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Stern changes position on 09-10 cap again: decline coming

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Post#1 Stern changes position on 09-10 cap again: de
Sat Feb 28, 2009 12:58 pm by Dunkenstein

The NBA circulated a memo to all teams before last week's trading deadline projecting a likely salary-cap reduction for next season. In the memo, the NBA reportedly projected a 2009 salary cap of $57.3 million, down from this year's cap of $58.68 million.
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Post#2 Re: NBA projects 2009-10 Cap at $57.3M
Sat Feb 28, 2009 11:48 pm by FGump

That would put the tax line at LESS THAN $69.5M.

Wow. That alone should cause a mad summer scramble to reduce payroll.
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Post#3 Re: NBA projects 2009-10 Cap at $57.3M
Sat Mar 21, 2009 11:27 am by Dunkenstein

Further info on that memo from Stern: "On Feb. 18, Stern authorized the dispatch of a memo to all 30 teams projecting a drop in the salary cap from $58.7 million this season to $57.3 million in 2009-10 and a subsequent drop to $56.5 million in 2010-11, with a projected decline for the luxury-tax threshold as well: $71.2 million this season to $69.4 million in 2009-10 to $68.5 million in 2010-11."
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Post#4 Re: NBA projects 2009-10 Cap at $57.3M
Sun Apr 19, 2009 11:45 am by Dunkenstein

NBA Commissioner David Stern on Saturday said the league’s economic projections are looking more optimistic than initially expected. Stern said revenue may grow by "a percent or two," rather than remain flat or even fall, as the league warned its teams in February. Stern said the salary cap — which is based on the league’s overall revenue — will "remain under pressure." But he did not expect it to fall back this summer, though he warned that revenue could still fall next season. "They will not go up the way they were projected to go up," Stern said. "I don’t think they’re going to go down. If not next year, the year after. Or if not down, nothing like the growth that we have enjoyed."

That last sentence is pretty convoluted, but I think he's saying revenues (and thus the salary cap and luxury tax) should remain about the same for next season, or maybe slightly up. And he is projecting smaller raises in years to come than those that the league has experienced past years.
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Post#5 Re: NBA projects 2009-10 Cap at $57.3M
Sun Apr 19, 2009 2:28 pm by FGump

I saw that item - and it made me wonder. It certainly has huge implications if revenues are staying steady, not only in terms of franchise stability but also in terms of the need for forced player sell-offs by one team or another.

We've all seen empty seats everywhere (even lower bowls only half filled, it seems) in "sold out" arenas. Obviously announced attendance figures are higher due to tix being presold, but when people don't show up there has to be a big drop in parking revenues, concessions, souvenirs, and so on. And it means that demand for ticket resales is minimal.

So to me the bigger issue (and one we don't see from the outside) has been what kind of season ticket sales for next season and ad sales for next season are the teams getting right now. Are they getting renewals across the board, with biz as usual? Or has there been a sharp falloff?

And since the cap is based on a projection for next season, it sounds like the renewals are pretty strong. Given all the empty seats, that really comes as a surprise to me.
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Post#6 Re: Stern changes position on 09-10 cap: coul
Mon Apr 27, 2009 3:45 pm by theBigLip

I can't imagine that renewals are strong. This year's season tickets were sold before the economy took a big dump. The economy will be lucky to bottom out in 2009 and certainly will not be "back to normal" anytime soon. There has to be a drop off in revenue.
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Post#7 Re: Stern changes position on 09-10 cap: coul
Mon Apr 27, 2009 6:28 pm by FGump

theBigLip wrote:There has to be a drop off in revenue.


While normally I'd tend to agree with your guess, Stern appears to be saying otherwise.

Look at the written report: Stern said the salary cap — which is based on the league’s overall revenue — will "remain under pressure." But he did not expect it to fall back this summer, though he warned that revenue could still fall next season. "They will not go up the way they were projected to go up," Stern said. "I don’t think they’re going to go down."

Stern's statement that he doesn't expect the cap to go down means the league's best guess on revenues is that they will stay the same - because cap is based on best guess on Anticipated Revenues. The extent of his firm caution at this point is "Don't expect it to go up like it usually does" - with an added sidebar that yep, it's still possible that revenues could fall somewhat. That's a tremendous backing away from his ominous-sounding predictions of a few months ago.
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Post#8 Re: Stern changes position on 09-10 cap: coul
Wed Apr 29, 2009 11:48 am by Dunkenstein

Here's the latest prognostication from the Commish (via Hoopsworld):
Stern admitted that the salary cap won't take as bad a hit in 2009 as was initially feared, but speculation remains that 2010 won't be the bonanza that was once believed. "I think the cap is going to stay the same or go down a skosh," said Stern. "If we have decreased revenue next year, it will go down a couple of skoshes the following year. But the days of massive increases are gone for a period of time."

