In case you were unaware, the league’s salary cap is renewed before each season, calculated – in part – on a percentage of the revenues generated the year prior. As league revenues generally go up over time, so does the cap But what happens when the season is immediately and indefinitely paused due to a global pandemic? We already know revenues will be negatively impacted – that’s a certainty – but what the heck is going to happen to the salary cap?
Short answer: No one has any idea.
The entire league is stuck in uncharted waters, and the only way we’ll know the true financial impact is by waiting it out. However, that isn’t going to stop anyone from estimating and trying to get ahead of the mess that’s bound to come. And for that reason, we’re starting to see more and more people take a stab at projecting the fallout.
Over the past several decades – especially in recent history – the league’s popularity and profitability has only grown. And because of that, a decline in the salary cap has been quite rare. In fact, as the Washington Post points out, over a 35 year period, only twice has the league’s salary cap seen a decline (2002-03 and 2009-10).
But with the league on an indefinite hiatus, we’re bound to see this happen once again.
Some team executives have projected the NBA to take a potential hit of over $1 billion dollars this season (and that includes the already expected dip in revenue from the problems with China at the beginning of the season), per the Washington Post. Exact/accurate estimates are tough to come by, but it’s just not difficult to believe that – in the wake of this COVID-19 crisis – we’ll see a massive loss of dollars for the league.
And before you ask, even if the NBA were to resume playing games without fans, HoopsHype’s Yossi Gozlan estimates a $500 million loss. So, yes, a cap hit is expected. The real question then, is How much?
A popular estimate seems to project a salary cap hit of at least $10 million, when all is said and done. And if that’s the case, teams will have significantly less spending ability, while players might be less inclined to hit the market or sign any kind of long-term extension in the meantime. Moreover, a drastic drop in the salary cap means will also spell a change in the luxury tax. And that means that several teams could be over that luxury tax threshold immediately after any changes, putting organizations – and players – in a troubling position.
So what does this mean?
Well, the NBA and its players will have to work together to counterbalance this possible fall.
CBA expert Eric Pincus discusses the ways this could take place in a recent episode of The HoopsHype Podcast, and I suggest you check it out. The most realistic idea is centered around cap smoothing, which would basically require all parties involved to agree to a system where the league’s losses affect the cap space over a several-year period instead of all at once. While this method would keep things semi-normal, it also would certainly leave a lasting impact. For example, the 2021 free-agent class is incredibly coveted, and teams were expecting the cap to go up so they have the available space to target some of those players. Cap smoothing would require some organizations to shift gears.
All in all, Pincus seems to believe everyone involved wants to work together on a solution. The NBA doesn’t want to run into a situation where they have to take money from players … and the players don’t want to end up in a fight with the league after money has already been taken away. Working together would allow for the league to get back up and running faster, which would help everyone feel just a bit of normalcy once again.