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NBA Issues Updated Salary Cap Guidance to Teams

April 17th, 2015 No comments

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At the Board of Governors meetings in New York, NBA teams were advised that the league expects the salary cap to increase from its current $63.1 million figure to $67.1 million next season and $89 million in 2016-17, while the luxury tax is expected to increase from its current $76.8 million figure to $81.6 million next season and $108 million in 2016-17.

The figures are non-binding forecasts that have been circulated several months before the official salary cap and luxury tax threshold for the 2015-16 season are announced on July 8 following a league-wide audit (that is what July Moratorium is for).

As part of the audit, accountants jointly appointed by the NBA and the players’ association will finalize the total revenue haul for the past season and, on that basis, project the revenues for the year ahead.

They will then take 44.74 percent of that projected amount, subtract projected benefits, and divide by 30 (the number of teams in the league) to get the salary cap for the season ahead. Adjustments are then made to the cap if players received way too much, or too little, in salaries and benefits for the then prior season relative to the finalized revenue figure; this serves as a mechanism to maintain the integrity of the agreed-to revenue spit between owners and players. The luxury tax uses a similar formula, but is based on 53.51 percent of projected revenues.

The latest projections suggest that the revenue haul for this season is expected to be much stronger than originally forecasted.

The league initially forecasted revenues for the 2014-15 NBA season of $4.66 billion when the current collective bargaining agreement was drafted back in 2011. The forecast was revised upward to $4.71 billion last July, off of which projection the salary cap was based. Today’s announcement suggests the league is now expecting that when they are finalized in July, revenues will come in at approximately $4.77 billion.  Read more…

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NBA Announces Digital Partnership With Chinese Internet Giant Tencent

January 29th, 2015 No comments

The NBA has formed its largest international digital partnership through an expansion of its arrangement with Chinese Internet giant Tencent Holdings Limited, the league announced in a joint press release issued late Thursday night.

Tencent – a publicly-traded company with a current market capitalization of $163 billion, whose shares trade on the Hong Kong Stock Exchange (HKSE: 0700) and whose American Depository Receipts trade over-the-counter in the U.S. (OTC: TCEHY) – will become the league’s exclusive official digital partner in China.

The new five-year pact will provide Tencent the exclusive right to stream live games, original programming and highlights to hundreds of millions of active users across its online and mobile platforms, including Tencent QQ, Tencent Video, Tencent News and Weixin, the popular messaging app also known as WeChat.

The deal will provide Tencent the right to offer for the first time in China the NBA’s League Pass package, which will allow subscribers to watch a full season’s worth of games live and on-demand on their computers and mobile phones. The deal also provides for interactive gaming and the sale of merchandise.

According to The New York Times, the agreement calls for the NBA to receive a guaranteed payout of $500 million over the life of the deal, with an additional $200 million more expected through a revenue-sharing arrangement. It will start on July 1, 2015, the first day of the 2015-16 NBA season.

It remains unclear as to how much of the revenues in this new deal would be incremental to those provided in its existing arrangement, but the increment figures to be substantial. And it will have a material impact on the salary cap.

By the league’s math, an estimated annual payout of between $100 million and $140 million increases the salary cap by $1.5 million to $2.1 million, respectively, and the luxury tax by $1.8 million to $2.5 million.  Read more…

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Salary Cap Smoothing Is As Complicated As It Is Necessary

November 17th, 2014 No comments

Update 2 (3/11/15): The National Basketball Players Association informed the NBA that it will not agree to “smoothing” in the increases in the salary cap that will result from the new national media agreements beginning in the 2016-17 season. It is not difficult to understand their logic. Expect a big spike in the 2016-17 salary cap.

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Update (2/13/15): The National Basketball Players Association officially rejected the NBA’s salary cap “smoothing” proposal on Friday. NBPA executive director Michele Roberts said the union hired two forensic economic teams to evaluate the league’s proposal and both recommended the union not accept it.

The league’s proposal apparently contained some elements of artificially suppressing the salary cap (the second scenario described below) and increasing the salaries in all existing contracts (the third scenario described below). The union is opposed to artificially suppressing the salary cap.

The league and union can still negotiate, but time is running increasingly short.

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“At first glance, [it] is not that attractive, I won’t lie. But we’re studying it to figure out if there really is some advantage for players.”

That was NBA players’ union executive director Michele Roberts last week, describing her aversion to salary cap “smoothing” in the wake of the league’s massive new national TV rights deals.

The new deals with Disney and Turner will pay out $23.4 billion over nine seasons, starting with 2016-17 and running through 2024-25, an average of $2.6 billion per year. That’s a huge increase from the current deals, which pay out $7.44 billion over eight seasons, an average of $930 million per year.

