Salary cap implications of the Coronavirus

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Salary cap implications of the Coronavirus 

Post#1 » by Fencer reregistered » Thu Mar 12, 2020 2:22 am

If I'm reading the FAQ correctly, especially questions 12 and 17, the NBA's imminent huge loss of income will NOT have a big effect on future cap numbers. In particular:
-- The cap is based on projected revenue each season, with a limited clawback if the projection was too optimistic.
-- If there's a one-time shortfall in revenue, the players may have to give up 10% of their salaries or so that season to share the pain.
-- But if revenues are projected to bounce back the next season, it's back to business as usual.
-- While the revenue projection is a negotiated figure between the NBA and the Player's Association, I'm not aware of cases when that negotiation has been contentious in the past, nor of reasons to think it will be contentious this year even given the extraordinary circumstances.

http://www.cbafaq.com/salarycap.htm#Q12

Do I have this right?
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Re: Salary cap implications of the Coronavirus 

Post#2 » by bondom34 » Thu Mar 12, 2020 3:24 am

Fencer reregistered wrote:If I'm reading the FAQ correctly, especially questions 12 and 17, the NBA's imminent huge loss of income will NOT have a big effect on future cap numbers. In particular:
-- The cap is based on projected revenue each season, with a limited clawback if the projection was too optimistic.
-- If there's a one-time shortfall in revenue, the players may have to give up 10% of their salaries or so that season to share the pain.
-- But if revenues are projected to bounce back the next season, it's back to business as usual.
-- While the revenue projection is a negotiated figure between the NBA and the Player's Association, I'm not aware of cases when that negotiation has been contentious in the past, nor of reasons to think it will be contentious this year even given the extraordinary circumstances.

http://www.cbafaq.com/salarycap.htm#Q12

Do I have this right?

Pulling from Leroux and Hollinger (assuming lost games or empty arenas):

https://theathletic.com/1670647/2020/03/11/covid-19s-impact-on-the-salary-cap-is-an-addendum-to-a-fraught-situation/

Do the math on an NBA regular season with roughly nine home games left per franchise, and you’re talking over $500M. Because BRI is roughly split with the players and then is cut 30 ways to produce a cap number, playing the rest of the season in front of empty crowds could theoretically drop next year’s cap by $8M.

That’s the regular season, mind you – doing the same for the playoffs, where the average gate is higher, would siphon away millions more.

One of the other fascinating wrinkles of this story is that there does not have to be any impact on the cap for 2020-21 or any future season. The Collective Bargaining Agreement intentionally focuses cap projections on the actual income for that season to protect against situations where something significant makes the past non-representative. A reasonable scenario here would be if the players and owners ever agree to permanently reduce the number of regular season games: since that would have discernable, projectable effects on league-wide revenue, the expectation is that it would be incorporated in projections for the first year it goes into effect rather than having to wait.

This situation is different, however, because the shift in income is both before the 2020-21 cap calculations and temporary, though we have no idea how long it will last at the moment. Inevitably, the players would argue that something like COVID-19 will not affect the next season nearly as much so relying on 2019-20 numbers is unfair.

However, the owners have a big piece of leverage in those negotiations. Article IV, Section 9(a) of the CBA dictates that if the two sides cannot come to an agreement, the league will use a combination of national TV rights fees (since they’re known and locked-in) and BRI from the previous year. As such, the fallback would presumably include a lower cap for 2020-21. While some franchises would be hurt by that posturing, it would reduce expenses for teams by lowering salaries since max contracts, Mid-Level exceptions, the rookie scale for draft picks and minimum contracts all have ties to the salary cap figure. Since players will sign multi-season contracts this offseason, those savings will carry over for years even if the cap returns to “normal” in 2021-22.

On the other hand, any dip in the cap in 2020-21 would also engender an artificial jump in 2021-22. This is because the actual revenue from 2020-21 would likely greatly exceed that reflected in the cap number, and the CBA includes catch-up provisions to even those numbers out over the course of the deal.

