Posted on: July 7, 2010 8:08 pm
Edited on: July 7, 2010 9:07 pm
The NBA salary cap for the 2010-11 season was set Wednesday at $58.044 million, $2 million more than the league's most recent projection and $8 million more than the worst-case scenario that the league laid out last summer. In fact, the salary cap rose from last season's figure of $57.7 million on what sources told CBSSports.com were the highest revenues in NBA history.
The surprising news means that teams with cap space who are trying to sign free agents when the moratorium on player movement is lifted at 12:01 a.m. Thursday will have $1.944 million more space -- good news for the Heat, Bulls, Knicks, Nets and Clippers in particular. It's especially good news for the Heat, who are trying to fit three max contracts into their cap space after Dwyane Wade and Chris Bosh agreed to team up with the Heat next season.
The number-crunching couldn't have come out better for teams with cap space trying to make room for multiple max players. Due to a nuance in how maximum salaries are calculated, the most Miami, for example, can pay Wade remains a 5 percent raise over last season's salary -- $16.57 million. Had revenues -- and thus the cap -- increased more, a player like Wade would've been eligible to make 30 percent of the cap. But the cap went up just enough to give Miami $1.944 million more to spend without increasing the max they'd have to pay Wade. Despite all that good news, the Heat still don't have, by my calculations, enough space to fit Wade, Bosh and LeBron James under their revised cap number of $31.4 million without trading another player. But they're almost $2 million closer to making it happen.
The luxury tax line, above which teams have to pay $1 in tax for each dollar in payroll, was set at $70.307 million -- also up from the 2009-10 season, when it was $69.92 million.
The mid-level exception, which is tied directly to average player salaries, will go down from $5.85 million to $5.765 million -- an important distinction for the upcoming collective bargaining negotiation. In revealing during All-Star weekend in Dallas that the NBA was projected to lose $400 million this past season, Commissioner David Stern blamed escalating player salaries for the losses. But as reflected in the decline in the mid-level exception, player compensation and benefits actually declined during the 2009-10 season.
The cap, tax and mid-level figures are derived from revenues generated during the previous season. The cap is calculated at 51 percent of league-wide revenue, or BRI (basketball-related income).
In April, Stern said the latest end-of-season revenue figures projected to a 2010-11 cap of $56.1 million. The previous summer, the NBA sent a memo to all 30 teams warning that it was projecting a decline in revenues of between 2.5 percent and 5 percent, which would've resulted in the cap calling as low as $50.4 million to $53.6 million.
At that time, Stern said teams were doing "better than we projected" in terms of generating revenue. If that was the case, then teams did wildly better than expected once all the numbers were added up. According to an estimate of league revenue based on the $58.044 cap, the NBA brought in more than $3.4 billion during the 2009-10 season, which was adversely affected by a two-year recession that Stern blamed for the cap decreasing after the 2008-09 season.
Although the NBA had a higher cap in 2008-09 -- $58.6 million -- revenues from the prior season did not surpass the league-record posted in 2009-10 due to complexities in how the figures are calculated.
The figures are important not only for teams trying to sign free agents this week, but also in the context of the looming labor crisis facing the league. Stern, who has stated that player salaries are too high, is going to have a hard time making that case after teams produced record revenues coming out of the worst recession since the Great Depression while player salaries declined.
Posted on: April 16, 2010 2:45 pm
Edited on: April 16, 2010 3:33 pm
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.
Posted on: February 5, 2010 2:10 pm
Edited on: February 6, 2010 8:24 am
NEW YORK-- Launching a grim opening salvo in what is expected to be a contentious labor negotiation, NBA owners have sent their initial proposal to the players association and are pushing for some elements of a "hard" salary cap as well as a drastic reduction in player salaries, CBSSports.com has learned.
The proposal, sent to the union earlier this week, seeks a reduction in the players' share of basketball-related income from 57 percent to well below 50 percent, according to a person familiar with the document. Owners also are seeking some elements of a hard cap -- a departure from the current luxury-tax system -- and a reduction in the length and amount of max contracts.
