NEW YORK -- At the end of a typically mundane summary of the NBA's two-day Board of Governors meeting, commissioner David Stern dropped a bombshell of sorts Friday. And it means that teams chasing 2010 free agents will have considerably more money to spend than they thought.
Based on a more optimistic revenue picture than the league was projecting as recently as All-Star weekend, Stern said the revised projection for the 2010-11 salary cap is $56.1 million. That's significantly higher than last summer's estimate of between $50.4 million and $53.6 million -- figures that were floated last summer in a doomsday memo to teams that warned of a league-wide revenue decline of between 2.5 percent and 5 percent.
Teams that have been clearing cap space to pursue marquee free agents like LeBron James and Dwyane Wade this summer -- such as the Knicks, Nets, Bulls, Heat and Clippers -- have spent much of the season budgeting on a $52 million cap in '10-'11, which would've been a nearly $6 million drop from this season's payroll limit of $57.7 million. The reason for the healthier figure was what Stern called a "Herculean effort" by teams to prop up ticket and sponsorship sales that were hit by the recession.
Stern said "it's pretty clear" that although revenue will still be down from last season, the drop will "not be as much as we feared at the beginning of the season."
One of the people most affected by the revised financial picture, Knicks president Donnie Walsh, was sitting in the second row of Stern's news conference when the announcement was made. Walsh, who already was figuring on having enough cap space to sign two max free agents for about $32 million, now has more flexibility.
Walsh, who was on hand to learn the result of a draft-pick tiebreaker, merely smiled when I dropped this line on him after Stern's news conference broke up: "Now you have enough money for two max players and Jerome James."
But the news was far more significant than that for an organization like the Knicks, which has hitched its future to the hope of landing at least one major free agent this summer when numerous NBA stars will be on the market. In addition to courting LeBron, Walsh also will be exploring sign-and-trades to revamp the roster and will be simultaneously juggling his desire to retain unrestricted free agent David Lee. For every dollar the cap exceeds Walsh's $52-$53 million projection, it helps his efforts on all fronts.
Similarly, the Heat now don't have to sweat losing Wade nearly as much, as they'll get $2-3 million more space on top of the $18-$19 million they were already projecting -- money that can be used to sign a star and a second-tier player to placate Wade and persuade him to stay. The Bulls now will have enough room to sign a max player and add another piece without doing a salary-dump trade beforehand.
So what changed?
The precipitous decline in the cap that teams were warned about last summer was based on a doomsday projection of an 11 percent collapse in gate (or ticket) revenues, a person with knowledge of league finances told CBSSports.com. As the league closes the books on the regular season, the person said gate revenue actually declined only 7 percent. Based on league-wide gate receipts of $1.1 billion last season, an 11 percent decline would've amounted to a loss of $120 million in ticket revenue. A 7 percent decline at the gate would result in a loss of only $77 million.
Whereas league officials were projecting a decline in overall league revenue of between 2.5 and 5 percent last summer, the revised figure now calls for only a 0.5 percent decline, said the person familiar with league finances, who spoke on condition of anonymity. Basketball-related income, or BRI, determines the salary cap and luxury tax threshold, which is now estimated to be $68 million next season -- down only slightly $69.9 million this season.
Stern was less specific about a controversial number related to the ongoing negotiations aimed at achieving a new collective bargaining agreement and avoiding a lockout after the '10-'11 season. Despite the rosier revenue picture he painted, Stern didn't back off much from the $400 million in league-wide losses he projected for this season during his All-Star address in Dallas two months ago. He placed the new figure at between $380 million and $400 million. Billy Hunter, executive director of the National Basketball Players Association, already has disputed the $400 million figure, telling CBSSports.com last month that it was "overstated."
On the labor front, Stern said the league continues to furnish financial data to the union and that negotiations are taking place on the "staff meeting" level. League owners and executives will meet again during Summer League in Las Vegas, but no high-level CBA talks are expected to occur until after the players submit their counterproposal to the league. Hunter told CBSSports.com last month that the players intend to do that sometime between May 1 and July 1.