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  1. #1
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    Salary cap and the Corona virus

    the cap will probably drop drastically do you think the league will give a bail out on a bad contract or 2 per team?

  2. #2
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    Quote Originally Posted by More-Than-Most View Post
    the cap will probably drop drastically do you think the league will give a bail out on a bad contract or 2 per team?
    The reason they are so desperate to finish the season is to keep the cap as close as possible to what it was projected. I think it's a fools errand to try ... the attendance at the games is going to be lower if they do come back.

    The worst projection I saw was $15M drop, essentially every team will be well over the cap.

    It would take a change to the CBA to give contract/cap relief to the teams and the owners don't want to open that can of worms.

    It just ends up with players who are free agents this offseason getting way less than they hoped. Chances are there will be a bunch of 1 year contracts or contracts with player options so they can get a new deal when the cap goes back up (assuming it does).

  3. #3
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    Quote Originally Posted by Scoots View Post
    The reason they are so desperate to finish the season is to keep the cap as close as possible to what it was projected. I think it's a fools errand to try ... the attendance at the games is going to be lower if they do come back.

    The worst projection I saw was $15M drop, essentially every team will be well over the cap.

    It would take a change to the CBA to give contract/cap relief to the teams and the owners don't want to open that can of worms.

    It just ends up with players who are free agents this offseason getting way less than they hoped. Chances are there will be a bunch of 1 year contracts or contracts with player options so they can get a new deal when the cap goes back up (assuming it does).
    How bad does this effect AD and the year after giannis? I bet AD regrets not taking that lakers max right now.

  4. #4
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    Quote Originally Posted by More-Than-Most View Post
    How bad does this effect AD and the year after giannis? I bet AD regrets not taking that lakers max right now.
    Going to cost him as much as $30M

  5. #5
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    I believe when you sign a "max" extension the actual amount isn't set in stone until the next cap numbers come out. So I don't think AD lost any money in that respect. He'll take a 1+1 and negotiate a new deal next summer when the cap is back to normal. He could break both legs and someone would still give him max.

  6. #6
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    Quote Originally Posted by IndyRealist View Post
    I believe when you sign a "max" extension the actual amount isn't set in stone until the next cap numbers come out. So I don't think AD lost any money in that respect. He'll take a 1+1 and negotiate a new deal next summer when the cap is back to normal. He could break both legs and someone would still give him max.
    Yeah, which is why team tend to avoid signing "true" max contracts when they are predicting the cap will go up.

    Regardless, it will cost him money.

    I assume the players and the owners are not getting paid on their media contracts at the moment ... any info on that?

  7. #7
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    Here's my honest guess, as someone who's paid to know this, but has gotten no info from people who know better and doesn't have access to the league's book:

    The cap is going to be frozen for several years. It'll just be what it is now long enough for the league to recoup the money it's lost. How long that takes is anyone's guess, but it's by far the simplest solution here.

    As it stands right now, it's the owners, not the players, really taking the hit. Even with the 10% escrow and force majeure, players have already made most of their money this season because they're only paid their contractual salaries during the regular season and most of it has ended (playoff shares are another matter and are mostly negligible here). League revenue, however, is heavily back-weighted because the extra value on the playoffs. Additionally, the cap is based on projections, not actual revenue, so if the world is normal and revenue is expected to be unaffected next year, the cap would theoretically just go back to normal, with the owners on the hook for what was lost this year.

    This obviously isn't going to be the case. There's going to be a solution that splits the burden on both parties. It's probably going to involve some form of cap smoothing, and a frozen cap is the easiest method. I also would expect the league to suspend the luxury tax for at least a year (writing about that in more depth as we speak). The downside here is that we would be in line for another cap spike when the cap freeze passes, but I imagine they would build future smoothing into it.

    I'll stress this though: nobody knows anything right now. It's all guesswork, this is uncharted territory.
    POOP

  8. #8
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    Quote Originally Posted by Quinnsanity View Post
    Here's my honest guess, as someone who's paid to know this, but has gotten no info from people who know better and doesn't have access to the league's book:

    The cap is going to be frozen for several years. It'll just be what it is now long enough for the league to recoup the money it's lost. How long that takes is anyone's guess, but it's by far the simplest solution here.

    As it stands right now, it's the owners, not the players, really taking the hit. Even with the 10% escrow and force majeure, players have already made most of their money this season because they're only paid their contractual salaries during the regular season and most of it has ended (playoff shares are another matter and are mostly negligible here). League revenue, however, is heavily back-weighted because the extra value on the playoffs. Additionally, the cap is based on projections, not actual revenue, so if the world is normal and revenue is expected to be unaffected next year, the cap would theoretically just go back to normal, with the owners on the hook for what was lost this year.

