumulatively, are tougher to project. Each team negotiates its own contract, with its own terms. Some are very large (the Los Angeles Lakers’ 20-year deal with Time Warner Cable that began in 2012-13 pays out an estimated $170 million this season) while others are relatively small (the Memphis Grizzlies’ deal with the Fox Sports pays out around $20 million this season). Some may be impacted by the reduced schedule, and some may not be. It’s impossible to tell which will be impacted, and which won’t.

Revenues from the NBA’s own television ventures could also be impacted — including NBA TV and NBA League Pass. It’s unclear if any subscription revenues would be returned to fan who have already paid, or how much forgone new subscription revenue would have been generated this late into the season, but this is likely a relatively small revenue stream.

Potential revenue losses from merchandising/sponsorship are also tough to project. Purchases from the NBA store will surely decline. Sponsorship arrangements may also be impacted. The leauge has all manner of sponsorship deals that generate well over a $1 billion cumulatively – including both league-wide sponsorships (e.g., American Express, Anheuser-Busch InBev, Anta, Autotrader.com, BBVA Compass, Cisco, Diageo, FanDuel, Foot Locker, Gatorade, Harman, KIA, Kumho Tire, Nike, PepsiCo, Samsung, SAP, Spalding, Sportradar, State Farm, Taco Bell, Tencent, Tissot, Verizon, and 2K Sports, among many others) as well as team-based sponsorships (e.g., jersey patch sponsorships, arena naming rights deals, etc.). Many of these sponsorship arrangements may not be impacted, but some could be. The terms of each are unknown, as are projections as to which could be impacted by a cancellation of the season.

The unknowns make it impossible to produce an accurate projection of the incremental revenue losses associated with not playing games at all. Which is part of why teams themselves must await the league’s projections. But they are sure to be many hundreds of millions of dollars.

Total Potential Revenue Losses

It’s in everyone’s best interest to first and foremost be safe. It’s also in everyone’s best interests to finish the season as well, if that proves to be possible. But the league has surely already sustained substantial revenue losses, and, if the season can’t be finished, those losses are sure to grow exponentially. Let’s do some quick math to see why:

Total pre-coronirus projected revenue: $8.0 billion. Of that total, we know the $2.4 billion that comes from the national TV rights deals is safe. We also know that, of the 1,230 regular season games, 971 have already been played; at $2.0 million per game, that’s another $1.9 billion that’s safe. So: $8.0 billion – $2.4 billion – $1.9 billion = $3.7 billion total exposure.

Of the $3.7 billion, a reasonable estimate for gate and related revenue losses could be as much as $750 million (as detailed above). Of the remaining $2.9 billion, a large portion may not be tied to games played at all, and, for those that are, nearly 80% of the regular season has already been played. So, if we take a 20% haircut to the entire $2.9 billion as a sort of worst case scenario, that’s around $600 million. So, we add $750 million (gate reciepts) and $600 million (other revenue) to a projected worse case scenario revenue loss of $1.35 billion. Of course, these are huge oversimplifications — some revenue streams might not be impacted at all, others may be tied exclusively to the playoffs, etc. But hopefully it puts the order of manginitude into some degree of perspective.

So, could total potential revenue losses top $1 billion if the entire rest of the season is cancelled? Perhaps. Could it get anywhere close to $2 billion? I’d say that’s highly unlikely. You’re probably looking at somewhere between $1.0 billion and $1.2 billion. For simplicity, I’ll choose $1.0 billion if the league is shut down entirely, $750 million if it resumes in full with no fans, and $500 million if they’re able to get fans back in attendance for the playoffs.

How would such revenue losses impact the league, its teams and its players?

2019-20 Season

The NBA’s CBA rules provide a predetermined revenue split: 51% to players, 49% to teams. Any revenue losses should therefore ultimately be borne in accordance with that split.

The integrity of the split is maintained via the escrow system, whereby 10% of salaries are withheld from players’ first 12 semi-monthly paychecks and placed into an escrow account. Escrow proceeds are used to ensure the split is always exactly 51/49. If players wind up making too much, the league gives the necessary portion of the escrow funds to its member teams, and returns the rest to the players. If players wind up making too little, the entire escrow is return to the players and league cuts them a check for the difference.

