The NBA’s big financial questions and what comes next

  • ESPN.com NBA writer since 2010
  • Covered Cleveland Cavs for seven years
  • Author of two books

As the coronavirus pandemic continues, NBA owners are hoping for the best but preparing for the worst.

The league plans to consider all options to resume the season, sources told ESPN, but the financial realities of the situation demand near-immediate action. That has become clear in talks between the NBA, the National Basketball Players Association and player agents, sources told ESPN, as the league tries to get its finances in order in the event the rest of the season must be canceled.

Facing up to $1 billion in losses, the chief focus for the NBA from a business standpoint is to contain as much of that loss as possible — to flatten their financial curve. The NBA gave teams a directive on Thursday that players will receive their full paychecks on April 15 as scheduled, but what happens next remains unclear.

Here are the big questions the NBA is facing, the potential answers and the lingering unknowns.

MORE: When will the NBA return? Latest updates amid coronavirus suspension

Why does it matter that the players will receive full paychecks on April 15?

The players union and owners discussed holding a portion of checks starting on April 15 in an escrow account to prepare for the anticipated loss in revenue, but that payment will proceed in full according to a report by ESPN’s Adrian Wojnarowski.

What comes next?

The next time the league is scheduled to pay the players is on May 1. The union did not see April 15 as a hard deadline to get something done, preferring to wait and see how things unfold. But the more this drags on, the more the need for resolution will increase.

What are the union’s options?

Ultimately not many. The league’s CBA includes a force majeure clause, enabling owners to cancel games and recover salary in the event of a pandemic. This clause also gives the league a 60-day window within which it can rip up the CBA entirely — effectively beginning a work stoppage.

No one wants to do that. But it underscores the gravity of the situation.

Still, in recent years the two sides have worked well together, and the CBA isn’t set to expire until 2024. The reason negotiations are happening now is to avoid the sledgehammer of invoking force majeure, instead coming to an agreement on how much money can be set aside as the situation evolves before games have to be canceled.

What are the league and the union prioritizing most in discussions and negotiations?

The agreement between owners and players in the last CBA calls for roughly splitting revenue 50/50 and also splitting the coming losses. So, the owners want to hold back a percentage of players’ paychecks going forward — both giving them extra money they can use now, if needed, and also to help balance the books in the event some, or all, of the remainder of the season is canceled.

From an economic standpoint, both sides would prefer to limit the pain of the shutdown to only this season and not start next season with IOUs on the ledger. Setting the money aside now would help do that.

The NBA is pushing to set aside roughly 50 percent of remaining player salaries — around 25 percent of the total salary owed to the players for the entire 2019-20 season. Meanwhile, the NBPA is seeking to delay any additional payroll deductions until mid-May in order to limit its short-term losses, deliver more money to the players and have more time to assess the efforts to control the COVID-19 pandemic.

In short, these financial discussions center on two key questions: How much money will come out of players’ checks and when will it start?

What happens if the union decides to push back against the league?

Assuming the NBA elects not to cancel games, players would continue to receive their full salaries on May 1.

However, if the NBA decides at some point that the season cannot be saved, force majeure would be applied and players would risk not receiving any portion of their remaining salary. The gap agreement currently being negotiated would lead to players receiving some of their salary throughout the shutdown.

A large percentage of players, especially young ones, earn either the league minimum salary or well below the current league average of $8 million per season and the union has to take into account its entire membership.

How does this flatten the financial curve for the NBA?

If the NBA continued to pay the players’ salaries as if nothing had happened and the rest of the season was canceled, players would wind up with close to 58% (based on basketball revenue dropping from a projected $8 billion to $7 billion) of this season’s revenue, according to ESPN’s Bobby Marks. The current CBA calls for players to set aside 10% of their salary to cover potential shortfalls in an escrow account and it currently holds roughly $380 million. But this system wasn’t built to withstand such a dramatic loss of revenue and the current escrow amount wouldn’t come close to evening things out.

If nothing is done to remedy the imbalance this season, the result would be a dramatically lower salary cap next season — a cap “valley.” It’s essentially the opposite of the salary cap spike that occurred in 2016, when new television money ballooned NBA revenue. This caused numerous “unintended consequences,” according to NBA commissioner Adam Silver — including Kevin Durant being able to sign with the Golden State Warriors.

If left uncontrolled, a potential valley for the 2020-21 season could recoil the other direction for the 2021-22 season with a cap spike, if things return to normal. The dramatic V-shape to the cap is why both the owners and players want to limit the pain to this season, flattening the uncertainty to the salary cap in coming seasons.

Which players could be affected by this most?

This would be felt equally across the league, as each player would have the same percentage of his salary impacted.

About 90 percent of players get paid every two weeks year-round, though some stars — like LeBron James — have a different arrangement. James received a balloon payment of $18.7 million — half his salary — back on Oct. 1, and he gets paid every two weeks through May 1. As a result, he’s already made about 90% of his salary for this season. Still, he and others like him would eventually have to give back salaries if money needs to be recouped — likely being deducted from his 2020-21 salary.

The players who truly are being impacted by this are those who were set to be free agents this summer — most notably Anthony Davis. The sweeping uncertainty could lead many players to either take short-term deals or pick up their player options. Combine that with a limited number of cap-space teams and what was anticipated to be a tepid free-agent class, and there will likely be far less movement than a season ago.

One small group of players who could benefit are those who were bought out and waived earlier this season, including Chandler Parsons and Allen Crabbe. They will get to keep all of their money.

ESPN’s Bobby Marks contributed to this report.

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