Some very big news was quietly made earlier this week.
Speaking on Tuesday at a Beyond Sports United event at Yankee Stadium, Commissioner David Stern estimated that league-wide revenue for the season would increase by about 20% from the last full season in 2010-11, to an all-time record $5 billion.
A year after the long and contentious collective bargaining agreement negotiations of 2011, during which the league claimed losses in the hundreds of millions of dollars and threatened “nuclear winter” if serious concessions weren’t made by its players, the NBA is apparently thriving.
Five billion dollars is a lot of money.
In fact, it’s significantly more money than the league was forecasting just a few months ago.
Since national TV revenue was already set, the league already knew about things like the Lakers’ and Celtics’ new multi-billion dollar local TV deals, and most other major revenue streams (such as ticket sales) have limited growth potential, it’s not entirely clear where all this unexpected growth is coming from. But it’s great news if you’re a Miami Heat fan.
The more revenue the league makes, the higher the salary cap and luxury tax threshold.
The cap and tax are calculated based on projected amounts of revenue (called “BRI”) and benefits for the upcoming season. The calculations take 44.74% and 53.51%, respectively, of this projected BRI, subtract projected benefits, and divide by the number of teams in the league. Adjustments are then made if, in the previous season, the players made less or substantially more in salaries and benefits than the split which was agreed to in the CBA.
The NBA was anticipating a projected BRI for the 2013-14 season of $4.48 billion as recently as July. That, in turn, produced an estimated salary cap of $60 million and an estimated luxury tax threshold of $73 million.
Things appear to have changed quite dramatically.
While it is not entirely clear to what extent Stern was rounding when he threw out the $5 billion number (or if he was even referring to BRI specifically), his reference to a 20% increase from 2010-11 levels still suggests a rather staggering $4.58 billion in BRI for the current season.
And if this season’s revenues are $4.58 billion, then next year’s revenue forecast would presumably be higher than that. At a modest 4% growth rate, the league’s initial growth rate target for next season, projected BRI for 2013-14 would then be set at roughly $4.76 billion. Two weeks into game action, revenue forecasts for next season appear to have increased by over $280 million!
If these BRI projections prove correct, the 2013-14 salary cap would jump to $64 million and the luxury tax threshold to $78 million.
That’s an unexpected $5 million boost to the tax level. That may not sound like much, but it’s massive when considering the league’s new progressive tax system kicks in next season. At the Heat’s current payroll level, such an increase amounts to tax savings for Heat owner Micky Arison of between $9 million and $13 million.
That’s money that could potentially be re-deployed. At this increased luxury tax level, and with some offseason maneuvering, the Heat could potentially utilize its mini-midlevel exception and still keep its total payroll (including salary, tax and amnesty obligations) below the $98 million level at which it is spending this season. That would be huge, particularly given that we started the season thinking this was the best the Heat was ever going to be, that the future was all about maintaining rather than retooling.
And things could get even better.
Remember that uniform advertising plan that was going to be implemented starting next season? Well, it’s reportedly dead. At least for now. Why? I wish I could say it’s because of the strong national movement opposing it. It is, after all, an awful idea. The real reason, though, has a familiar undercurrent to it: apparently the plan is dead because the owners couldn’t agree on how to share the profits.
But things could change. They could figure it out. And if they do, it could mean big incremental dollars. Deputy Commissioner Adam Silver said that the league as a whole could gain $100 million in additional revenue by selling small 2-inch-by-2-inch patches on the jerseys of each team. That’s a potential $2 million incremental increase to both the cap and the tax.
Is an $80 million luxury tax threshold likely for next season? No. But it’s possible.
Not bad for a league claiming to be in dire financial distress less than one year ago.