How the coronavirus will impact the salary cap

Kelley L Cox-USA TODAY Sports

How the coronavirus will impact the salary cap

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How the coronavirus will impact the salary cap

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In an earth-shaking move, the NBA has suspended the season indefinitely. Players, team officials, and media members throughout the league are getting tested for the coronavirus (COVID-19) and will self-quarantine over the next two weeks.

The 2020-21 salary cap will certainly be impacted by the loss of revenue of games without spectators and potentially canceled games. This guide will answer several questions that have arisen as a result of the NBA’s suspension.

WILL THE 2020-21 SALARY CAP PROJECTION DECREASE?

Most likely. Exactly by how much is still to be determined. The 2020-21 salary cap projection has already seen a drop due to a loss of revenue from China. Chinese companies pulled sponsorships, NBA games are limited on Tencent, and Chinese Central Television (CCTV) is not airing games at all. This led to a projected $200 million in lost revenue that decreased the salary cap projection for the 2020-21 season from $116 million to $115 million.

Safety measures enacted to limit the spread of the COVID-19 will push the salary cap projection further down. Playing the rest of the season in an empty arena will suspend several revenue streams, or sources of Basketball Related Income (BRI), for the NBA.

WHAT ARE SOURCES OF BRI? HOW DOES IT HELP DETERMINE THE SALARY CAP?

There are many sources of BRI that are outlined by Larry Coon in his NBA Salary Cap FAQ website. The ones that will be reduced or eliminated due to empty arenas mostly have to due with spectators that come to the games. This includes:

  • Regular season gate receipts, minus taxes, facility fees, reasonable expenses, and certain charges including those related to arena financing
  • Exhibition game proceeds, minus summer league expenses
  • Playoff gate receipts
  • The value of all complimentary tickets, minus “excluded complimentary tickets”
  • The value of complimentary suite admissions
  • Novelty, program and concession sales (at the arena and in team-identified stores within proximity of an NBA arena)
  • Parking
  • Arena club revenues
  • Proceeds from summer camps
  • Proceeds from mascot and dance team appearances
  • Proceeds from beverage sale rights
  • Proceeds from cart/kiosk sales in and around the arena
  • 50 percent of proceeds from tours and ATM fees in arenas
  • 50 percent of proceeds from luxury suites
  • Proceeds from other premium seat licenses

Overall, all of the BRI that is generated by spectators in games falls under the umbrella of gate revenue. Gate revenue makes up a significant part of BRI, somewhere in the range of 20-25 percent of it.

BRI is essential in determining the salary cap. Per Article VII, Section 1.c of the NBA Collective Bargaining Agreement (CBA), the projected BRI amount is usually negotiated between the league and Players Association (NBPA). Per Article VII, Section 2.a.1, the salary cap is determined by 44.74 percent of BRI, minus “projected benefits”, divided by the number of teams (30), followed by several adjustments.

IS THERE AN ESTIMATE OF HOW MUCH THE SALARY CAP WILL DECREASE?

It is tough to say what the 2020-21 salary cap will be projected at now with so much uncertainty. There are so many different ways the rest of the season could play out. If the season resumes, spectators probably will not be allowed for the remaining regular-season games and playoffs. It is also possible that the NBA will jump right into the playoffs, eliminating broadcast and gate revenues for the 275 remaining regular-season games. It is also not out of the question that the season will be canceled altogether.

Regular season games without spectators would result in hundreds of millions of dollars in lost gate revenue. John Hollinger and Danny LeRoux of The Athletic and Bobby Marks of ESPN estimate that the remaining games played without spectators would result in over $500 million in lost gate revenue.

Just as an exercise, 44.74 percent of $500 million is $223.7 million. Divide it by 30 and you get $7.5 million in a projected salary cap decrease. To be safe, say $8 million, as Hollinger and LeRoux estimate. Keep in mind this estimate does not include missed playoff games.

They also add that despite this, the owners and NBPA can agree on smoothing the 2020-21 salary cap so there isn’t a drastic decrease in the projection. For the players, presenting the case that an epidemic shouldn’t impact the 2020-21 season could lessen the decrease of a salary cap, thus preserving more cap space that 2020 free agents can sign for.

WILL PLAYERS LOSE MONEY IF GAMES ARE CANCELED?

Yes, but most of it is protected by Article XXXIX, Section 5.b of the CBA. In the event of games that are unable to be played due to a “Force Majeure” event, such as an epidemic, player salaries will be reduced by 1/92.6 for each game missed. Hollinger notes in another article that the amount that will be reduced from player salaries, if any, will likely be negotiated between the league and NBPA. Section 5.d states that the NBA can terminate the current CBA following a Force Majeure Event provided they issue the NBPA a 60-day written notice. However, as Hollinger notes in that same article, he believes that owners would only consider doing that if the 2020-21 season is also in jeopardy.

HOW DOES THIS AFFECT THE UPCOMING FREE AGENCY PERIOD?

Commissioner Adam Silver stated on NBA on TNTย that an NBA Finals in July is a possibility. Regardless of when the season continues, there is a strong possibility that the NBA season will extend past the end date of the season, June 30. If that were to happen, the league and NBPA must get together and agree to amend the final day of the current season to a later date. If they don’t, technically players set to become free agents on July 1 cannot play in games that extend past June 30. It’s all a technicality that must be addressed. As Bobby Marks notes, team and player options, guarantee dates, among many other aspects of the contracts of players and other personnel that work for teams, would have their decision dates pushed back.

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