The new deals escalate over time, starting at $2.1 billion and climbing to $3.1 billion. The current deals will pay out just over $1.0 billion in their final season in 2015-16, which means the league’s national TV revenue will jump by nearly $1.1 billion in 2016-17.

The salary cap is tied directly to league revenues, and this will be the largest injection of revenues in NBA history. It alone will cause a $16 million spike, above and beyond any increases from sources other than national TV money.  Read more…

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

October 6th, 2014 No comments

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.  Read more…

NBA Sets Salary Cap and Tax Level Numbers for 2014-15

July 9th, 2014 No comments

On Thursday July 10 at 12:01 a.m. ET, the NBA’s 2014-15 season begins. That’s when the league’s salary cap, luxury tax threshold, maximum salaries and other figures all adjust to their new values.

Most NBA business ceases for the first several days of July as the league conducts its annual audit to determine the league’s revenues from the previous season. With that figure in hand, the league huddles with the players association to project revenues for the coming season, and uses it to calculate the new cap, tax and related figures.

Revenues on the season came in at an all-time high $4.52 billion, up 5.3% from the previous year and more than $50 million higher than initially projected. On that basis, the league then projected revenues for next season to increase another 4%, to $4.71 billion.

To get the salary cap for the season ahead, they took 44.74% of that projected amount, subtracted projected benefits, and divided by 30 (the number of teams in the league). Adjustments are then made to the cap if players received too much (or too little) in salaries and benefits for the completed season relative to the finalized revenue figure; this serves as a mechanism to maintain the integrity of the agreed-to revenue spit between owners and players. The luxury tax uses a similar formula, but is based on 53.51% of projected revenues.

The finalized figures were announced at 5 p.m. Wednesday in a memo distributed by the league to all member teams.

The new salary cap has been set at $63.065 million, a 7.5% increase from last season. That is slightly less than the $63.2 million estimate teams had been using since April, but higher than previous forecasts. Last year at this time, the league initially forecasted a cap of $62.5 million, before increasing it to $62.9 million in November and again in April.

The new luxury tax line will be $76.829 million, a 7.1% increase from last season. Tax projections started at $76.1 million last year at this time, before rising to $76.6 million in November and $77.0 million in AprilRead more…

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The Changing Landscape of the NBA

May 11th, 2014 6 comments

The NBA is thriving!

Just three years removed from a time when we were all seduced by claims of poverty from owners facing supposed losses that were mounting so quickly and so heavily that they forced a nasty lockout that nearly cost us the entire 2011-12 NBA season, we’ve entered into a period of unprecedented success for a league which has never been stronger.

Profits are soaring.

Just about every team in the NBA that wants to be profitable can now be profitable, and without taking drastic Jeffrey-Loria-like actions that adversely affect their fan bases in doing so (here’s to you, Miguel Cabrera!).(1) Teams aren’t just profitable; they’re wildly profitable. The league as a whole projects to generate roughly $300 million in basketball profit this year. More than half of the league’s teams should produce eight-figure profits. One or two could touch $100 million!

Rising profitability means rising team valuations.

Just last year, the Maloof family sold a 65% stake in the Sacramento Kings along with Sleep Train Arena to a group led by tech entrepreneur Vivek Ranadive at an all-time record valuation of $534 million, despite the team playing in one of the league’s smallest markets. And that was after owners blocked the Maloofs’ agreement with investor Chris Hansen to buy and relocate the Kings to Seattle at a total franchise valuation of $625 million.

That all-time record valuation was eclipsed earlier this month, when Herb Kohl sold the Milwaukee Bucks, widely considering the least valuable team in the league, to hedge-fund billionaires Wesley Edens and Marc Lasry for $550 million (without an accompanying arena), a price which would likely have been significantly higher had Kohl, who paid just $18 million for the team in 1985, not required as a condition to the sale that the team remain in the city and with the fans of Milwaukee. It was a stunning amount for the Bucks, who are universally regarded as having the worst financial situation of any NBA team. And yet, Dallas Mavericks owner Mark Cuban called the purchase price a bargain, suggesting that even the least valuable NBA franchises are truly worth more than $1 billion.

That newly-minted all-time record valuation is about to get shattered. The impending forced sale of the Los Angeles Clippers, who play in the second largest market in the NBA, is about to multiply the current record times four! Former Microsoft executive Steve Ballmer has agreed to buy the team for a whopping $2 billion! That’s the second highest price ever paid for any professional sports franchise. The Dodgers baseball team, also of Los Angeles, were sold to the Guggenheim Group for $2.15 billion in 2012, but that price included land, parking lots and TV deals. The only real estate involved in the Clippers deal is for their training facility in Playa Vista. So, not a bad return on a $12.5 million investment by Donald Sterling in 1981. The deal has been submitted to the league for final approval.