However, there is one (and only one) scenario in which the integrity of the 51/49 split could be threatened — if the league sustains a big enough revenue loss, the players could wind up earning such a large percentage of the reduced revenues that the escrow funds aren’t enough to bring it back down to 51%. If so, players could potentially wind up making more than their designated share, and there is no direct mechanism covered in the CBA to get it all the way back down. Players don’t, for example, simply cut the league a check (like it works the other way around).

Anticipating this issue, the NBA did neogotiate a provision into the CBA – Article VII, Section 12(h), entitled “Revenue Decline” – to address it indirectly. The provision states that if there’s a substantial revenue decline that causes players to receive more than their 51% share, the NBA and the players association will negotiate in good faith to agree upon an adjustment that is reasonably satisfactory to the parties to address the issue.(2) There are numerous ways to address it. Perhaps the most likely outcome if such an event were to happen would be that additional funds would be subtracted from players’ paychecks in 2020-21 (beyond just the 10% placed into escrow).

NBA teams would likely get paid back – whether in whole or in part(2) – but it would be many months later. In the meantime, they could potentially start facing a liquidity crunch very soon, with costs continuing as scheduled (and increasing) and corresponding revenues delayed and at risk. That creates both working capital and profitability issues.

Some teams may be in better position to absorb the financial strain than others. Despite their wealth, I can assure you that no NBA owner wants to lose huge amounts of money (many have other personal portfolios and businesses that are struggling too). That players will ultimately split any of the revenue decline mitigates their losses, but it doesn’t eliminate them. And it does nothing to solve the immediate cash flow issues.

The NBA could potentially help alleviate teams’ immediate cash flow concerns in multiple ways:

First, Wojnarowski is reporting that the league is seeking to increase its credit line from $650 million to $1.2 billion.

The NBA currently has credit facilities totaling approximately $4.6 billion, a portion of which is the $650 line of credit which presumably either is, or the league projects soon will be, fully drawn. The added $550 million will take its total exposure to $5.2 billion. The increased line will likely be backed in large part by the league’s national TV rights deals, so the debt should be fairly secure (despite the current issues) and the interest rate should be fairly attractive.

In connection with its league-wide facility, the NBA imposes a debt limit on each of its member teams. In June 2018, each team’s available credit line was raised to $325 million, and 20 or so teams were drawing upon it. The increased line suggests that the league is projecting that more teams will draw more of their avaiable credit and needs more funds to support it all.

Second, if games are ultimately missed, the CBA contains a force majeure provision, which includes epidemics, which states that rostered players could each lose 1/92.6 (1.1%) of their salary for each regular season and playoff game missed that was not rescheduled and replayed.(3) That could equate to more than $1 million per team per game missed.

Each team has an average of 17.3 games remaining, and the assumption for purposes of the calculation is that each team would play another 5.6 playoff games (based on an 84-playoff-game total). So, if the entire rest of the season is missed, it would mean the average team would lose a total of 17.3 + 5.6 = 22.9 games. Each player whose contract runs through the end of the season could therefore stand to lose up to 22.9/92.6 (24.7%) of his salary. That could add up to big dollars. Using a $1 million per team per game estimate, the league’s 30 teams could cumulatively withhold as much as $500+ million if the entire rest of the regular season is cancelled, and as much as $700+ million or so if the playoffs are cancelled as well.(4)

Of course, the force majeure provision does not supersede the integrity of the 51% (players) / 49% (teams) revenue split. So any reduction in player salaries likely wouldn’t have an impact on the cumulative distribution of revenues. If too much salary is taken from the players, they will eventually get it back. But using force majeure would have several critical benefits for teams, including: (i) greatly increasing their near-term cash flow, and (ii) allowing teams to directly reduce their own team salaries, rather than having to rely upon the escrow system (which reimburses teams evenly rather than proportionally) and the revenue loss provisions of Art VII, Sec 12(h) described above (which doesn’t expliciltly guarantee the 51/49 split) to recover the funds.

The NBA has already stated that players will receive their April 1st paychecks in full. But the league did not commit to paying out players’ April 15 or future payments.