    This obviously isn't going to be the case. There's going to be a solution that splits the burden on both parties. It's probably going to involve some form of cap smoothing, and a frozen cap is the easiest method. I also would expect the league to suspend the luxury tax for at least a year (writing about that in more depth as we speak). The downside here is that we would be in line for another cap spike when the cap freeze passes, but I imagine they would build future smoothing into it.

    I'll stress this though: nobody knows anything right now. It's all guesswork, this is uncharted territory.
    The cap isn't set yet. The teams are given projections for planning, but it's not set until the start of the league year, and if the rest of the season is cancelled the cap can go down, and can go down a lot for next year.

    It makes a certain amount of sense to do cap smoothing, but just like last time I expect the players to refuse it.

  9. #9
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    Quote Originally Posted by Scoots View Post
    The cap isn't set yet. The teams are given projections for planning, but it's not set until the start of the league year, and if the rest of the season is cancelled the cap can go down, and can go down a lot for next year.

    It makes a certain amount of sense to do cap smoothing, but just like last time I expect the players to refuse it.
    I was just about to say that, lol cap smoothing is great in theory, but the players will refuse.

  10. #10
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    We are also in a transition time where media is changing and the money from TV will likely never be as much as it is at the moment, and with wire cutting fewer people are willing to pay a premium for cable to support sports they don't watch. We are halfway through the current contract at $2.7B a season and ESPNs subscribers have dropped in half in the first half of that contract, TNTs subscribers are down 34%, ABCs subs are down 18%, and on top of that NBA viewership in general this year was down 21% over last year. That is not a trend that gets you another $24B contract, let alone the $35B some were predicting a couple years ago.

    Add in a general economic downturn and we could be seeing a few years of cap hell for the NBA.

  11. #11
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    Quote Originally Posted by Scoots View Post
    The cap isn't set yet. The teams are given projections for planning, but it's not set until the start of the league year, and if the rest of the season is cancelled the cap can go down, and can go down a lot for next year.

    It makes a certain amount of sense to do cap smoothing, but just like last time I expect the players to refuse it.
    Yes, that's correct, but I think you're missing the point a bit. Projections are based on what teams expect revenue to be in the coming year, and that is what the cap is based on. So if the world were to return to normal relatively quickly (which it won't, but again, hypothetically) then the projections would expect revenue to return to normal and the cap would reflect that, at least by the letter of the law. It's just that the letter of the law is fairly unlikely to apply here, because at the moment, the owners are on the hook for a far greater loss. There are steps they can take against that, such as escrow withholding and force majeure, but the far likelier outcome given the relatively healthy relationship between the two sides at this point is some form of compromise like we saw in baseball. There are a number of forms that could take, smoothing is just the simplest.

    The owners just aren't going to sit idly by and lose billions of dollars while the players collect most of their money. It makes far more sense for them to settle things on their own than it would for them to battle it out in court or potentially even opt out of the CBA (which the owners could potentially use the force majeure clause to do if they were so inclined). Nobody wants a lockout or a strike. Nobody wants to hear about billionaires and millionaires fighting right now. It would be a disaster for the league if the two sides didn't just come to a compromise on their own.

    Quote Originally Posted by NBA all the way View Post
    I was just about to say that, lol cap smoothing is great in theory, but the players will refuse.
    The players refused smoothing in 2016 because they recognized the benefits an enormous spike would have. Not only were a bunch of players paid far more than they deserved, but they made the bet that a rising cap and continued Bird Rights would mitigate the losses extreme short-term spending would present in future years as far as limiting available space. They were mostly right. Very few players were materially hurt by the cap spike. Many more benefitted significantly, and beyond that, a lot of those contracts set precedents that were used in future negotiations. You could argue that the league, and therefore the cap, lost revenue because of the Warriors' super team, but there's little evidence that's true on a meaningful scale. Smoothing would have been better from a competitive standpoint, but financially speaking, the players were right to reject it at the time.

    But right now? I don't see an actual reason for the players to reject smoothing. Just logically speaking, what happens to 2020 free agents if the cap drops by $20 million this summer? It essentially reinstates the reserve clause. There would be no cap space out there, forcing players to re-sign on their Bird Rights, likely for far less than they are worth because nobody else can afford to make them an offer. It seems like things will be back to normal by the summer of 2021, but there's just no way the union screws over such a high percentage of its membership. In 2016, a similar percentage got a windfall while the rest more or less operated as normal. This time around, it would be the reverse, and it makes no sense for the players to allow that.

