As the NBA waits to finalize its next media rights deal, much is being made of how it will affect the salary cap and player salaries. The next deal will more than double the annual fees the league receives from its media partners on average. Teams are waiting for a 10 percent increase in the salary cap in 2025 and subsequent seasons. Salaries are expected to rise. Luka Dončić, for example, could make more than $70 million in a few seasons.
However, the new agreement could also have an impact on the league’s employment situation and the status of its collective bargaining agreement.
On page 546 of the CBA – Article 39, Section 8 – several densely worded paragraphs explain how the NBA’s thriving business could – if all goes well – actually lead to the dissolution of the current rulebook a year or two earlier.
It has something to do with salary cap smoothing and how much players can earn per season in contracted salaries. As you’ll recall, the NBA shares about half of its basketball-related revenue (BRI) with players. The salary cap reflects this (there’s a complicated formula for this, but it’s irrelevant here). Regardless, players must receive between 49 and 51 percent of BRI in total.
Normally, the salary cap grows in step with basketball revenue, but the league’s new media rights deal is expected to create a breakup. The NBA’s new media deal will pay the league, on average, about two and a half times more in national media rights per year than the current one — up from an average of $2.67 billion per year to $6.8 billion. These are averages; the 2024-25 season will be the most lucrative of the current deal, and the 2025-26 season will be the least lucrative of the new deal. But the increase will be substantial.
If you remember back in 2016, when this current TV deal went into effect, there was a huge jump in the salary cap. It increased 34.3 percent from one year to the next, giving the then 73-win Golden State Warriors the opportunity to sign Kevin Durant. Many players were paid handsomely that summer. The problem is, it also caused some chaos (and helped build a dynasty). After that, the cap increased at a slower rate. This time, the NBA and NBPA negotiated a salary cap smoothing in the CBA to soften the jump so the jump doesn’t happen all at once, and capped year-over-year cap growth at 10 percent.
While the cap will be smoothed out, the actual revenue will not. This is where this clause of the CBA comes into play.
Article XXXIX, Section 8 sets out how either the NBA or the NBPA can exit the CBA early if the BRI significantly exceeds the amount players can earn per season. The difference between the players’ share of the BRI and the amount of contract salaries (plus benefits) they earn in total per season is referred to as a deficit in the CBA. In other words, if the amount players earn in salaries and benefits is less than about half the BRI, then a deficit exists.
This CBA clause focuses on two types of deficits: when the total contracted salaries (plus benefits) fall short of the player’s BRI share by more than 25 percent in one year or when that deficit exceeds 10 percent in two consecutive years.
(A quick explanation of how the math works here. Let’s say the player’s share of the BRI is $1 billion. If the players’ contracted salaries are worth $750 million and the benefits are worth $250 million, then there is no deficit. If the benefits are worth $50 million, then the deficit is $200 million. The denominator here to calculate the percentage deficit is the amount of the contracted salaries. So in the second example, the deficit is 26.7 percent.)
Should any of these things happen, both sides are obliged to seriously discuss the problem and find possible solutions. One suggestion made explicit in the CBA is a “more timely distribution of the designated share (of the BRI) to total salaries”.
If any of these scenarios occur and the NBA and NBPA cannot agree on a solution, both sides will have the option to withdraw from the CBA, which would take effect on June 30 of the following summer.
The current CBA runs until June 30, 2030, but there is a mutual exit date of October 15, 2028 (the CBA would then terminate on June 30, 2029). If a 25 percent deficit occurs in the first year of the new media rights agreement, this CBA could end on June 30, 2027 at the earliest. If there are two consecutive years of deficits of more than 10 percent, either side could exit, forcing the end of this CBA on June 30, 2028.
The players’ association would be the side most likely to opt out in such a case. While the players would receive about half of the BRI in both cases, they may decide that the smoothing puts them too far out of step with the NBA’s actual economic situation and the contracts are sufficiently negotiated and extended under these circumstances. When the NBA and NBPA negotiated the CBA, they included clauses that allowed either side to opt out under certain conditions depending on how the upcoming media deal turned out. In one case, the NBA received some protection in the event that the media deal was not compelling; in that case, the NBPA was given leeway if the media deal and the league’s overall business were doing too well.
This is an interesting consideration, as the NBA is rightly touting its new media deal. The numbers are gigantic and it provides the NBA with significant economic stability for the next 11 years. The fact that NBA revenues would increase enough to force the two sides back to the negotiating table is a better problem for the league to have than the opposite.
But at this point, it seems unlikely that the NBA will get to the point where any of those clauses are triggered. The 25 percent deficit seems unlikely, according to insiders. There is a realistic chance the players could exceed a 10 percent deficit in the first year of the new media rights deal, sources say, but they are not expected to reach that deficit two years in a row.
As lavish as the new media rights deal is, it is not all of the NBA’s basketball revenue. It is not even half of it. There are other revenue streams that may not grow at the same rate. The league could also start with a surplus, not a deficit, the year before the new deal takes effect. That year, players were required to give money back. Next season, the cap will only increase 3.36 percent starting in 2023-24, after coming in below the league’s projection. Ten percent cap growth, the maximum allowed in the CBA, is not guaranteed for the rest of the decade.
That’s how long the NBA and NBPA had been negotiating a labor peace. The main reason was the media situation and the revenue it brought to the league’s bank account. When the new media deal finally goes into effect, it will be interesting to see what impact it will have.
In a somewhat related development, players had 5.25 percent of their salaries deducted for escrow payments for the 2023-24 season after the league completed its annual financial audit, league sources said The athleteThe NBA typically takes 10 percent of players’ salaries into an escrow account during the season to cover the event that total salaries exceed the players’ share of the BRI. If an audit shows that too much was withheld, it returns the money to the players. Any money that is not returned is redistributed to the teams.
(Photo: Nic Antaya/Getty Images)
