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N.B.A. Raises 2010-11 Salary Cap Projection to $56.1 Million

April 16th, 2010 No comments
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David Stern dramatically altered the landscape of the summer’s free-agent market on Friday. At the league’s board of governors meeting in New York, he revealed that his latest projection for the 2010-11 salary cap is now $56.1 million – a robust increase from its already-increased earlier projections.

The salary-cap amount is determined in large part by the league’s revenues from the previous season. If the league had a good year, the cap goes up a lot the next season. But the league didn’t expect this to be a good year. Due to the worldwide economic downturn, Stern notified teams in a memo last July that the 2009-10 cap was to be set at $57.7 million, a 2% drop from $58.67 million the year before, because revenues weren’t meeting expectations. He then lowered an even bigger boom, warning teams to expect the salary cap for the 2010-11 season to fall even further, all the way down to between $50.4 and $53.6 million, which was based on an expected 2.5% to 5% decline in revenues.

It was forecasted to be the biggest drop year-over-year drop in the cap in N.B.A. history, and by a long-shot. Prior to that day, since the N.B.A. instituted a salary cap starting with the 1984-85 season, the cap had only ever declined one time from the previous season, in 2002-03, and that was only due to the allocation of a massive new ABC/ESPN television contract which was to pay out $4.6 billion over six years, far more than the previous NBC contract, but allocated less to 2002-03 than NBC paid in 2001-02. Now the league was looking at two consecutive drops, totaling as much as 14%.

The N.B.A.’s advice to teams at the time was both simple and ominous: Be aware of this projected decrease and plan accordingly.

Many teams headed that warning. The gloom-and-doom projections led to teams being more conservative, selling off assets at bargain prices in order to create additional cap space. In that regard, the players’ union might have a bone to pick now. They can’t be too happy that teams were forced to take such action based on preliminary projections that are turning out to be nowhere near true. They’ve even threatened to file a collusion lawsuit if the league did not have a good-faith basis to predict such a precipitous drop.

The league periodically revises its projections as the season progresses based on economic conditions and revenues. At around the All-Star break, it revealed that the cap likely would fall on the high side of the earlier projections – somewhere in the $53-54 million range.

A cap as high as $56.1 million comes as a complete surprise. It still represents a drop of about $1.6 million from the current cap, which translates to an approximate 0.5% drop in revenues from last season. But it makes a huge difference for teams that were hoping to use the huge 2010 free-agent market to build a perennial powerhouse.

Teams that were a little short of being able to offer the full maximum salary to premier free agents will now find themselves with sufficient cap room to do so. Teams that were resigned to letting go of their own free agents to create cap room now have the ability to hang on to a player or two – signing a free agent and preserving some of their depth at the same time.

The revelation mattered most to the teams that dreamed the biggest. Teams with significant cap space that will be positively affected by Friday’s news include the New Jersey Nets, New York Knicks, Chicago Bulls and Los Angeles Clippers.

Teams that are hurt the most by the revelation are the teams that had the most to lose, namely the Cleveland Cavaliers, who now have to compete with a host of other teams that can offer some fairly compelling packages for the ongoing services of LeBron James.

Nowhere is that more true than with the Miami Heat. The latest cap projection puts the Heat within a mere $1 million of being able to offer three full maximum contracts. It makes the once-thought-to-be-ludicrous dream of pairing James, Dwayne Wade and Chris Bosh in South Florida, for the first time, an imminently real possibility. It was a quietly huge revelation for Heat fans everywhere!

The finalized salary cap numbers will be determined in the first week of July.

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NBA Ticket Sales Beating Forecasts, Could Impact 2010 Salary Cap

January 23rd, 2010 No comments
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Attendance across all N.B.A. franchises has reportedly dropped far less dramatically than originally projected over the summer.

The league had initially expected a 6% to 7% drop in attendance but, according to the New York Times, there has only been a 1.7% drop to date. League-wide, arenas are filled to 89% of capacity on average. Attendance is flat or ahead of last season’s pace in the majority of N.B.A. arenas. The Nets and Pistons account for most of the small overall decline.

With attendance so far beating forecasts, the league’s salary cap projects to drop far less significantly less than first feared.

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

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

Therefore, as gate receipts for this season increase, so too do salary cap projections for next season.

The N.B.A. sent a memo to teams last July warning of a potential decline in the salary cap to a figure between $50.4 million and $53.6 million for the 2010-11 season. But, given the unexpected over-performance in gate receipts thus far this season, league insiders are now projecting a cap between $53 million and $54 million.

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Miami Heat’s True Cap Position for 2010-11

January 19th, 2010 2 comments
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Miami Heat president Pat Riley has staked his reputation on the team’s, and more specifically his, ability to lure two premier free agents to South Florida to play alongside future Hall-of-Famer Dwyane Wade. Riley will be gunning to create a championship caliber product through what will be one of the most talented free agent markets in league history.

Exactly how much cap space he will have to work with in pursuit of that goal has been the subject of much confusion. There have been many figures published, showing numbers anywhere from $12 million to more than twice that figure.

What’s the true number?

Well, that depends on what you want to include.

Should non-cash charges be included? If so, which ones? Cap holds? Roster charges?