    Quote Originally Posted by Scoots View Post
    We are also in a transition time where media is changing and the money from TV will likely never be as much as it is at the moment, and with wire cutting fewer people are willing to pay a premium for cable to support sports they don't watch. We are halfway through the current contract at $2.7B a season and ESPNs subscribers have dropped in half in the first half of that contract, TNTs subscribers are down 34%, ABCs subs are down 18%, and on top of that NBA viewership in general this year was down 21% over last year. That is not a trend that gets you another $24B contract, let alone the $35B some were predicting a couple years ago.

    Add in a general economic downturn and we could be seeing a few years of cap hell for the NBA.
    I generally agree with this sentiment, I just have no idea how to factor it into cap calculations. Ratings are down, but I also wouldn't be surprised if broadcasting rights went up just due to the number of potential bidders. I mean, say you're Apple, and you want people subscribing to the streaming service you've invested billions into that nobody's actually watching. You have $100 billion+ in cash just sitting in a vault somewhere. Why not throw a bunch of that at the NBA? Google and Amazon are in a similar position. The league is less valuable right now than it was the last time these deals were negotiated, but there will be so much more competition for it, especially if a bad economy limits the production of new scripted shows (which are a horrible investment, but that's a different rabbit hole).

    I'll say this: the cap's annual rise was always going to slow down, even before this crisis. I'm just not sure how the league's long-term prognosis factors into immediate cap projections. The TV issue seems like a problem for a few years down the line, whereas the virus is something they'll have to contend with right now.
    POOP

  12. #12
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    Quote Originally Posted by Quinnsanity View Post
    Yes, that's correct, but I think you're missing the point a bit. Projections are based on what teams expect revenue to be in the coming year, and that is what the cap is based on. So if the world were to return to normal relatively quickly (which it won't, but again, hypothetically) then the projections would expect revenue to return to normal and the cap would reflect that, at least by the letter of the law. It's just that the letter of the law is fairly unlikely to apply here, because at the moment, the owners are on the hook for a far greater loss. There are steps they can take against that, such as escrow withholding and force majeure, but the far likelier outcome given the relatively healthy relationship between the two sides at this point is some form of compromise like we saw in baseball. There are a number of forms that could take, smoothing is just the simplest.

    The owners just aren't going to sit idly by and lose billions of dollars while the players collect most of their money. It makes far more sense for them to settle things on their own than it would for them to battle it out in court or potentially even opt out of the CBA (which the owners could potentially use the force majeure clause to do if they were so inclined). Nobody wants a lockout or a strike. Nobody wants to hear about billionaires and millionaires fighting right now. It would be a disaster for the league if the two sides didn't just come to a compromise on their own.



    The players refused smoothing in 2016 because they recognized the benefits an enormous spike would have. Not only were a bunch of players paid far more than they deserved, but they made the bet that a rising cap and continued Bird Rights would mitigate the losses extreme short-term spending would present in future years as far as limiting available space. They were mostly right. Very few players were materially hurt by the cap spike. Many more benefitted significantly, and beyond that, a lot of those contracts set precedents that were used in future negotiations. You could argue that the league, and therefore the cap, lost revenue because of the Warriors' super team, but there's little evidence that's true on a meaningful scale. Smoothing would have been better from a competitive standpoint, but financially speaking, the players were right to reject it at the time.

    But right now? I don't see an actual reason for the players to reject smoothing. Just logically speaking, what happens to 2020 free agents if the cap drops by $20 million this summer? It essentially reinstates the reserve clause. There would be no cap space out there, forcing players to re-sign on their Bird Rights, likely for far less than they are worth because nobody else can afford to make them an offer. It seems like things will be back to normal by the summer of 2021, but there's just no way the union screws over such a high percentage of its membership. In 2016, a similar percentage got a windfall while the rest more or less operated as normal. This time around, it would be the reverse, and it makes no sense for the players to allow that.



    I generally agree with this sentiment, I just have no idea how to factor it into cap calculations. Ratings are down, but I also wouldn't be surprised if broadcasting rights went up just due to the number of potential bidders. I mean, say you're Apple, and you want people subscribing to the streaming service you've invested billions into that nobody's actually watching. You have $100 billion+ in cash just sitting in a vault somewhere. Why not throw a bunch of that at the NBA? Google and Amazon are in a similar position. The league is less valuable right now than it was the last time these deals were negotiated, but there will be so much more competition for it, especially if a bad economy limits the production of new scripted shows (which are a horrible investment, but that's a different rabbit hole).

