Covid-19 Impact on NBA Salaries
The following article was first published in The Commentator, the undergraduate student newspaper of Yeshiva University.
NBA players’ salaries are frequently a topic of discussion amongst fans; for such a relatively non-critical job in our society, NBA players get paid like they matter the most. The best players in the league can get paid upwards of 35 million dollars a year, and that number seems to be increasing every season. In 2016, Memphis Grizzlies star point guard Mike Conley received the richest contract in NBA history, worth $153 million over five years, and since then, there have been at least 10 contracts worth more than $160 million. Today, the NBA season has 20 players earning over $30 million, and another twenty securing at least $26 million. Although the boom in the NBA’s revenue has earned the players more money than ever before, this coming year may look a lot lower than before. To understand why this is the case, we need to take a look at exactly how the NBA players’ salaries are determined.
Each year, based on the previous season’s league revenue, the NBA determines the coming season’s “salary cap,” the maximum amount an NBA team can spend on salaries that season. As a result of a collective bargaining agreement (CBA) in 2016, NBA players and their owners have a 51-49 split, respectively, in basketball-related income (BRI). BRI is the amount of money NBA teams earn from events relating to basketball, including ticket sales, brand deals and merchandising. The players’ 51% in any particular season, divided by the total number of teams, becomes the following season’s spending limit per team. To illustrate: if the league makes $3 billion in BRI in a particular season, the next season the players get 51% of that amount, which is $1.53 billion. When dividing this by thirty, each team’s salary cap would be $51 million. On the other end, 49% of BRI is given to each owner.
Now that we have this background knowledge, why is the salary cap going to decrease? There are several reasons for this.
At the beginning of the NBA season, in response to China’s stifling of protests in Hong Kong, Daryl Morey, the general manager of the Houston Rockets, tweeted in support of Hong Kong. China, enraged by the perceived disrespect, terminated all partnerships between themselves and the NBA, which led to a loss of $100-400 million. Furthermore, the NBA may lose close to $500-700 million in ticket revenue due to the coronavirus, another large chunk of their BRI. The virus’s effects on people’s income have also decreased the purchases of NBA licensed merchandise. Overall, estimates predict the league could lose $1 billion in BRI, which would significantly lower each team’s salary cap. To better understand this, if the league makes $6 billion in BRI this season, then each team’s salary cap next season will be $102 million, $7 million less than this year and $14 million less than what was projected at the start of the season.
This large loss in BRI will have multiple effects on the players’ final salaries. Firstly, according to the CBA, players must put 10% of their contracts into the NBA’s eschew account in case the NBA’s projected BRI is not met. This rule was made to ensure the 51-49 split remains constant between players and owners. Based on how close the NBA’s end-of-season BRI was to projections, the players are given back a certain percentage of that money (usually just about all of it). Since this year’s issues with China and the global pandemic were not predicted, the NBA will most probably fall short of their projected BRI and players will likely not receive any of that money back. In some cases, they may even owe money this coming season.
Moreover, with the salary cap projected to fall, free agents (players whose contracts expired, and are free to sign with any team) will receive a lot less money than they deserve, simply because teams will have less money than was projected to be free to spend. Therefore, not only will certain players have contracts smaller than they deserve, but they will also have to pay a small amount if they owe any money to the owners from this season.
Lastly, max contracts, a contract with the first year as a certain percentage of the team’s cap, with small incremental increases for future years, will be worth less than previously thought. If a player signed a max contract that kicks in after this season, the amount they were expected to be paid will be lower than previously thought, as their contracts are tied to a percentage of the cap. Consequently, all future years of the contract will also be lowered by default. This will affect rising NBA stars such as Ben Simmons, Pascal Siakam and Jamal Murray. At the end of the day, NBA players will still be paid an absurd amount, given their profession, just not as much as in past years.