Salary cap
Since the end of the 2019 season, there’s been a perfect storm of factors coming together to interrupt what was once an incredibly promising financial outlook for the NBA.
It started back in October when Daryl Morey, general manager of the Houston Rockets, tweeted out his support for the protests in Hong Kong. There’s been enough written about the aftermath of that situation so I won’t go too far into the details, but suffice it to say it created high tension between the NBA and China. That tension has been put on the back burner due to the current situation, but the financial impacts of it are still ongoing.
The financial hit the NBA sees from COVID-19 can’t be completely calculated until we get further removed from the situation, but it’s pretty clear that it will be a bigger dent in their bottom line than the China situation. Both situations have caused a significant loss in revenue and the league will have to be prepared for the coming fallout from that.
League revenue is something that is typically addressed as a concern for the owners, but the players will be affected by decreased revenue just as much as the owners are. There needs to be a partnership between the two sides to minimize that loss.
I don’t want to get too technical with the salary cap because the details of it are more complicated than my brain can process (Yahoo Sports gives a more detailed breakdown if you want to torture yourself with cap specifics). But essentially, the players and owners have roughly a 50/50 split of basketball income, and the NBA keeps 10 percent of player salaries in an escrow account until basketball income can be calculated. Then, at the end of the year, the NBA releases the correct amount from that escrow account to satisfy the split in the CBA.
But if the NBA can’t use that 10 percent to satisfy the split, then next year’s salary cap will go down. No one wants that, especially not the players, but the impacts could extend past just this season.
ESPN’s Adrian Wojnarowski has reported that there is a growing concern that the NBA will play games without fans in the 2020-21 season. That would mean another year of lower revenue coming in and a cap that could be trending down for multiple seasons, likely followed by a number of seasons for the cap to begin recovering back to what it is today.
The health concerns from COVID-19 may not be around for the next several years, but the impact it has on the on-court product and on the bottom line will be. The NBA can’t flip a switch and set everything back to normal, the league is changing and those changes aren’t temporary. There is no shortage of factors to consider in the coming weeks and months, but if the chosen solutions don’t align with a long term plan then the league will be feeling the effects of this for years.