    I'll say this: the cap's annual rise was always going to slow down, even before this crisis. I'm just not sure how the league's long-term prognosis factors into immediate cap projections. The TV issue seems like a problem for a few years down the line, whereas the virus is something they'll have to contend with right now.
    Yeah ... but next years cap is set at the start of the league year so they are going to have to make an educated guess on it and it is very much in their interest to guess low rather than high so it's essentially certain to have a significant drop.

    I agree it's in their interest to find a compromise, I just don't think there is any way that compromise doesn't include much smaller cap number next year.

    IIRC the current CBA has protections for owners losing money and getting money out of the general fund which would mean the players are not going to get the disbursements they usually get. But I can't really remember the specifics and it's been years since I read the CBA.

    I used to think streaming services were a decent bet on it, but they'd be competing with the NBA's own product and likely at much lower prices so they would not only have to replace the revenue from TV but also from the losses by League pass because those $200 subscriptions would quickly dry out.

    But you are right that the overall league revenue stability will be propped up by the current TV deals unless Disney goes out of business.

  13. #13
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    Quote Originally Posted by Scoots View Post
    Yeah ... but next years cap is set at the start of the league year so they are going to have to make an educated guess on it and it is very much in their interest to guess low rather than high so it's essentially certain to have a significant drop.

    I agree it's in their interest to find a compromise, I just don't think there is any way that compromise doesn't include much smaller cap number next year.

    IIRC the current CBA has protections for owners losing money and getting money out of the general fund which would mean the players are not going to get the disbursements they usually get. But I can't really remember the specifics and it's been years since I read the CBA.

    I used to think streaming services were a decent bet on it, but they'd be competing with the NBA's own product and likely at much lower prices so they would not only have to replace the revenue from TV but also from the losses by League pass because those $200 subscriptions would quickly dry out.

    But you are right that the overall league revenue stability will be propped up by the current TV deals unless Disney goes out of business.
    Cap projections aren't a guess. Some revenue is set in stone, like the national TV deal. In areas that aren't, they have a formula that they use to determine how much of an increase/decrease needs to be implemented. For most things, they take the revenue in that area from the prior season and bump it up 4.5 percent, but the honest truth is, we don't know how they'll handle it now. As we've both said, it's likely that they come to some compromise outside the confines of the current CBA.

    My question is... who does a significantly lowered cap really benefit? Remember, player salaries are mostly guaranteed years in advance. Say the league dropped the cap by $20 million. That doesn't invalidate the contracts teams have already signed, nor does it eliminate Bird Rights. Take a team like the Rockets. All of their major players are already signed. Who cares if there's a lower cap? It doesn't lower the amount they're actually paying out in salary. Smoothing or a freeze over a number of years would just because those contracts all eventually expire. And then there's the tax. Lower the tax $20 million and you're lowering the tax line by a similar amount. Does the NBA really want half of all teams paying the tax? That's a nightmare scenario on a number of levels. Whatever method they come up with needs to do more than just lower the salaries of 2020 free agents. It has to be balanced across all teams and players. I doubt the union would ever agree to this, but one possibility would be a uniform salary reduction. All players give up X percent of their current contracts or something.

    As far as protections for ownership go, they definitely exist. All player contracts stipulate that 10 percent of salary is held in escrow in case of salary overages leaguewide. Force majeure withholds 1/92.6th of owed salary for every canceled game (and could even be used to opt out of the CBA). It's just that the amount that ownership can withhold doesn't come close to what they'll lose because most of every season's salary has already been paid out to players, whereas most of the league's revenue has not yet been earned because the playoffs generate such an enormous percentage of it. This is where the compromise has to come in. Without one, under any circumstance, owners lose more than players, and billionaires won't accept that.

    I think we're ultimately falling in similar camps for the long haul, though I'd say I'm a bit more optimistic about streaming services as a viable national broadcasting partner. My real holdup there is that the league seems really hesitant to take its biggest games off of broadcast networks, hence ABC getting the major regular season and playoff games rather than ESPN. It would definitely cause a decline in viewership, but I don't think the streaming services would care as much about ad revenue because of the subscription bump the NBA would generate. Ultimately though, I'm willing to believe almost anything as far as the next TV deal goes. I'm in the same camp with the NFL. We were in uncharted territory even before the virus because for the first time in history, live sports have declined in value. I don't know how the leagues and networks compensate for that. I don't know what the auxiliary value of live sports really computes to for networks (Fox, for instance, would not exist as a broadcasting network today without the NFL because it got millions of people to take it seriously and watch its other stuff). So if you told me the next deal was substantially smaller than the current one? I'd buy it. I see the reasons. If you told me it was bigger because of the bidding war between the streaming services and TV networks? I'd buy that too.
    POOP