Should Dwyane Wade be included? He has a player option he is sure to decline in favor of becoming a free agent himself.

Should James Jones be included? He has a large, cap-space-destroying $4.6 million salary which is only partially guaranteed. The Heat is certain to terminate the contract to capitalize on the guarantee.

Should Joel Anthony be included? He has a player option which the Heat cannot control. If he exercises it, the team’s cap space will be reduced accordingly.

The safest assumption would be to predicate any underlying assumptions on factors the Heat can, in its sole discretion, control with the understanding that others factors not in its control have affect the numbers accordingly.

With that in mind, below is a look at the Heat’s salary commitments for the 2010-11 season (with footnotes below):

Dwyane Wade: $0 (1)

Michael Beasley: $4,962,240

Daequan Cook: $2,169,857

James Jones: $1,856,000 (2)

Joel Anthony: $885,120 (3)

Mario Chalmers: $0 (4)

First Round Draft Picks: $0 (5)

Roster Charges (9 total): $4,262,436 (6)

Total Salary: $14,135,635

The above figure, $14,135,653, represents the truest figure for the Heat’s team salary, based on how things currently stand.

Subtract ­­­­$14,135,653 from whatever the finalized salary cap number turns out to be, and you’ll end up with the amount of cap space Pat Riley has to work with. To recalculate the team’s maximum cap space as each new player is added, you just need to add the new salary and then subtract $473,604 from the roster charge amount above (until, of course, it gets to zero).

Current projections call for salary cap in the $53-54 million range.

Read more…

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Preliminary 2010-11 Salary Cap Projections

January 11th, 2010 No comments
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Miami Heat president Pat Riley is squarely focused on the summer of 2010.

He is attempting to structure the biggest free agent coup in N.B.A., perhaps sports, history.

The economy isn’t helping him.

When Riley stepped down as coach to focus squarely on his duties as president in April 2008 – before the global economic downturn that, as with most businesses across the world, hit the N.B.A. hard – some teams around the league were projecting a 2010-11 salary cap in the range of $63 million.

It seems liked a reasonable projection at the time. The league was in the midst of the biggest expansion in its history. Commissioner David Stern was about to announce a record $58.68 million salary cap for 2008-09 season, a massive $3.0 million jump from the prior season. The future was looking bright.

Since the N.B.A. instituted a salary cap starting with the 1984-85 season, the cap had only ever declined one time from the previous season, in 2002-03, and that was only due to the allocation of a massive new ABC/ESPN television contract which was to pay out $4.6 billion over six years, far more than the previous NBC contract, but allocated less to 2002-03 than NBC paid in 2001-02.

Projecting the cap to grow from $58.68 million to $63 million in two years seemed like a relatively safe bet.

Then came the global economic meltdown.

In July of 2009, Stern announced the league’s second ever drop in the cap, to $57.7 million in 2009-10. He also delivered shocking projections for the following season, warning that the cap was estimated to drop a second consecutive time, this time to somewhere between $50.4 million and $53.6 million for the 2010-11 season pending league-wide revenue performance during the upcoming 2009-10 season. The high end of the range was predicated on a 2.5% drop in league-wide revenues (technically termed “Basketball Related Income,” or BRI), and the low end on a 5.0% drop.

Teams had been bracing for such significant reductions in the cap heading into the 2010-11 season, fully aware of the crumbling economy, but seeing such numbers circulate was still jarring for many team officials.

“Teams should be aware of this projected BRI decrease and plan accordingly” said the memo that was distributed to each team.

So in the best-case scenario outlined by the league that day, Miami would have roughly $10 million less in spending money this summer than it originally planned for, although the memo did include a disclaimer stressing that these were “early” projections that could “change based on economic conditions and as more information on league-wide business performance becomes available.”

Things have changed for the better in the intervening six months, if only slightly.

With N.B.A. gate receipts down less than anticipated, the doomsday scenario of an $8 million drop in the salary cap for the 2010-11 season now seems overly pessimistic.

Everyone still expects the cap to drop heading into the summer of 2010, when the league will have its strongest free agent class ever, but by how much is the critical question.

The Heat are apparently the most conservative of all teams in their estimates, reportedly basing their planning for next summer’s cap at $52 million. That could have serious ramifications for how they plan to utilize the upcoming N.B.A. trade deadline. It could make the goal of acquiring three maximum contract free agents virtually impossible. The Heat could, in turn, seek to short-circuit the process and start the rebuild early. Amare Stoudemire has emerged as a prime focus for the Heat after it became clear earlier this month that he would be unable to work out an extension with the Suns.

The league office told teams on the eve of the season opener to expect the cap to come in somewhere around the $52 million range, but agents who have been briefed on updated financial figures now are using $54 million as their operating number. Such estimates have re-invigorated hopes of a potential Big Three scenario for the Heat.

Gate receipts over the remainder of the season will impact the cap calculations going forward (the other primary source of league-wide revenues, national and local television contracts, are locked-in prior to each season), so the numbers listed above are merely the best available estimates at this time.

But one thing is certain: the Heat is desperately hoping that ticket sales and gate receipts continue to come in stronger than originally forecast, which will give them more money to throw around when Dwyane Wade, LeBron James, Chris Bosh, Amare Stoudemire, and a host of others become unrestricted free agents.

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