The NBA’s hiatus has placed the league and its players in uncharted territory. With the league facing serious financial losses, each organization is going to feel the pinch. One potential outcome is the NBA’s option to terminate the current collective bargaining agreement. The option is granted under the force majeure event provision and it grants the NBA a 60-day window to decide the fate of the CBA.
According to a report from ESPN, the NBA and the National Basketball Players Association agreed to extend the initial 60-day window to September. That extension allows the NBA to evaluate the extent of the financial losses and opens the window for the 2019-20 season to resume at a later date.
NBA Commissioner Adam Silver discussed the complex burden that the current pandemic places upon the league late last week.
“This CBA was not built for an extended pandemic,” Silver told the NBPA membership, according to audio obtained by ESPN. “There’s not a mechanism in it that works to properly accept a cap when you’ve got so much uncertainty; when our revenue could be $10 billion or it could be $6 billion. Or less.”
Even if action on the court restarts, it is unclear just how insufficient a fan-less NBA experience would actually be on the the league’s ledger. According to ESPN’s report, Silver detailed that restarting the season inside empty arenas would not be enough offset the loss in revenue.
Silver told the players on Friday that expenditures by fans — through gate receipts, concessions and other game-night receipts — constitute approximately 40% of the league’s revenue, according to audio of tape obtained by ESPN.
Without an accurate figure for the mounting monetary losses, it is difficult to estimate exactly how far the salary cap will come down in the near future. Regardless of the lack of an exact figure, ESPN expects that the tidal wave of lost revenue could result in a monumental reduction.
For example, the CBA has a projected 2020-21 salary cap of $115 million, with a luxury tax threshold of $139 million. With the reality of lost revenues coming, some teams fear that cap and tax could fall as far as $25 million to $30 million. Without the league and union negotiating a new mechanism for the cap in the coming months, the league could be facing 25 of its 30 teams trapped in luxury tax payments based on projected payrolls — something that would paralyze free agency and many organizations’ ability to operate financially.
The NBA suspended the 2019-20 season on March 11. You can read the full story from Adrian Wojnarowski and Bobby Marks at ESPN.