  14. #14
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    Quote Originally Posted by Quinnsanity View Post
    Cap projections aren't a guess. Some revenue is set in stone, like the national TV deal. In areas that aren't, they have a formula that they use to determine how much of an increase/decrease needs to be implemented. For most things, they take the revenue in that area from the prior season and bump it up 4.5 percent, but the honest truth is, we don't know how they'll handle it now. As we've both said, it's likely that they come to some compromise outside the confines of the current CBA.

    My question is... who does a significantly lowered cap really benefit? Remember, player salaries are mostly guaranteed years in advance. Say the league dropped the cap by $20 million. That doesn't invalidate the contracts teams have already signed, nor does it eliminate Bird Rights. Take a team like the Rockets. All of their major players are already signed. Who cares if there's a lower cap? It doesn't lower the amount they're actually paying out in salary. Smoothing or a freeze over a number of years would just because those contracts all eventually expire. And then there's the tax. Lower the tax $20 million and you're lowering the tax line by a similar amount. Does the NBA really want half of all teams paying the tax? That's a nightmare scenario on a number of levels. Whatever method they come up with needs to do more than just lower the salaries of 2020 free agents. It has to be balanced across all teams and players. I doubt the union would ever agree to this, but one possibility would be a uniform salary reduction. All players give up X percent of their current contracts or something.

    As far as protections for ownership go, they definitely exist. All player contracts stipulate that 10 percent of salary is held in escrow in case of salary overages leaguewide. Force majeure withholds 1/92.6th of owed salary for every canceled game (and could even be used to opt out of the CBA). It's just that the amount that ownership can withhold doesn't come close to what they'll lose because most of every season's salary has already been paid out to players, whereas most of the league's revenue has not yet been earned because the playoffs generate such an enormous percentage of it. This is where the compromise has to come in. Without one, under any circumstance, owners lose more than players, and billionaires won't accept that.

    I think we're ultimately falling in similar camps for the long haul, though I'd say I'm a bit more optimistic about streaming services as a viable national broadcasting partner. My real holdup there is that the league seems really hesitant to take its biggest games off of broadcast networks, hence ABC getting the major regular season and playoff games rather than ESPN. It would definitely cause a decline in viewership, but I don't think the streaming services would care as much about ad revenue because of the subscription bump the NBA would generate. Ultimately though, I'm willing to believe almost anything as far as the next TV deal goes. I'm in the same camp with the NFL. We were in uncharted territory even before the virus because for the first time in history, live sports have declined in value. I don't know how the leagues and networks compensate for that. I don't know what the auxiliary value of live sports really computes to for networks (Fox, for instance, would not exist as a broadcasting network today without the NFL because it got millions of people to take it seriously and watch its other stuff). So if you told me the next deal was substantially smaller than the current one? I'd buy it. I see the reasons. If you told me it was bigger because of the bidding war between the streaming services and TV networks? I'd buy that too.
    Do you think the NBA got the full amount on the TV deal this year? Do you think it's really a fixed amount or more of a minimum/maximum thing. My guess is ad revenue is a factor and is going to be lower in projections. That said, "guess" was maybe not the right word. I'm sure they have careful calculations to do on projections, but some of those numbers are going to be projections, and those are going to be based on estimates based on the past and other market factors. All of which can be boiled down semantically to "guess"

    A lower cap doesn't really benefit anyone if revenue is higher than projected. If the revenue is higher there is a CBA required disbursement to the players to make it up. If the cap projection is high and revenue is low it really screws the owners because the players don't have to give money back. There is NO WAY the NBAPA gives a dime back on any player contract. What a lower cap means is that this years free agents are screwed a little, and players and agents will be interested in 1+1 contracts.

    The billionaires won't be able to change the CBA rules next year, but might put more protections in the next CBA.

    ABC/ESPN is Disney and Disney now has a streaming service ... so maybe there is something there for the future.

    TV in general is declining in value because the youtube generation are the target demo, and they are generally less willing to spend big on entertainment and generally less interested in sports based on data gathered. In the long run it doesn't mean all that much to the NBA other than they make a little less money than they hoped, but the CBA, in the long run, protects the owners.

  15. #15
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    I look forward to the first player to complain

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