The result? An instance where smoothing would likely be a good idea. Hopefully, the two sides are more able to get something done than the last time this came up.


As such, our best guess is that a significant drop in gate revenue and related income for the 2019-20 season will produce both a lower 2020-21 salary cap than previously projected and some genuine public frustrations between the owners and players because of the unusual circumstances. There are far more important concerns stemming from COVID-19 but hopefully this helps clarify the basic elements of what comes next from a CBA/salary cap perspective.

FoundANewSlant wrote:it's really fundamental defensive flaws exhibited here by Westbrook, PG, and Adams that put Melo into vulnerable positions here yet you can't recognize or explain it.

So Paul George is the reason Carmelo Anthony struggled on defense all these years...
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Re: Salary cap implications of the Coronavirus 

Post#3 » by Fencer reregistered » Thu Mar 12, 2020 3:50 am

Ahh. I forgot that the smoothing bit was a contentious negotiation. But IIRC it wasn't about the estimated true contractual number; rather, the league was asking for a move away from the true contractual number, the union declined, and Kevin Durant wound up going to Golden State.
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Re: Salary cap implications of the Coronavirus 

Post#4 » by bondom34 » Thu Mar 12, 2020 4:06 am

Fencer reregistered wrote:Ahh. I forgot that the smoothing bit was a contentious negotiation. But IIRC it wasn't about the estimated true contractual number; rather, the league was asking for a move away from the true contractual number, the union declined, and Kevin Durant wound up going to Golden State.

The old ESPN report was they'd still have gotten 51%, I think their perception was they were going to somehow get screwed out, then realized a year after what they'd done.

I'm not totally sure how it'd work (hoping Smitty drops by at some point as he'd be a good source for this too).
FoundANewSlant wrote:it's really fundamental defensive flaws exhibited here by Westbrook, PG, and Adams that put Melo into vulnerable positions here yet you can't recognize or explain it.

So Paul George is the reason Carmelo Anthony struggled on defense all these years...
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Re: Salary cap implications of the Coronavirus 

Post#5 » by Fencer reregistered » Thu Mar 12, 2020 4:12 am

bondom34 wrote:
Fencer reregistered wrote:Ahh. I forgot that the smoothing bit was a contentious negotiation. But IIRC it wasn't about the estimated true contractual number; rather, the league was asking for a move away from the true contractual number, the union declined, and Kevin Durant wound up going to Golden State.

The old ESPN report was they'd still have gotten 51%, I think their perception was they were going to somehow get screwed out, then realized a year after what they'd done.

I'm not totally sure how it'd work (hoping Smitty drops by at some point as he'd be a good source for this too).


I doubt we know for certain what the league's best-and-final offer was or would have been, but I lean toward your theory that something could have been worked out that preserved the substance of the revenue split.
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Re: Salary cap implications of the Coronavirus 

Post#6 » by DBoys » Fri Mar 13, 2020 6:21 pm

As I understand it, the OP synopsis is a bit amiss. It's been three years (2017 CBA process) since I've had any reason to do a deep dive on the CBA mechanisms for the cap, but IIRC the CBA rules are structured in a way to ensure that get 50% over the course of the agreement. Period.

So yes the mechanisms for setting the cap are based on projected revenues, but when the previous cap left the split unequal, the setup provides for adjustments to recoup it back to the 50%. When the players get too much, the salary hold-back is part of that, but if that's not enough, then that money owed by the players to owners isn't erased, but rather they use a formula to alter future cap to get the money back. It works the other way, too. (IIRC they take a bite out of the future BRI, or add to it, as needed.)

If this lingers, there's also the possibility that the NBA could work with the PA to figure out solutions, with the ultimate hammer that they could void the CBA (essentially voiding all future contracts) if it lasts more than 60 days and they see no better alternative. That's the extreme end of the scale, of course, and quite unlikely. But this is all uncharted territory being navigated - the league has been shut down.

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