NBA Notebook: 3 potential solutions to the NBA’s looming salary cap problem

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(Stacy Revere/Getty Images)

The public jockeying between the owners and players union in major league baseball has been at the forefront of headlines in recent days as stars like Blake Snell balk at the prospect of an additional paycut on top of what’s been agreed upon months ago. Other big names have supported his comments as the league tries to inch closer towards a return.

That type of dissension has not been present so far in the NBA ranks, at least in a public forum. The president of the players union’ Chris Paul spoke on ESPN’s The Jump Friday striking a balanced tone of the challenges that lie ahead and a desire to get back on the court, presenting a united front between his camp and the owners.

"A lot of hard conversations that have to be made, a lot of hard decisions," Paul said. "But with the team around us, I think ultimately we'll get to where we want to. Obviously we want to play. Oh man, we want to play. We want to play bad. And I think that's a consensus for the guys around the league. We want it to be, obviously, as safe as possible. But the biggest thing is, we miss the game."

The NBA’s revenue-sharing system (a 50/50 split between players and owners based on a complicated formula) already being in place should help keep the turmoil minimized compared to what we are seeing from the MLB players union. That along with the fact that salary reductions from the NBA will be far less than the MLB for 2019 due to the fact that 80 percent of the regular season already being completed will make finding common ground for NBA owners and the union an easier task for 2020 when negotiations about resuming play get serious in the coming weeks.

The tougher financial questions facing both sides will come for the 2020-21 regular season. The league was projected to earn roughly $8 billion for the current season to be split among the players and owners. Some league sources told BSJ that they expect that number to go down to closer to $6 billion based on the loss of arena sales among other factors. That’s assuming the NBA even gets clearance to finish out the 2019-20 season in the first place.

Next year’s salary cap projection (based on $8 billion revenue) was projected by the league to hit $115 million for the 2020-21 season with a luxury tax number at $140 million. A drop-off in 25 percent in projected revenue could send the salary cap number plummeting without some negotiation or adjustment agreed upon by the NBA or the union. Bobby Marks of ESPN.com projected that a $25-30 million drop could be in play for next season if those revenue losses lineup.

A drop-off in the NBA salary cap from year-to-year has happened before, mostly recently in 2010. However, the biggest drop-off in NBA history since the cap has been implemented has only been five percent, with most being even smaller than that.

A gigantic decline in one season of 25-30 percent from the projected $115 million cap to $90-95 million range would have dramatic disastrous implications on both the players and teams.

1. The players on the 2020 free agent market would be screwed: With next year’s current $115 million cap projection, only 10 teams (at best) would have significant cap room to spend. Trim that total by 20-25 percent and only a couple of teams (if that would have money to spend. That would leave the entire 2020 free-agent class with no ability to sign with other teams beyond sign-and-trades and mid-level exceptions ($9 million). That scenario would leave several players getting squeezed and top-tier players have no leverage in negotiating new deals with their own teams (since the outside market would be non-existent).
2. Several teams with substantial salary commitments already for next season would face huge luxury tax bills: The Celtics would be one of the teams impacted heavily in this scenario. Boston already has $135 million tied up in salary commitments among 12 players (assuming Hayward and Kanter opt in). Before the pandemic, that wasn’t a very big deal since the luxury tax line was projected to be $140 million, giving the C’s some leeway to spend or even go over it by a bit (something ownership has done in the past).

A huge drop in the salary cap for next season would (by CBA rules) lower the luxury tax line dramatically as well. For example, if the new salary cap was placed at $95 million, the luxury tax would shift all the way down to $115 million. That would force big market teams with big signings already on the books for next year (Philadelphia, Golden State, Brooklyn, Houston, Boston, etc.) to be in line to pay tens of millions in luxury tax penalties unless they were able to dump some salary in a trade. Seeing that there will be no significant cap room for teams in the offseason in this kind of scenario, it would be close to impossible for any of these teams to dodge a hefty bill under the current CBA rules.

With both the players and owners getting financially squeezed here in a big way, there will likely need to be some serious adjustments to the current CBA in order to avoid this scenario taking place with the expected revenue shortfall.

As Adam Silver put it in a conference call with players last week: The CBA “was not built for an extended pandemic."

“There’s not a mechanism in it that works to properly accept a cap when you’ve got so much uncertainty, when we’d be going in next season saying, ‘Well, our revenue could be $10 billion or it could be $6 billion. Or maybe it could be less,'" Silver explained.

So what are some possible solutions to this problem for the two sides as they head towards the negotiating table in the coming weeks?

1. Smoothing out the 25 percent salary cap reduction over several seasons: While a 25 percent