Owners and players will meet in Dallas during All-Star weekend for their first face-to-face bargaining session as they try to reach an agreement before the current deal expires in 2011. The talks coincide with the NFL's labor negotiation, in which owners have proposed an 18 percent pay cut for players.
Billy Hunter, executive director of the players association, did not return calls seeking comment on the proposal, which is sure to set a serious tone in talks aimed at averting the league's first lockout since the 1998-99 season. NBA spokesman Tim Frank said league officials would have no comment.
Owners are seeking significant changes to the league's financial structure as many of them face massive losses in the wake of the global economic crisis. In addition to lowering the players' overall share of basketball-related income (BRI), owners are pushing for some elements of a hard cap to replace the current luxury tax system, in which teams with payrolls above the tax line subsidize those staying below the limit, which was set at $69.9 million this season.
But players already are facing a reduction in salaries next season, when the cap is expected to decline from the current level of $57.7 million to between $50 million and $54 million. Most team executives working on financial projections for next season are predicting a $52 million cap.
Union president Derek Fisher, speaking Sunday before the Lakers played the Celtics in Boston, predicted that the owners would "overreach" with their initial proposal and said the players would strongly oppose a dramatic reduction their share of BRI.
One prominent player agent, speaking to CBSSports.com about the impending labor talks, called a hard cap "untenable," but said the owners' financial losses a similar request for pay cuts by NFL owners create a double-whammy of leverage.
"The players will talk tough, but I'm not sure they have a whole lot to hang their hat on," the agent said. "If the NFL is cutting salaries, I think you can expect something similar in the NBA."
If the owners succeed in implementing some version of a hard cap, management sources predict it would drive player salaries down precipitously. The players likely will argue that the luxury tax system is working as a payroll impediment. Only a handful of the highest-revenue teams pay luxury tax in a given year, and a flurry of trades prior to the Feb. 18 deadline will illustrate the union's point. The majority of trades that will be consummated will be driven by teams trying to pare salary to avoid clipping the luxury tax line.
"An NFL-style hard cap is going to blow the minimum-salary and mid-level players completely out of the water," one person familiar with the owners' proposal said. "In any hard-cap system, the owners are going to pay the stars. If there are no exceptions and no ways to exceed the cap, everybody else is going to be left with the scraps."
Perhaps that is why the owners want to go farther than changing the rules; they want the league's highest-paid players to take a haircut, as well. Owners are seeking to reduce the maximum length of contracts to five years for players re-signing with their current teams and to four years for players signing with new teams. Under the current collective bargaining agreement, in effect since 2005, players re-signing with their current teams can be under contract for a maximum of six years. Other free agents can sign for a maximum of five. This would be a way to avoid star players' salaries remaining high while the second- and third-tier players bear the brunt of the overall payroll reduction.
As CBSSports.com reported Jan. 29, a segment of ownership believes that reducing the length and amount of max contracts would wipe out the owners' collective financial losses by itself. But by pushing for a significant reduction in maximum salaries, the owners would be alienating the players who produce the vast majority of revenue for their teams; fans pay to see LeBron James and Dwyane Wade, not Daniel Gibson and Dorell Wright.
“If they don’t like the new max contracts, LeBron can play football, where he will make less than the new max,” one team executive told CBSSports.com last week. “Wade can be a fashion model or whatever. They won’t make squat and no one will remember who they are in a few years.”
The negotiations also have implications that are much more immediate than a potential lockout to start the 2011-12 season. Numerous marquee stars, such as James, Wade, Chris Bosh, Amar'e Stoudemire and Joe Johnson, have the ability to opt out of their contracts July 1 and become free agents. Most of those players and their agents already were expecting a less favorable CBA in 2011. But if a drastic cut in max contracts becomes inevitable as part of a new labor agreement, such players might be even more motivated to opt out and sign long-term deals under the current deal. Just another wrinkle that could make what is expected to be the biggest free agency period in NBA history even bigger.