With 2019-20 Season Over, NBA Must Now Confront Tough Financial Reality Ahead

angel may

LAKE BUENA VISTA, FLORIDA – OCTOBER 11: LeBron James #23 of the Los Angeles Lakers reacts with his … [+] MVP trophy and Finals trophy after winning the 2020 NBA Championship over the Miami Heat in Game Six of the 2020 NBA Finals at AdventHealth Arena at the ESPN Wide […]

The longest season in NBA history ended Sunday night with the Los Angeles Lakers defeating the Miami Heat, 106-93, to win their 17th championship in franchise history.

Now comes the hard part for the NBA. With the coronavirus pandemic showing no signs of disappearing anytime soon, the league must begin planning for its 2020-21 season amid unprecedented uncertainty.

The NBA sets its salary cap each year based on the projected basketball-related income for that season. That tends to be a relatively straightforward calculation, as the league can plan to have a full 82-game regular season and four-round postseason with fans in attendance.

However, the 2020-21 season will likely be the exception to that rule.

NBA Commissioner Adam Silver recently told CNN’s Bob Costas that the league hopes to play “a standard, 82-game season and playoffs” next year. He added that the “goal would be to play games in home arenas in front of fans,” although he noted “there’s still a lot that we need to learn in terms of rapid testing, for example.”

That could have a dramatic impact on next year’s salary cap, creating a potentially massive headache for the NBA and National Basketball Players Association in upcoming negotiations.

In early May, Silver told players that fans in arenas generate roughly 40 percent of the league’s annual revenue, per ESPN’s Adrian Wojnarowski. If fans cannot attend games for some portion of the 2020-21 season, or if attendance must be dialed back to maintain social distancing, that will impact the NBA’s bottom line.

“We projected a [basketball-related income] of over $8 billion, and it ain’t going to be a BRI of over $8 billion,” NBPA executive director Michele Roberts recently told Shams Charania of The Athletic. “That’s clear. As long as we can’t have our arenas to full capacity, we have to be realistic. That’s a 40 percent revenue drop. So the question is, how do we deal with that and allow the pain that’s clearly going to be felt in a way that makes sense?”

Under the current collective bargaining agreement, players are guaranteed no less than 49 percent and no more than 51 percent of BRI in any given season. Since players’ salaries are fixed costs, that creates issues in the midst of an unexpected revenue decline.

In a typical season, the league places 10 percent of players’ salaries in escrow to ensure they don’t earn more than their maximum share of BRI. When the season went on hiatus in mid-March because of the Covid-19 pandemic, it quickly became clear that the 10 percent escrow would not fully cover the scope of potential revenue losses.

According to Sam Amick of The Athletic, “the total losses from the pandemic are on track for approximately $1.5 billion” since the league ended up scrapping a portion of the regular season and had no fans in attendance during the playoffs. To account for that shortfall, the NBA began withholding a larger percentage of players’ paychecks in mid-May, going from 10 percent to 25 percent.

Barring a major medical breakthrough, more financial pain is likely forthcoming next season. The uncertainty regarding fan attendance makes it effectively impossible to accurately project next year’s BRI at the moment.

The league could set the 2020-21 salary cap based on projected BRI without fans in attendance, but it would lead to a steep drop from the latest $115 million projection. Some teams fear it could fall “as far as $25 million to $30 million” in that scenario, according to Wojnarowski, which is likely a non-starter for both players and teams alike.

Instead, the two sides are widely expected to agree upon a cap amount that isn’t directly tied to BRI. “Nobody knows the exact amount for sure,” since the NBA and NBPA must still hammer out the details, but the cap and tax lines are likely to stay relatively flat at $109.1 million and $132.6 million, respectively, according to The Athletic’s John Hollinger.

If the two sides do set next year’s cap independent of projected BRI, they may need to maintain the increased escrow to ensure the players don’t exceed their maximum share of BRI.

“It comes down to if it’s a $6 billion pie and our owners are entitled to 49 percent, and they’re already committed to $5 billion in player salaries and fixed costs for example, where’s the rest of their money?” Roberts told Charania. “There’s ways to take that $6 billion and get to their 49 percent. One of the ways to do it is to slash player salaries.”

After reaching a compromise on increased escrows ahead of the season restart, the two sides already have a baseline from which to work for next season. Negotiations will likely get heated at times, but Roberts told Charania that she doesn’t anticipate the NBA exercising its nuclear option of opting out of the CBA and locking players out.

Decreased revenue is only one of many hurdles the NBA must overcome ahead of next season. The Walt Disney World
DIS
bubble was a smashing success from a public health perspective—zero positive cases following the initial quarantine period!—but doing a full-season bubble appears to be a non-starter for 2020-21.

“Do I want to do it again? Hell no,” Roberts told Amick. “And I’m actually quoting my players, when I ask them, ‘What do you think about the bubble? Hell no.’”

However, the league is looking into ways to cut back on travel, Roberts told Amick, such as “potentially having the divisions play at one time.” When players do travel, Roberts floated the idea of “having greater buy-outs of hotels or creating a mini-bubble within the hotels,” which would likely be a greater expense than teams typically incur.

In other words, the NBA and NBPA have a number of logistical headaches to work through in the coming days and weeks. As successful as the bubble was, the league is now back to square one with regard to the 2020-21 season.

Source Article

Next Post

Improved Profitability and Undervalued Stock

– By Nathan Parsh Shares of aerospace and defense company General Dynamics Corporation (NYSE:GD) have declined 18.5% year-to-date and sit more than 24% off the 52-week high. The company’s aerospace segment has been weak over the past few quarters as new orders for Gulf Stream jets have slowed. With the […]