As standard practice, most NBA players get paid in 24 semi-monthly installments, beginning on Nov. 15 and ending on Nov. 1 of the following year. These players have already been guaranteed 10 of their 24 payments thus far, leaving plenty of remaining compensation from which to withhold. But players can also negotiate for 12 or 36 semi-monthly payments. Those that have negotiated for 12 have already been guaranteed 10 of their 12 payments; that’s just 17% remaining, which means that, even if every last penny of their two future paychecks is withheld, it’s still not enough to cover the full amount of what the team was entitled to withhold if the entire rest of the season (including playoffs) is cancelled. Players can also negotiate to have up to 50% of their base salaries paid in advance, which leaves even less remaining money from which to withhold. So, if the league plans to utilize the force majeure provision, time is of the essence.

The NBA could choose to withhold players’ entire paychecks, but would perhaps more likely withhold only a portion of them. For players being compensated in 24 semi-monthly installments, approximately 46% of their paychecks would need to be withheld to ensure the maximum 1/92.6 of salary can be withheld in the event the entire rest of the season is cancelled. So, it’s certainly possible that the league could mandate that, for example, 50% of players’ April 15 paychecks will be withheld, which would give the league more time to assess the ongoing situation.

Withholding salary would surely create a very public battle with a players association (and individual players), which would strongly resist it. Which means the ugly work stoppage could soon turn even uglier. Which isn’t good for a two sides that have to find common ground just to get the season back up and running. Withholding only a portion of future paychecks (for example, 50%) could ease such tensions.

2020-21 Season

We – collectively as a nation, and the NBA as an association and community – will surely get through this coronavirus situation. Hopefully soon, because the destruction for some of us will be substantial and irreversible.

The 2020-21 salary cap, however, is a separate issue, which may or may not be impacted by any revenue loss incurred in 2019-20.

There are two components to the cap calculation that determine its ultimate amount, and each will need to be addressed to deal with this unusual situation: (i) the revenue component, and (ii) the salary component.

Revenue Component

The salary cap is set primarily based on projected revenues for the upcoming season.

The NBA normally utilizes the just-completed season to make such projections – by adding the pre-determined national TV revenue for the upcoming season to a 4.5% increase for all other revenue streams from the just-completed season. The current projection for next season — which was lowered from $116 million to $115 million at the end of January — is therefore based on a revenue projection that takes the pre-determined national TV revenue for next season, plus a 4.5% increase to the $5.6 billion in pre-coronavirus other revenue projected for this season.

So if there’s a sharp decline in that $5.6 billion of revenue when it’s ultimately calculated, it would cause a corresponsingly sharp decline in the 2020-21 salary cap — each $100 million drop in revenue would lower the cap by around $1.5 million.

Salary Component

While the salary cap is set primarily based on projected revenues for the upcoming season, a portion of it, which only activates in extreme circumstances, kicks in when players earned either less than or far more than their 51% share of revenue (before adjustments were made to reduce it back down to exactly 51%) in the prior season. In such cases, the salary cap for the following season is lowered (if salaries were too high) or raised (if salaries were to low) accordingly.

The theory should make intuitive sense to you. If players get less than their 51% share of revenue in any given season, the league raises the salary cap and luxury tax for the following season to encourage teams to spend more. Alternatively, if players get far more than their 51% share of revenue, the league lowers the salary cap and luxury tax for the following season so that teams are forced to put the brakes on their spending.

Given the massive revenue losses that we could be facing this season, the players may not get anywhere near their agreed-to 51% of revenues. And we don’t yet know whether they’ll get too much or too little — it’s possible that they could end up getting way too much (i.e., if revenues collected by the NBA this season drop by anywhere from $500 million to $1.0 billion-plus, and salaries don’t drop at all, players could end up getting way more than their 51% share of the reduced revenues), way too little (e.g., if the NBA invokes the force majeure provision and takes back anything up to the full $700 million or so in salary, they will have effectively reduced player salaries by more than 49% of the revenue loss, and thus players could end up getting way less than their 51% share of the reduced revenues), or somewhere around where they were supposed to.