Why the massive change?  Read more…

Salary Cap and Luxury Tax Projections for 2014-15 Keep Rising

April 19th, 2014 2 comments

The NBA has issued new projections for the 2014-15 and 2015-16 salary cap and luxury tax thresholds. All 30 teams were informed this week via league memorandum that the 2014-15 cap and tax threshold are now projected to be $63.2 million and $77.0 million, respectively. The numbers for 2015-16 are now projected to be $66.5 million and $81.0 million, respectively.

It should be noted that these are non-binding forecasts that have been circulated more than months before the official salary cap and luxury-tax threshold for the 2014-15 season are announced in early July, following a league-wide audit (that’s what July Moratorium is for). As part of the audit, accountants jointly appointed by the NBA and the player’s association finalize the total revenue haul during the past season and, on that basis, project the revenues for the upcoming year.

They then take 44.74% of that projected amount, subtract projected benefits, and divide by 30 (the number of teams in the league) to get the salary cap for the season ahead. Adjustments are then made to the cap if players received way too much (or way too little) in salaries and benefits for the then prior season relative to the finalized revenue figure; this serves as a mechanism to maintain the integrity of the agreed-to revenue spit between owners and players. The luxury tax uses a similar formula, but is based on 53.51% of projected revenues.

The salary cap and luxury tax values for the current season are $58.679 million and $71.748 million, respectively, which means the new cap projection for next season represents a 7.75% increase over this season. This is a pretty big jump — the league’s baseline assumption for year-to-year increases is 4.5%.  Read more…

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Revenues, Salary Cap and Tax Projections for Next Season All Rising

November 8th, 2013 No comments

The N.B.A.’s revenues are apparently booming right alongside the broader economy.

During the negotiations that ended the lockout in December 2011, the players union and team representatives jointly created revenue forecasts for the league that extended from the 2012-13 season all the way out through the 2020-21 season.

Those forecasts are quite important because they form the basis off of which to determine how the league’s revenues earned in the years to come are split between the players and owners. Starting in 2012-13, players are guaranteed to receive 50% of those forecasted revenues, plus (or minus) 60.5% of the amount by which actual revenues exceed (or fall short of) those forecasts, with a lower limit of 49% of actual revenues and an upper limit of 51% of actual revenues.

When the accountants tabulated the results for the 2012-13 season last July, they determined that the league earned $4.293 billion in revenue, which, despite representing a massive 12% increase over the last full N.B.A. season in 2010-11, fell short of the initial forecasts by $15 million. That shortfall meant the players were only entitled to 49.96% of revenues.

On the basis of these stellar yet slightly disappointing results, the league issued official projections for the 2013-14 season in July, off of which the current salary cap and luxury tax are based, of $4.471 billion, a projected annual growth of 4.1% – again an impressive number, but $10 million short of initial forecasts. That shortfall, if it holds true when revenues are finalized in July 2014, would mean that the players are only entitled to 49.98% of revenues.

At the same time, the league issued preliminary guidance for the 2014-15 season, so as to help its member teams in planning for the future. Preliminary guidance is only meant to be illustrative, and is of no binding effect until it becomes an official projection one year later. The cap and tax guidance provided were $62.5 million and $76.1 million, respectively, which was based on a preliminary 2014-15 revenue projection of $4.672 billion, a 4.5% annual increase over the $4.471 billion projection for this season. That figure is actually $12 million greater than the initial forecast from December 2011. If it were to hold true when the numbers are finalized in July 2015, it would mean that the players would be entitled to 50.03% of revenues next season. But there’s a long way to go between now and then – almost two full years.

Just a week into the season, the league has already provided its first update. It’s good news. Projected revenues for the 2014-15 season have jumped from $4.672 billion to $4.700 billion, which is now a whopping $40 million higher than originally forecasted in December 2011. If that holds true when the numbers are finalized in July 2015, the players would be entitled to 50.09% of revenues for the 2014-15 season.

More importantly to Miami Heat fans, as the revenue estimates for the 2014-15 season increase, so too do the cap and tax projections, which are always based on revenue projections taken in the first week of July for the upcoming season. They started at $62.5 million and $76.1 million, respectively, in July. They’re now at $62.9 million and $76.6 million. That may not sound like such a big increase, but that slight boost alone could produce tax savings to owner Micky Arison of approximately $2 million or more. And things figure to only get better from here.