So he seems to have revised his tune that "he did not expect it to fall back this summer", even if it is just a "skosh".
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Post#9 Re: Stern changes position on 09-10 cap: coul
Wed Apr 29, 2009 12:34 pm by FGump

Semantics. He's dancing, isn't he? The more he talks, the more it begins to feel to me like there's some level of "whistling past the graveyard" in play here.
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Post#10 Re: Stern changes position on 09-10 cap again
Sun Jun 7, 2009 12:51 am by Dunkenstein

Well, the commish may be changing his tune once again. According to John Hollinger of ESPN "If revenues decline by 10 percent in 2009-10, as commissioner David Stern seemed to suggest in his press conference Thursday night, it will be total financial Armageddon for the league's teams."

http://insider.espn.go.com/nba/playoffs ... Cap-090605

Let me say that I've always felt that Hollinger and his PER were both as worthless as what I used to occasionally step in before dog owners were required to follow after their dogs with plastic bags. And I think his understanding of BRI, the cap and the luxury tax are probably not his strong suit. With that said, he reports that "One source I talked to said even a 5 percent drop in revenues would push the luxury-tax level to slightly above $60 million, which would in turn put the majority of the league's teams over the tax line in 2010-11 unless they made some serious adjustments to their payroll."

What I do think is that now that the teams have added up their 08-09 numbers and have seen how sponsorship, season ticket and luxury box sales for 09-10 are going, the reports they're sending into the league office are even worse than Stern initially thought (then backed away from) in February.

There was a famous financier and advisor to Presidents named Bernard Baruch who lived through the first half of the last century. Baruch was well-known, and often walked or sat in Washington D.C's Lafayette Park and in New York City's Central Park. It was not uncommon for him to discuss government affairs and finance with other people while sitting on a park bench: he became known for this. One day he was asked "How do you amass great wealth?'' His reply was "Have cash at the bottom of a depression."

I think that if there are some teams out there this summer with cash they might just be in a great position to pick up some really good talent without having to give up very much, as money-losing teams scramble to cut payroll.
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Post#11 Re: Stern changes position on 09-10 cap again
Sun Jun 7, 2009 11:52 am by Dunkenstein

Well, it looks like Hollinger could have been over-reacting. Today Marc J Spears reports that Stern said NBA commissioner David Stern said the league's salary cap is expected to be "a little bit lower next year, and further decline in revenues would lower the cap even more. That's just the reality of it. But that's not 'the sky is falling,' because we really do believe actually that our business is quite robust. It's just operating in a different environment where 5-10 percent increases are not going to be the norm."

http://www.boston.com/sports/basketball ... ch/?page=3

So it looks like it's not the "sky is falling" scenario of Hollinger, but it look like Stern is predicting a decline in BRI, luxury tax and cap.
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Post#12 Re: Stern changes position on 09-10 cap again
Sun Jun 7, 2009 2:46 pm by FGump

One anomaly has to be recognized in this situation, and it could be making for some of the weird swings.

In most circumstances, there is a tension between "what the players want" and "what the owners want." The players want spending to go as high as possible, so they want the tax line to be as high as the moon. But in general, the owners want a mutually-agreed restraint that keeps spending down somewhat, where none of them feel like they HAVE TO spend themselves into the poorhouse just to keep up.

However, let's imagine that there truly was a $60M tax line. In that case, it's going to be virtually impossible for most teams to escape paying tax, and there will potentially be such a windfall for the non-taxpayers via the tax distribution that teams would scramble to be one of them. In that scenario, with teams doing desperate stupid things, is the result going to be healthy for the league? I'd think not.

The anomaly is this: the owners probably want (and may even need) a higher tax number, just like the players!

So I wonder if the league and players could fudge the numbers this summer. Let's say they see that the tax line SHOULD BE $60M. Would Stern say, "Look, we can't have a $60M tax line. It will cause chaos. Owners will panic, and there will be too much escrow put back into the system on your side too. How about if we negotiate a higher number, and what will you offer if we do that?" I can see Stern trying to guide things in that ultimate direction, and I can see that as an explanation for all the yo-yoing we've been seeing as we go along.
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Post#13 Re: Stern changes position on 09-10 cap again
Sun Jun 7, 2009 3:23 pm by Dunkenstein

Let's remember two things. 1) the tax and cap number is based on projected BRI, and 2) if the actual BRI comes in less than the projected BRI, then the difference is subtracted from the following year's tax and cap numbers. So if they make the tax and cap numbers based on a BRI which the league, teams and players know is inflated, then the 10-11 tax and cap numbers could end up artificially lower.

Now 10-11 is the year a number of teams are shaping their team salary structures to be under the cap so that they are in a position to gobble up all the potential free agents who can be available that summer.