So if there’s a sharp decline in that $5.6 billion of revenue when it’s ultimately calculated and players continue to be paid as scheduled, it would cause a corresponsingly sharp decline in the 2020-21 salary cap — for the first $500 million drop in revenue, the drop would not be extreme enough to activate this component, and there would be little to no salary cap consequences, but, after $500 million, each additional $100 million drop would lower the projected cap by about $1.7 million.

Combining Both Components

Combining the impact of both the revenue and salary issues described above, the 2020-21 salary cap could be at substantial risk if a there is a severe revenue drop this season and player salaries are not withheld —  each $100 million drop by about $1.5 million, and, once you hit $500 million, each additional $100 million drop by $3.2 million. Which would mean a $500 million drop in revenue could potentially lower the 2020-21 salary cap by around $8 million, to $107 million. A $750 million drop could lower it by $16 million, to $99 million. At $1.0 billion, it drops to $91 million. At $1.2 billion, $85 million. That could wind up being a disaster for the NBA, its member teams, and a whole lot of players.

Making matters worse, this wouldn’t be just a one-year issue. Instead, it would cause wild fluctuations in the salary cap that span multiple years.

Why? If the salary cap for 2020-21 were to crater, it would create a whipsaw effect for the following season – the lowered salary cap and luxury tax levels could be so constraining to teams that players ultimately wind up making too little in salary next season, which, if revenues return back to normal next season, could end up causing the players to earn far less that their rightful 51% share. That, in turn, could create an opposite salary adjustment that blasts the 2021-22 salary cap artificially higher.

An artificially increased 2021-22 salary cap may sound great for teams like the Miami Heat, which are planning to make a big splash in the summer of 2021, but not for the NBA as a whole.

I believe the NBA (and likely the players association) will want to avoid such a huge, multi-year disruption.(5)

Potential Solutions

The NBA will surely want to avoid a substantial drop in the 2020-21 salary cap if it doesn’t reflect the financial state of the league for that season, and it has multiple tools it can leverage to do it, depending upon whether or not it can reach an agreement with the players association.

If the NBA and Players Association Can Agree

The NBA and the players association — both by the letter of the CBA(6) and by the nature of collective bargaining — have the power to agree to set next season’s salary cap however they feel best (rather than one that incorporates potential 2019-20 revenue losses and/or has a big downward salary-related adjustment, each as described above).

I believe they will ultimately be able to come to agreement. Quite simply, it’s in both parties’ best interests. If they can’t agree, the default mechanisms in the CBA would need to apply, at which point the salary cap would plummet. Nobody wants that.

So if they do agree on a mechanism for setting the salary cap, what approach would be best, and what implications would it have?

I believe the best possible approach would be to set the salary cap based on a conservative estimate of true projected revenue for next season (i.e., exclude the impact of any 2019-20 revenue losses that are not deemed recurring), and to eliminate any salary-related cap impacts.(7)

Utilizing such an approach would reflect an accurate representation of the league’s financial health for next season, and avoid any escrow-related issues on the back end. The cap would still likely fall from its current $115 million, but only due to revenue losses that were deemed recurring in nature (which is how it should work anyway).

Such an agreement is perhaps more likely than not at this point (considering the alternative is an outcome that is universally bad), and could produce a much smaller drop than most people are currently projecting. Which is why, in my humble opinion, planning around a reduced cap projection from the current $115 million level is prudent, but forecasting dire cap projections is premature at this point.

If the NBA and Players Association Can’t Agree

Of course, there is no guarantee they will come to such an agreement. Things could get very adversarial very quickly, particularly if the NBA elects to utilize the force majeure provision to withhold player salaries.

If I were a team owner, and I wanted to prepare for the possibility that they can’t agree on a mechanism for setting the cap, I would want the NBA to do precisely that – withhold as much as possible as soon as possible (the more that can be withheld, the better; the money can always be returned if needed).

The primary goal of withholding player salaries is without question the liquidity benefits it provides. But it also has an ancillary benefit – it could potentially launch the salary cap higher.

If NBA games are cancelled, 2019-20 revenues will drop, which, without an agreement between the league and union, would cause the 2020-21 salary cap to drop sharply. But if player salaries are withheld, their percentage of the smaller revenue will also drop, which could reverse the salary component of the salary cap calculation and cause the 2020-21 cap to rise back up.

