NBA Rumor: Salary Reductions

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“Not playing, it’s just an economic disaster, it really is,” Marks said. Here’s the Cliff’s Notes version, as gleaned from Marks’ expert accounting: The NBA placed 10 percent of its players’ total salaries — $380 million — into an escrow account, which they use at the end of the year to balance the revenue shares (players are entitled to 51%). That’s gone for the players. They’re not getting that back because the league has already lost too much money.

NBA teams will withhold more than $30 million from player paychecks on Friday, as players receive their first salary reduction since the league and union agreed to a plan to temporarily cut pay by 25%. But six of the NBA’s top 10 earners this season — LeBron James, Stephen Curry, John Wall, Blake Griffin, Kevin Durant and Paul George — have already been paid in full and will not see a pay decrease Friday. Their salary reductions will come out of their advances for the 2020-21 season on Oct. 1 or beginning with their Nov. 15 paychecks. Each player will essentially have an IOU per paycheck to his team ranging from $390,000 (James) to $420,000 (Curry) each time there is a scheduled 25% pay reduction. That amount will increase if games are eventually canceled because of the coronavirus pandemic.

Charania: The NBA regular season is approximately 80 percent complete, depending upon where each team is in its schedule. From what I’m told, the league was in line to generate nearly $9 billion in basketball-related income, and owners and team presidents estimate that canceling the rest of the season would result in $1-to-2 billion in losses. The NBA and its players agreed to reduce paychecks by 25 percent starting May 15, essentially serving as a reserve for if and when play resumes, and players can receive that amount back.

With the coronavirus pandemic keeping the sports industry on pause, players from across the National Basketball Association are urging their colleagues to use the downtime to examine finances and prepare for a possible change in the league’s revenue landscape. “Don’t look at this at this as a timeout,” Oklahoma City point guard Chris Paul told CNBC in an interview. “Look at this as an opportunity to get stronger in however way you see fit. If financial literacy is one of them, which I think that is for a lot of us, then dive in.”

As the coronavirus pandemic continues across the world, NBA owners are hoping for the best but preparing for the worst. The league plans to keep all options to resume the season available for the time being, sources told ESPN, but the financial realities of the situation demand near immediate action. That has become clear in talks between the NBA, the National Basketball Players Association and player agents, sources told ESPN, as the league tries to get its finances in order in the event the rest of the season must be canceled.

The league’s CBA includes a force majeure clause, enabling owners to cancel games and recover salary in the event of a pandemic. This clause also gives the league a 60-day window within which it can rip up the CBA entirely — effectively beginning a work stoppage. No one wants to do that. But it underscores the gravity of the situation. Still, in recent years the two sides have worked as well together as ever, and the CBA isn’t set to expire until 2024.

The agreement between owners and players in the last CBA calls for roughly splitting revenue 50/50 and also splitting the coming losses. So, the owners want to hold back a percentage of players’ checks going forward — both giving them extra money they can use now, if needed, and also to help balance the books in the event some, or all, of the remainder of the season is canceled. From an economic standpoint, both sides would prefer to limit the pain of the shutdown to only this season and not start next season with IOUs on the ledger. Setting the money aside now would help do that.

If the NBA cancels the season, players, especially those who received pay advances, could refund millions of dollars to league owners. Paul said players are “aware” of discussions regarding compensation, but said he doesn’t sense any panic. “As long as we have the conversations about it and try to make sure that guys are prepared as possible, I think we’ll be fine,” Paul said, adding that he’s in constant communication with players who call to seek additional information. “I’m happy guys want to know what’s going on, and guys want to be informed,” he said. “I can’t say it enough: I think we’ve got the best body of players in our league.”

The repayments will hit hardest for players who receive their paychecks on a six-month cycle, who receive more money per pay cycle but don’t get checks during the off-season. (Agents usually prefer 12-month payment plans to protect players from over-spending, and to keep them from struggling once the season ends and paychecks stop rolling in.) It will also hit hard for some players who received advance payments on their contracts. Teams often use advances to lure free agent players to sign deals sooner, at times offering full or partial payment of contracts upfront.

The Lakers plan to ask top-level executives to voluntarily defer 20% of their pay as the team navigates its finances during the COVID-19 pandemic, according to people familiar with the situation. The requests have not been made, but will be done in hopes of avoiding cuts that impact lower level staff members. Once the deferments begin, they will last until the first regular season game of the 2020-21 season or mid-December, whichever comes sooner.

Families who live paycheck to paycheck are now scrambling to pay bills with no idea when they’ll be able to work again. It’s also impacting the finances of professional athletes at all levels. For those at the lower salary level, it is making a larger impact. And many are living close to a paycheck-to-paycheck lifestyle, Portland Trail Blazers shooting guard CJ McCollum told former NBA player Jay Williams on “The Boardroom.” “I would say out of 450 players … 150 probably are living paycheck to paycheck,” McCollum said.

The NBA has no plans to announce the cancellation of games in the immediate future, sources said. The league’s plan has been to continue working on a number of contingencies for returns from a hiatus that started on March 11, based upon how many days the league has to work with to salvage a season, sources said. The NBA has committed to paying full salaries on April 1, but the league and union are discussing ways for an orderly redistribution of money based on the number of regular-season games that could be lost in the 2019-2020 season.

On a recent episode of The Lake Lake Show podcast, Eric Pincus of Bleacher Report suggested that “it could be three or four years until the league is back in balance”. Pincus also went into depth on how the NBA will return. Where he stated that the league are considering canceling games. Which will create financial implications for players, even more so the high-end stars like LeBron James. “Players typically get paid on the 1st and 15th of every month and the 1st would be a full check. But the league hasn’t committed to the 15th… it means they’re considering canceling games. Because by the rules, they can’t dock players for games that are rescheduled. They can only dock from players for games that are canceled.”

The NBA’s collective bargaining agreement allows the league to reduce player salaries by 1/92.6th for each game missed because of, among other things, epidemics: “We’re not promised a check past the first of April I believe,” Danny Green said on ESPN’s First Take. “This is very different than the lockout. We were able to prepare for the lockout, know that there wasn’t going to be basketball for some time and save up. This time, guys were not prepared for this, this happened out of nowhere. “So they’ve gotta be smart with these last two checks that we’ve received,” the Lakers guard continued. “We may be getting past that, we don’t know yet. If we don’t play the rest of the season, it will affect our check and playoffs as well. We have to be very smart with our money.”

Uncertainty about NBA players salaries

The NBA plans to deliver players full salaries due on April 1, but left open the possibility of recouping future salaries for canceled games on April 15, according to a league memo shared with teams Friday. As the coronavirus pandemic paralyzes the NBA and nation, the canceled games and loss of revenue are causing the NBA to leave itself financial flexibility based on the force majeure provision in the collective bargaining agreement.
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