Salary cap will be reduced due to NBA’s projected losses of $1 billion

The economic landscape of the NBA, including the salary cap, will change due to the COVID-19 pandemic.

For the 30-team league, annual revenue now exceeds more than $8 billion. But some prognosticators now project a loss of more than $1 billion if the rest of the 2019-20 NBA season and playoffs don’t happen due to the current shutdown.

It’s a real concern, NBA Commissioner Adam Silver has acknowledged in recent days.

This, of course, will impact the league’s salary cap structure, writes Ben Goliver of The Washington Post.

What does this mean in simple terms?

Let’s begin with a bit of background information: This season, teams have a salary cap of $109.14 million. In February 2014, Silver took over as commissioner, and the salary cap was $58 million during the final year of the late David Stern’s 30-year reign as commissioner.

Previous salary cap projection

The previous projection was for the salary cap to rise to $116 million next season.

Bleacher Report predicted a decrease of $15 million for the salary cap next season. For The Athletic, John Hollinger, whose career included a stint working in the Memphis Grizzlies front office, said he anticipates a drop of $8 million for the salary cap.

In terms of total dollars, it may not sound like a lot, but the NBA operates in a different stratosphere.

As Goliver noted in his analysis: “Over the past 35 years, the NBA’s salary cap, which is tied directly to the league’s revenue, has shown annual declines just twice and never by more than $2.3 million.”

‘Not a pretty picture’

On Saturday, Silver said the league’s economic uncertainties, including the salary cap, are a real concern.

“It’s too soon to tell what the economic impact will be,” Silver said. “We’ve been analyzing multiple scenarios on a daily if not hourly basis and we’ll continue to review the financial implications. Obviously, it’s not a pretty picture but everyone, regardless of what industry they work in, is in the same boat.”

Kevin Love of the Cleveland Cavaliers also commented on the difficult planning that Silver oversees as the public face of the league.

“Adam is obviously cautious, cautiously optimistic,” Love told The Associated Press. “We don’t know what the future holds but the NBA has been through a lot, we’ve seen a lot and I think we’ll be incredibly resilient. It just might take time.”

Affecting future salary cap figures

Teams take in about $2 million in revenue for each game, and entering the weekend more than 250 games were suspended.

Moreover, more money is generated from playoff contests.

And the losses add up quickly.

Which is why the makeup of team rosters could be quite different for the 2020-21 campaign.

Sports Illustrated outlined some of the specifics about roster building as they relate to the salary cap, including this observation: “The next free agency class—whenever free agency can happen again—will absolutely suffer the consequences as money tightens around the league.”

Force majeure clause

Related to the salary cap and the overall financial machinations of the league is an obscure clause known as force majeure. It refers to unforeseen circumstances.

It’s an item in the NBA’s collective bargaining agreement. It states the league is permitted to withhold a portion of a player’s wages due to things such as natural disasters and pandemics that cause games to be called off.

That league is now confronting that type of situation.

As it now stands, the NBA will inform teams if it will enact the force majeure clause before April 15, a league-issue memo stated. That money could then be paid after the league is operating normally again.

Roberts’ concerns

National Basketball Players Association executive director Michele Roberts, of course, recognizes the league faces financial challenges.

“I’m realistic about the prospects of the regular season,” Roberts said recently. “But we should not lose all hope about having some modicum of playoffs.”

She added: “We’re anxiously awaiting the league’s estimates. The doomsday scenario is not a happy one.”