So, for cap purposes, withholding player salary could be a good thing. Without it, a big revenue loss could cause players to make too much, producing a doubly negative impact on 2020-21 salary cap. This way, players could make too little, which could instead have an offsetting effect.

The amount of the salary cap offset would depend upon the relative drop in revenue to salaries, but it could range anywhere from nothing at all to $3.3 million per $100 million of salary savings.

So let’s create an example to see the true impact:

As noted above, if there’s a big drop in 2019-20 revenue and player salaries aren’t withheld, each $100 million drop in revenue would drop the cap by about $1.5 million, and, once you hit $500 million, by $3.2 million.

So, for example, a $500 million revenue loss could drop the cap by $8 million, from the current $115 million projection to $107 million. A $1.0 billion loss could drop it $24 million, to $91 million.

Contrast that with what would happen if player salaries are withheld.

If there’s a big drop in 2019-20 revenue, withholding a correspondingly big amount of player salaries will keep the 2020-21 salary cap from cratering.

Let’s use the same examples as above:

The first was a $500 million revenue loss. But this time, instead of assuming player salaries are paid in full, let’s assume $500 million is withheld. Under the prior example, the cap fell $8 million. But in this scenario, the cap would stay flat, at $115 million. The $8 million drop in revenue caused by the revenue loss would be completely offset by an $8 million rise caused by withholding player salaries. That’s the power withholding player salaries can potentially have. And this isn’t an impossible scenario either – cancelling the rest of the regular season but maintaining the playoffs could make such a scenario reasonably possible.

The second was a $1.0 billion revenue loss, assuming the entire rest of the season is cancelled. We were looking at a cap drop of $24 million. But if we withhold $700 million of player salaries, the cap would drop by just $9 million, to $106 million. A $106 million cap may sound bad, but it’s FAR better than the $91 million it would be without withholding salaries.

Clearly, using force majeure to withhold salaries could potentially be highly beneficial to the cap. But be careful when you make your projections: The cap benefit of withholding player salaries isn’t necessarily always this impactful – it very much depends upon where the league and its players wind up relative to their predetermined 51/49 revenue split.

Let’s exand on example above to bear this point out.

We will again assume a $500 million revenue drop, with corresponding levels of player salaries withheld, and see how far the salary cap would drop. If no salary is withheld, the cap would drop $8 million (as noted above). By withholding $500 million, it doesn’t drop at all (also as noted above). So you would think that withholding $250 million would cause it drop by the average of nothing at all and $8 million, or somewhere around $4 million. But that’s not correct. At $250 million, it still drops the full $8 million. So be careful with your projections.

So, what does this all mean for 2020-21?

The salary cap will likely fall from the current $115 million projection. But it’s far too early to project how much.

But there is a bit of good news: While not the primary benefit, if (big if) the NBA leverages its force majeure rights withhold as much as salary as they allowed, no matter what happens — no matter how ugly things get, no matter if the NBA and players association come to agreement or not — it’s very hard to see the draconian salary cap drops that some may be projecting. Even if the very worst possible scenario (which is perhaps highly unlikely), you’d likely still be looking at a nine figure cap level. More specifiics will come with time.

As with all things, it’s just a wait-and-see situation. There’s really no other choice.

Notes:

This post was updated on March 21, 2020 to reflect the NBA’s announcement that players’ April 1 paychecks will be paid in full, and again on March 27, 2020 to reflect the concept that withholding player salaries can increase the salary cap (which I didn’t want to make public until I could be sure nobody else had my idea).   

(1) I know most people are working with more conservative projections of $1.2 million and $2.0 million in lost ticket revenue for each regular season and playoff game, respectively. But I tend to believe it’s more than that, particularly when including corresponding revenues from parking, concessions, souveniers, etc.  

(2) Article VII, Section 12(h) doesn’t explicitly state that whatever mechanism is agreed to must reduce the players’ share of revenue down to 51%. I am sure that’s precisely what the NBA will pursue. The players association may not agree to give the entire thing back. Which is even more of a reason for teams to withhold salary.  