The salary for this season is $58.679 million, and the luxury tax level is $71.748 million. It would now appear that, despite the fact that the cap and tax figures were calculated based on 51% of revenues in the last collective bargaining agreement and are now based on just 44.74% of revenues, a 12.27% reduction, because league-wide revenues are rising so sharply, we are going to achieve all-time record cap and tax levels next season, shattering the old records by a massive 7% each.

The N.B.A. is certainly thriving. While individual teams like the Heat may choose to lose money in support of a winner, the league as a whole would appear to be a massive profit machine. And things figure to get a whole lot better in the near future. The N.B.A.’s national television contracts with ESPN/ABC and TNT, which pay an average of $930 million annually over the life of the eight-year contract, extends through the 2015-16 season. Some industry experts expect that figure to at least double when the new deal is finalized. That could add around a billion dollars in incremental revenues every season, which would have a profound impact on cap and tax figures down the road. At least for now, the future appears bright for the country’s greatest professional sports league.

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League-Wide Spending is Down, Keeping Luxury Tax Projection Up

October 27th, 2013 No comments

Those among us who have been biding our time until the start of the 2013-14 NBA season by creating hypothetical machinations whereby the Miami Heat maintains and extends its current dominance into the 2014-15 season and beyond are quietly getting some good news.

League-wide spending is down.

Which means salary cap and luxury tax projections for next season are staying up.

The league is currently projecting a 2014-15 salary cap of $62.5 million and a tax level of $76.1 million. Pending league-wide revenue performance during the course of the season, these projections seem fairly safe for now.

The cap and tax levels are set by calculations based on projected amounts for revenue (termed BRI) and benefits for the upcoming season. The projected BRI is negotiated by the league and players’ association. Each year the sides meet to agree on an amount. Barring any adjustments that are necessitated, they typically use the projected revenues from national broadcast rights (which is determined in advance), plus the BRI for the previous season (other than national broadcast rights) increased by 4.5%.

The salary cap calculation takes 44.74% (53.51% for the tax level) of the league’s projected BRI, subtracts projected benefits and then divides the total by the number of teams in the league. Adjustments are then made if total salaries and benefits paid to the players in the season prior were significantly higher or lower, as a percentage of league-wide revenues, than was agreed in the CBA.

The current 2014-15 projections assume a 4.5% increase in revenues. They are based on an estimated $4.672 billion of projected BRI and $217 million in projected benefits (including $47 million of benefits, or 1% of BRI, to be allocated to the player benefits pool). They assume no salary-related adjustments.

The rest is basic math. Simply multiply the projected BRI by the respective percentages for the cap and tax threshold, subtract projected benefits, and divide the difference by 30. That’s it. Read more…

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NBA Sets Salary Cap and Tax Level Numbers for 2013-14

July 9th, 2013 No comments

The NBA today announced that the salary cap for the 2013-14 season will be $58.679 million.

The tax level for the 2013-14 season has been set at $71.748 million. Any team whose team salary exceeds $71.748 million will, for the first time ever, pay an incremental tax rate based on how far it exceeds this level. The tax rate is $1.50-per-dollar for the first $5 million over, rising to $1.75-per-dollar between $5 million and $10 million over, rising to $2.50 between $10 million and $15 million over, rising to $3.25 between $15 million and $20 million over, and rising a further $0.50 for every $5 million increment after that.

The new cap and tax level go into effect at 12:01 a.m. ET on Wednesday, July 10, when the league’s moratorium period ends and teams can begin signing free agents and making trades.

The amounts are considerably lower than initial projections provided last year at this time, but fall roughly in line with the latest estimates provided in early June. The league had initially forecasted a cap and tax of $60 million and $73 million, respectively, before revising downward to $58.5 million and $71.6 million, respectively.

The cap and tax levels are set by calculations based on projected amounts for Basketball Related Income (BRI) and benefits for the upcoming season. The projected BRI is negotiated by the league and players’ association. Each year the sides meet to agree on an amount.

The salary cap calculation takes 44.74% (53.51% for the tax level) of the league’s projected BRI, subtracts projected benefits and then divides the total by the number of teams in the league. Adjustments are then made if total salaries and benefits paid to the players in the season prior were significantly higher or lower, as a percentage of league-wide revenues, than was agreed in the CBA.

The math that underlies the finalized figures suggests that the league is now projecting BRI of $4.471 billion for 2013-14, a 4% growth over its all-time high revenues from last season. Those came in at $4.293 billion, a whopping 12% growth over 2010-11, the last full NBA season, but roughly $15 million short of initial forecasts.

Despite the slight revenue miss, the NBA is clearly a strong and expanding entity.  Read more…

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