NBA owners and players split league revenue approximately 50-50. The league’s salary-cap system is built on that central fact.
Each season, the NBA sets a salary cap based on projected revenue. The formula is designed to reach a salary-cap number that induces the total of player salaries to be worth… approximately 50% of league revenue.*
*Of course, it’s impossible to hit that target exactly. So, a portion of players’ salaries are held in escrow. At the end of the season, the amount necessary to reach the approximate 50-50 split is returned to the players.
The salary cap is currently 109.14 million.
Had the league and players’ union followed the normal formula to determine this season’s salary cap — linking it to overall league revenue — sources told ESPN that it would have fallen to around $90 million
That $90 million figure provides useful perspective on the league’s finances.
The salary cap has decreased just twice in NBA history:
- From $58,680,000 in 2008-09 to $57,700,000 in 2009-10 (-$980,000)
- From $42,500,000 in 2001-02 to $40,271,000 in 2002-03 (-$2,229,000)
A drop of $19 million would be a major shock to the system.
Which is why it almost certainly won’t happen.
Owners and players are negotiating where to set the salary cap and luxury-tax line rather than just relying on the formula. That way, certain classes of players – 2020 free agents, 2020 first-round picks – won’t be disproportionately harmed by the economic downturn. Nor will there be a huge salary-cap spike if revenue suddenly returns to normal in a future season.
In either direction, cap smoothing looks far more appealing this time around.
The belief is the salary cap ($109,140,000) and luxury-tax line ($132,627,000) remain near their current marks. More evidence of that is emerging.
Multiple sources say the cap and tax are expected to be $109 million and $132 million, respectively.
There are multiple ways of looking at this:
- Players and owners are so far apart on a restart plan. There can be no faith in how the salary cap and luxury tax will look by the time both sides reach a deal.
- Players and owners are so far apart on a restart plan. If both sides – amid the disconnect – have found common ground on the salary cap and luxury tax, that must be ironclad.
Back to the 50-50 split…
If the salary cap is set at $109 million when projected revenue calls for a $90 million cap, that means players would get paid more than their fair share. Obviously, owners won’t go for that.
The simplest solution is players putting a larger share of their salaries in escrow. But players currently under contract might not like that just so 2020 free agents and 2020 first-round picks get better deals.
Which is one reason the player-vs.-player dynamics of this situation loom so large.
(Of course, there’s also team-vs.-team.)