So maybe Stern figures "I'll give the teams extra cap and tax room this year when they need it for financial reasons. And they'll have to pay me back in 10-11 when many of them will have less salary commitments to deal with."

If that's the case, we may see a modest drop in the cap and tax numbers this summer with a bigger drop the following summer. With less room under the cap than they have been anticipating over the past couple years, it will be harder for teams to poach other teams' free agents.
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Post#14 Re: Stern changes position on 09-10 cap again
Sun Jun 7, 2009 3:41 pm by FGump

That's an interesting theory Dunk, and it makes a ton of sense.

In that scenario, the league would end up wanting to try to accurately project the revenue for both 2009-10 and 2010-11. They then would set the cap/tax numbers artificially high in 2009-10 so that there is at worst a modest fall, but attempt to do it in such a way that when they have to pay back what they "borrowed" in 2010-11, the 2010-11 numbers might still be palatable for everyone.

As I understand things, this would be a one-time only option, because for 2010-11 they can't borrow from the following year since the CBA ends after that season. So prior to that season they'll just have to absorb any cumulative overestimates they've already given away. Right? So assuming that's the case, the summer of 2010 may - as you postulate - be when there's a massive drop in the cap and tax as Stern is forced to use the most accurate projections he has and let the chips fall where they may.

Does that mirror your thoughts as well?
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Post#15 Re: Stern changes position on 09-10 cap again
Sun Jun 7, 2009 5:02 pm by FGump

Before we get too far into our own conjecture, on further reflection I'm thinking maybe we need to rein it in a bit. We're only getting tiny snippets in the articles of what Stern said. So I did some chasing of articles that were actually there and quoting him.

It's noteworthy that the two items noted above came on the same night, same event, and one was to a wider pool of reporters followed by a smaller group asking more followups. Marc Stein at ESPN summarized the entire thing, as did Ken Berger at sportsline, although each used snippets of quotes only.

I also have to note that the summary above of Hollinger's take - which came from the first interview - seems to be nuanced a bit differently than was related above. (NOTE: Since I don't have insider membership, maybe I'm missing something, but that certainly appears to be his thesis at the outset. Someone with membership can correct me if I'm wrong.)

So maybe it will be helpful to our understanding to actually give the reports in their own words. Here are the best ones or most informative ones I can find, in the posts below.
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Post#16 Re: Stern changes position on 09-10 cap again
Sun Jun 7, 2009 5:11 pm by FGump

On reading what I could from Hollinger (as already noted, I don't have insider membership, so maybe I'm missing something) while he did speak of Stern predicting a 10% drop and while he did use the term "financial Armageddon", he was apparently referring to the 2010-11 cap/tax and that touted free agent summer of 2010, not 2009.

As I understand him, his Armageddon view is based on the league calculating an overly optimistic 2009-10 cap/tax number, then seeing a 10% drop and being forced to take it back for 2010-11, with an assumption the revenues will drop but the NBA will be using an inflated number driven by a formula that can only be only adjusted after the fact. He seems to be blind to the fact that the NBA can and does use PROJECTED numbers as the basis for the cap/tax and therefore if they think revenues will drop and choose to do so, they are certainly able to adjust accordingly before the fact rather than afterwards.

Here's Hollinger himself.

I'm not sure everyone completely appreciates the nuances of the salary cap, so let me make certain everyone understands this: If revenues decline by 10 percent in 2009-10, as commissioner David Stern seemed to suggest in his press conference Thursday night, it will be total financial Armageddon for the league's teams because of the "claw-back" provisions in the salary cap.

The commissioner phrased it like it wasn't a big deal; in reality, this couldn't possibly be a bigger deal. Each year's salary cap is a guesstimate built off the previous year's numbers. If it turns out they were wrong, they "claw back" the amount they were off, in addition to whatever adjustment is built into the cap for the coming year.
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Post#17 Re: Stern changes position on 09-10 cap again
Sun Jun 7, 2009 5:22 pm by FGump

Marc Stein at ESPN summarized the Stern sessions as follows:

The most worrisome disclosure of the day had nothing to do with LeBron or congress or even referees. Stern said he anticipates league-wide revenues in the 2009-10 season, in the face of the ongoing global economic downturn, dropping "maybe as much as 10 percent."

Although he later suggested to a smaller group of reporters that the drop might not be that severe, such a dip would potentially lower the salary cap for the 2010-11 season to a level that -- in the words of league president Joel Litvin -- makes "a significant impact" in terms of slicing into the amount of spending money that many teams expect to have available for the ballyhooed Free Agent Summer of 2010.

"But that's not to say the sky is falling," Stern said.

Right.

It really wasn't even falling here last June even when it seemed to be.

Real sky-is-falling talk is best saved for the regrettable (and frightening) event that the league and union can't hash out a new labor agreement in collective-bargaining negotiations before the current deal expires in 2011.

