The NBA is losing more and more money each day that passes without basketball games being played. Considering how closely tied the league’s salary structure is to the revenue that it brings in, that should, in theory, be catastrophic to the mechanisms that facilitate roster construction. Specifically, the salary cap, which typically amounts to a little more than 43 percent of the league’s basketball-related income, should plummet if that income plummets.
But in a call with agents on Tuesday, the NBPA revealed that it does not expect a drastic reduction in the 2020-21 cap, according to SNY’s Ian Begley. That does not mean that BRI will not drop, but according to Begley, next year’s cap “is expected to be calculated fairly” rather than being based specifically on this season’s revenue.
In a normal season, the cap is based on a projection of the following season’s revenue. That is calculated by using the income that is already known—such as revenue from television contracts that are set in stone—and projecting unknown revenue such as ticket and merchandising sales by increasing them by 4.5 percent. Setting this year’s cap under that method poses two significant problems.
The first is that this season’s cap was based on projections that did not factor in the coronavirus, which did not exist during the league’s auditing period in July of 2019. Teams therefore signed players expecting a certain amount of income with which to pay their salaries, but that revenue is not coming whereas those players are still contractually owed their salaries. Owners and players have reportedly, but have not yet agreed on how to share the burden of this lost revenue collectively.
The other issue is that projecting next season’s revenue would be virtually impossible. Public health experts have no idea when it will be safe for professional sports to resume or have fans in stadiums. Even if it is declared safe, without a vaccine, trepidation will likely keep many fans out of arenas, and while a vaccine would solve the health crisis at play, it would not immediately solve the economic crisis caused by the pandemic. Fans will have less disposable income for the next few years thanks to COVID-19, and the league doesn’t have a reliable method of estimating how much.
Those problems, taken in conjunction with the union’s belief that there won’t be a significant decline in the cap, point in one direction: an overarching compromise between the league and players that fundamentally alters the NBA‘s salary structure outside of what is dictated within the CBA.
That compromise could take a number of forms. The league could institute a form of cap smoothing, spreading the damage of these lost games over the course of several years at an agreed-upon rate. It could simply freeze the cap at its current figure—around $109 million, or the projected 2020-21 figure of $115 million prior to the virus—and keep it there until all of the lost revenue is made up for. The two sides could even agree to negotiate a new number on a year-to-year basis. At the moment, these negotiations are likely ongoing and there is no way of knowing where the two sides will land.
Functionally speaking, though, this sort of agreement was inevitable. An enormous one-year drop in the cap to account for all of the lost revenue would have done little good. Aside from unfairly punishing 2020 free agents, it wouldn’t have served the purpose of returning to normalcy quickly anyway. As the split between players and owners is guaranteed in advanced—neither side can take in more than 51 percent of BRI—a setting in which the cap lowers drastically but existing salaries remain steady would have just resulted in players far exceeding their 51 percent allotment and owners recouping that money in future years. A compromise allows the two sides to negotiate more favorable terms under these specific and unique circumstances than the current CBA outlines.
In all likelihood, it will take some time for such an agreement to be made. Not only does it need to satisfy both the players and owners as voting bodies, but it needs to account for factors far beyond the raw cap number itself. The luxury taxin some meaningful way or else an inordinate percentage of teams will be forced to pay it. Teams will need some form of relief for contracts signed with the expectation of a perpetually rising cap, and an amnesty clause, such as the ones created in 2006 and 2011, could do just that. Contractual raises (which can go as high as 8 percent per year) need to be addressed in an environment in which the cap isn’t rising with them.
This is perhaps the most complicated negotiation in the history of the sport. Players and owners need to figure out how to divide an amount of money they have no way of calculating. The union’s optimism suggests that basic frameworks have been discussed, but until a deal is actually reached, nothing that comes out of these meetings should be considered a certainty.