NBA Commissioner Adam Silver is stuck between a rock and a hard place.
On the one side, he has US politicians urging him to suspend league business in China*. On the other side, Chinese state TV has said that Silver “will receive retribution sooner or later” for his disputed comment that the NBA was asked to fire Rockets General Manager Daryl Morey.
At stake is not just the league’s political identity/standing, but an estimated hundreds of millions of dollars in revenue for the NBA. For example, just the NBA’s deal with Chinese telecomm Tencent was responsible for up to $2.1 million in cap space five years ago.
Silver has already characterized the financial impact of the NBA/China conflict as “fairly dramatic” and it’s impossible to know how the situation will resolve. But it’d be almost surprising if the Silver got his wish and the China problem went away given that: 1) Hong Kong protesters are showing up at NBA games, 2) the Hollywood movie industry has been willing to modify their releases to gain access to the Chinese market, while some movies/stars have been refused release and 3) the US/China trade war has shown no sign of slowing down.
China and the NBA’s 2020-21 salary cap
The key detail for the scope of this article: If the NBA loses more of a foothold in China — Tencent cancelled several preseason broadcasts and the Rockets are apparently still banned form the platform — it will decrease the league revenue which will decrease next year’s $116 million salary cap projection.
As implied above, this scenario is pure conjecture. It’s possible that the NBA and China tacitly resolve the staredown and business returns to normal. But the effects of a worst case scenario, or something close to it, are dramatic enough that we need to spend time considering the fallout.
Trail Blazers could lose their cap space
Because of their current roster plans, the Blazers are more vulnerable to the consequences of an unexpected cap drop than other teams. The details are complicated (read BlazerFanSince1970’s breakdown if you want them), but the Blazers project to have somewhere around $16 million to $20 million in space next summer depending on whether Rodney Hood and/or Mario Hezonja exercise their player options.
That’s a lot of cap space! The Blazers haven’t had this much room since **checks notes** ANDRE MILLER?!
Here’s the sticking point (ignoring arcane and counterintuitive details): if a team doesn’t have at least the full mid-level exception (MLE) in cap space, it doesn’t really matter. Teams right at the cap and teams below the cap by less than the MLE can offer players basically the same contracts.
Good news: The MLE projects to be $9.7 million in July, 2020. So the Blazers are at least $6 million under that. Hooray! Flexibility!
Potential bad news: Here’s where China comes in. The doomsday scenario of a 10-15 percent drop in the cap would chop at least $11.6 million off the top. That would put the Blazers squarely in the no man’s land of “under the cap, but by a smaller margin than the full MLE.”
Example math of worst case scenario.
Conceptual: (Current 2020 projected space) — (10 percent decrease in total cap) = (Blazers worst case projection)
Hypothetical numbers: $20 million - $11.6 million = $8.4 million in space. Less than the MLE of at least $9 million.
Let’s assume a less dramatic scenario. The salary cap stays flat at $109 million next summer instead of increasing to $116 million. A drop of about six or seven percent. That still has a major impact on the Blazers. Losing $7 million in flexibility would give them somewhere in the neighborhood of $9 million to $13 million to pursue free agents against an MLE of $9.3ish million. Better than nothing, but not the $16 million to $20 million we are all hoping for.
If General Manger Neil Olshey expects that the NBA will lose significant revenue from China, the Blazers will be incentivized to make a mid-season trade using one of their large expiring contracts such as Hassan Whiteside or Kent Bazemore. The alternative is to let those contracts expire without ever gaining significant cap space. Not great.
Of course, trade partners will know this and drive a harder bargain. If Olshey strikes out on trading for a well-known asset like Blake Griffin or Danilo Gallinari, he could salvage the situation by searching for extension-eligible players who are displeased with their incumbent teams (sighhh, Domanatas Sabonis).
This will only work if they believe the extension-eligible player is worth more than a full MLE player and Jody Allen is willing to open the checkbook for a Restricted Free Agent (RFA) negotiation.
Zach Collins’ extension
Zach Collins might also find himself caught up in the China/NBA clash. Collins will be eligible for an extension on his rookie contract next summer. Barring an epic breakout year, that extension will be for less than a maximum contract.
As a general rule of thumb, if the cap situation in future years is particularly volatile then non-maximum contracts become trickier to negotiate. Rather than being set as a percentage of the cap like a max contract, non-max signings are locked into a dollar amount. If the cap falls off a cliff unexpectedly the non-max extension takes up a higher percentage of the team’s total salary than initially anticipated.
Example: The Celtics just signed Jaylen Brown to a $115 million extension. Some of that money is tied up in unlikely bonuses but let’s assume annual eight percent raises and project that his salary will be roughly $25.7 million when it kicks in next summer.
If the cap estimate doesn’t change a maximum contract for a player with Brown’s experience will start at $29 million. But if the cap stays flat at $109 million a maximum contract falls to $27.3 million. Brown’s contract inches $1.7 million closer to being a max deal.
If the cap drops by the worst case scenario of 10 percent Brown’s contract basically becomes a max and one starts to wonder why the Celtics didn’t just wait for restricted free agency to retain Brown.
Circling back to Collins, let’s say Zach negotiates an extension starting at $12 million next summer. Using the 2020 cap projections as a stand-in for 2021, that figure could range from as high as 12 percent of the Blazers’ total cap to as low as 10 percent. That may not sound like a lot, but in practical terms represents something like $2.5 million. Enough to affect a team’s ability to stay under the luxury tax threshold or use the full MLE instead of the taxpayer MLE.
In short, if the NBA and China are still feuding next summer and the full economic impacts of the feud are unclear, a modicum of uncertainty will be injected to the Zach Collins negotiation. It probably wouldn’t prevent a deal, but it would add an additional variable to the team’s salary cap calculus complicating the negotiation.
*Note the letter from congress to the NBA was signed by Alexandria Ocasio-Cortez, Ron Wyden, Tom Cotton, and Ted Cruz, among others. I’m guessing those four don’t align too often — a sign of how difficult this situation is for the NBA to handle.