"There's a lot at stake," Stern said of the talks that will commence this summer, "and I'm optimistic."


It's interesting to note that Stein echoes Hollinger - and maybe even Stern himself - in somewhat erroneously tying an anticipated drop in 2009-10 revenues to the cap of 2010 rather than the cap of 2009.

It's also noteworthy (and maybe not coincidental, in light of Stern's ongoing up-and-down projections) that Stern notes the negotiations on a new CBA could begin this summer, in the same context of trying to figure out the 2009-10 cap.

The full Stein article (which touches on many other topics as well) is here
http://sports.espn.go.com/nba/playoffs/ ... ern-090604
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Post#18 Re: Stern changes position on 09-10 cap again
Sun Jun 7, 2009 5:41 pm by FGump

Ken Berger at Sportsline gave an even fuller review-and-response to the sessions. His full article is here: http://ken-berger.blogs.cbssports.com/m ... 3/15402300

Some highlights from his article ...all of the following numbered items are direct quotes from it. My comments are interspersed and noted in bold. The underlines are added by me to his words that I find extra significant.

1. "Our revenues will likely be down some percentage, I can say maybe as much as 10 percent [next season]," Stern said in his annual pre-Finals media address. "But that's a small amount in the landscape here."

2. Stern has been discussing the economy's impact on the NBA business for months, but it was the first time he'd assigned a number to the projected percentage decline in revenue for next season.

3. Perhaps he deliberately chose a high number, because he backtracked in a more intimate session with reporters afterward. "It's funny, I say 10 percent, but of course I'm going to work as hard as I can to make it not 10 percent," Stern said. "If it's 5 percent or 7 percent or 3 percent, don't hold me to it."

NOTE: This seems to leave the door open for a fiddle factor, as Dunk and I discussed above.

4. Asked how this doomsday estimate might affect collective bargaining negotiations that are scheduled to begin after the Finals, Stern said, "We're going to share numbers and then we'll both make our own judgments about what the impact of that will be. ... That's not, ‘The sky is falling,' because we really do believe that our business is actually quite robust."

NOTE: It's vital to note that the term/sentence where he used "robust" when put into a fuller context doesn't seem to indicate him trying to back off from his prediction of a revenue decline.

5. Stern already has admitted that the salary cap – which is calculated each year based on the previous season's revenues – is going down slightly in 2009-10 based on this season's revenue. But Stern's worst-case projection of a 10 percent decline next season would cause the 2010-11 cap to be slashed significantly. That just so happens to be the Summer of LeBron, when several of the league's biggest stars will have a chance to become free agents.

NOTE: This article also misses the fact that the cap is set based on projections.

6. Stern wouldn't hazard a guess as to the specific amount the '10-'11 cap would declined based on a 10 percent reduction in revenue next season. Instead, he summoned his resident cap expert, Joel Litvin, the president of league and basketball operations. Litvin considered my question for a few seconds and said, "It would have a significant impact."

NOTE: Interesting transparency.

7. "You know the lawyers," said Stern, a lawyer. "They put in some sort of complex formula that's hard for us laymen to understand."

NOTE: Does anyone think Stern is as uneducated on this, as much of a layman, as he claims to be here? To me this sounds like a wolf trying to don sheep's clothing.

There's more in the full article on the cap and Stern's take on the next CBA.
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Post#19 Re: Stern changes position on 09-10 cap again
Sun Jun 7, 2009 6:13 pm by Dunkenstein

FGump, thanks for digging up those additional articles. I really think the quotes from Stern indicate that he's going to protect his financially-stretched owners this year with a modest drop in the tax level and then pay for it with a big drop in the tax and cap level in 2010 when the teams will be better situated to withstand the drops.

Ken Berger's piece seems to be the best analysis of what's coming. Reading between the lines, it sounds like Stern is giving his teams a year's warning that they better get their financial houses in order by the summer of 2010 because they could be facing tax penalties if they don't get their team salaries down to the low 60s (in millions). And I'm sure he's telling them that in private as well.

Furthermore, as opposed to my original thinking after I read Hollinger's piece (I suspected he didn't have a clue as to what Stern said really meant), it would behoove the agents of players with player options or players eligible for extensions to get as much as they can this summer because the anticipated salary boom of 2010 is about to become just another victim of the recession.
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Post#20 Re: Stern changes position on 09-10 cap again
Mon Jun 8, 2009 1:54 pm by LarryCoon

One of the issues here is that projected BRI is defined a certain way, which assumes continued growth. The pBRI formula is to take the non-TV BRI from the previous season, add 4.5%, and add that to the defined TV BRI. The net effect (based on the last hard breakdown of TV vs. non-TV BRI I have in my possession) is that pBRI is about 3.38% above actual BRI for the previous season. They didn't take the possibility of a declining economy into account when they wrote the CBA.
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