NBA salary cap and luxury tax expected to drop in 2020-21 season due to decreased revenue, per report
The loss of revenue from China due to the Daryl Morey incident is playing a big role in these cap projections
We haven't even gotten to the All-Star break yet, but it's never too early to start thinking ahead in the NBA. And based on the projections for the salary cap and luxury tax in the 2020-21 season, teams are going to have some extra work to do preparing for next season.
Due to a decline in revenue, the league has reportedly offered a warning to teams that the projected cap and tax numbers are going to drop next season. According to an initial report from Adrian Wojnarowski and Bobby Marks of ESPN, next season's projected cap was set to fall from $116 million to $113 million. On Thursday, however, Wojnarowski reported that the NBA told teams that the new projected cap for next season will be $115 million. The cap won't be finalized until the league's audit is completed during the July moratorium.
The NBA has alerted teams to the impending release of adjusted 2020-2021 salary and luxury tax projections, signaling the likelihood that a decline in revenue will cause a drop in the figures, league sources tell ESPN.
The league office is expected to deliver revised projections as soon as Thursday, an accommodation that allows for teams to make more informed financial and roster decisions ahead of the February 6 trade deadline.
The advanced notice and pre-trade deadline timing of these looming projections, communicated in a recent league memo, is a departure from past protocol.
Back before the season began, Houston Rockets GM Daryl Morey tweeted out an image expressing support for protests that were going on in Hong Kong. That was met by a swift, emphatic , and the fallout resulted in Rockets games being pulled from Chinese airwaves along with dropped sponsorships.
The immediate aftermath was a PR nightmare for the NBA, and now its seeing the bill come due in the form of lower revenue. China is a huge market for the league, and even a slight drop in coverage is worth hundreds of millions of dollars for the league.
The NBA's salary cap is set based on league-wide revenue. The CBA dictates that players receive between 49 and 51 percent of basketball-related income, so functionally speaking, around half of the money that the league loses due to the China controversy will ultimately come out of the cap.
According to Wojnarowski's first report, that loss was projected to come in at around $150M-200M. Cut that figure in half and you get to $75M-100M, and then divide it by 30 teams and you see a projected cap drop in the neighborhood of $3 million. That is likely where the initial projected drop from $116 million to $113 million comes from. That the current projections suggest there will be a $115 million cap next season indicates the league has either lost less revenue in China than expected or it has made up that revenue in some other way.
It should be noted that the lowered projections do not mean that the cap itself will be lowered. This year's cap is just above $109 million. The league is still expected to generate more revenue this season than it did last season, but the increase is lower than had been projected. The cap rose from $101 million during the 2018-19 season to $109 million this season, but raises are hardly fixed. The new national television deal led to a $24 million jump in the summer of 2016, for instance, but the cap rose only $2 million between the 2017-18 and 2018-19 seasons.
A lower cap and luxury tax number for next season will obviously impact what teams do in the summer in terms of free agency, but the reason the league rushed the information out now is because it could also dictate what some teams do at the trade deadline. Furthermore, the lower numbers in those areas will have an impact on max salaries for players such as Ben Simmons and Pascal Siakam, as their contracts are tied to percentages of the cap.
At this point it's still too early to see how this will fully affect teams around the league, and we might not ever know the true impact, because we don't know the thought process in every single front office. Still, it figures to play a role in decision making around the league moving forward over the next year.
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