(3) The force majeure provision also potentially allows the NBA to terminate the CBA entirely. While I personally don’t think it will be terminated, as ESPN’s Brian Windhorst described before me, I think that we’d be wise to consider the fact that, since the NBA and the players association would need to come to agreement just to restart the season, either side could certainly condition agreement with respect to transition rules on a renegotiation of other provisions of the CBA. Do I personally think that’s likely? While it’s an intriguing and certainly very plausible idea, perhaps I’m not quite as far down the path of renegotiating unrelated provisions as is Brian at this point. But who the heck am I? Brian has actual sources. I have cereal.   

(4) If the NBA elects to withhold player salaries, it could have interesting implications for how escrow funds are treated (since it would appear the CBA has provisions that could clash in these circumstances, which would mean the right answer is up to the NBA/PA). Here is my humble perspective:

Escrow is (generally) collected in 12 semi-monthly installments, so 10/12 will have been collected after the players’ April 1 payment, regardless of the number of installements over which their salaries pay out. If the NBA were to withhold a portion of players’ future paychecks, perhaps they would argue that the small remainder should be collected proportionally (which would mean the full amount would still ultimately be taken, but over more installments). Perhaps the players association would argue for the opposite – to stop escrow payments, and thereafter immediately withdraw any portions of escrow that ultimately prove to relate to salary that has been withheld (though this would be a relatively small figure, and would only come at the later stages of the withholding). And, finally, perhaps the escrow proceeds would then otherwise remain intact, pending normal procedures (which, with big withholding, would very likely entail it being given back to players).

Of course, I don’t work for the NBA or the players association — I’m just a man sitting in his underwear, making this stuff up, and typing it out before it exits my brain — so I have no idea how they’ll handle it.  

(5) This is not a situation in which salary cap “smoothing” would make much sense to me. Why? There is nothing to smooth. Smoothing entails manipulating salary cap levels in ways that are inconsistent with what projected revenues for the corresponding seasons would entail. It was suggested — and would’ve perhaps been appropriate, as I explained at the time, even though it was ultimatley rejected — in 2016-17, because the new TV rights deal was set to blast the salary cap higher. But that situation was very different than this one. Why? In 2016-17, the NBA had a spike in FUTURE revenue; what it has now is a drop in (hopefully only) PAST revenue. In this situation, utilizing an accurate projected revenue figure fixes everything (as long as the salary component of the cap calculation is eliminated). So that’s how I would handle it… But I have been wrong before. 

(6) The CBA provisions that would enable the NBA and the players association to adjust the salary cap calcluation to reflect a more accurate projection of 2020-21 revenues are as follows: (i) for the revenue component, Art VII, Sec 1(c), and (ii) for the salary component, Article VII, Section 12(h).

(7) Some have suggested that it might just be best to pick a flat salary cap figure – like, say, keeping it constant at $109 million. I, personally, prefer one tied to a projection of 2020-21 revenues. The problem I can forsee with picking a set cap figure if that set figure is arbitrary, and divorced completely from projected revenue (a big if, which is likely not what anyone is suggesting) – is the implications it could have on the back end with respect to escrow, and, in turn, how that could impact salary future salary cap levels. The last thing you want is to create a multi-year issue. So I would humbly suggest that it has to be, at least in some way, loosely tied to a projection of true 2020-21 revenue. So how do you make a projection of next season’s revenue (particularly when the league traditionally uses a pre-set increase past revenues, not revenue projections, to set the cap? Well, the NBA constantly has revenue projections for future seasons (which is how they provide multi-year salary cap guidance). Such projections aren’t traditionally used to set actual salary caps (they’re meant more for guidance), but these aren’t traditional times… But, if I had to guess, if an agreement is reached, I’d say the NBA and players association will go against my advice and use some sort of flat figure. So, f me. 

2 Responses

  1. March 27, 2020

    […] highly recommended to read this article by Albert Nahmad. Few are better at understanding and explaining the business side of the NBA than […]

  2. March 27, 2020

    […] highly recommended to read this article by Albert Nahmad. Few are better at understanding and explaining the business side of the NBA than […]

Leave a Reply

Your email address will not be published. Required fields are marked *