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If shutting down the NBA was like cracking open an egg, it’s the job of both the league and the players union to put it back together.
What will that look like logistically, and when will it be safe to do so? On Monday, Commissioner Adam Silver didn’t pretend to know, but the ultimate goal is to finish the 2019-20 season in one form or another.
The New Economics
The economics are important within the basketball world, although they pale in comparison to the real world getting through the coronavirus pandemic. Within the NBA bubble, the season began with Daryl Morey’s pro-Hong Kong tweet that damaged the league’s relationship with China. Now, players are facing the prospect of losing at least 25 percent of their remaining salaries.
“We were going to lose 10 percent as it is, because [of] Morey,” one agent said. “Now they have to lose another 15 percent for something totally out of their control?”
More, actually. The NBA wants players to pay another 25-50 percent of their future checks. That decision has been put off until May, but the core issue is the split of revenue between the league and the players. The collective bargaining agreement stipulates a 51/49 percent split of basketball-related income (BRI) favoring the players. As that figure is expected to drop significantly, so too will the players’ share.
If that imbalance isn’t resolved this season, it would result in a significantly lower salary cap for the 2020-21 campaign.
“If you’re a player under contract, why would you care if the cap goes down?” the agent asked. “Why are you going to sacrifice 25 percent of your salary to get other people paid [by protecting next year’s salary cap]? Why is that our problem?”
That’s a difficult question to answer.
Finding consensus among the player base—from high-salaried stars to the larger contingent on minimum contracts—won’t be easy for the NBPA, just as Silver will need to rally the diverse ownership base of teams onto the same page. There’s also the broadcast partners and the complex ethics of restarting the season during a global pandemic.
Meanwhile, hopefully the players have managed their money well, because this will take some time to sort through. If Portland Trail Blazers guard CJ McCollum is right, up to a third may face a difficult future.
“I would say out of 450 players…150 probably [are] living paycheck to paycheck,” McCollum told ESPN’s Jay Williams.
McCollum, the NBPA vice president, told Williams that those on minimum salaries, in particular, may be vulnerable. So too might be players who didn’t “budget correctly and didn’t expect this to happen.”
On Wednesday, McCollum told Bleacher Report “it’s hard to manage money when you’ve never had it before. … A lot of players—especially years two through four—are still trying to figure themselves out. They’ve either hired a financial adviser or are in the process of hiring someone. They’re figuring out their budget.”
Well, no one could anticipate the state of the world, especially in July when many of the contracts were signed. By early January, every contract in the NBA is guaranteed. But even thoughtful money management can fail if a fixed income is suddenly disrupted by an “act of God.”
While it’s easy to stereotype a young athlete as a reckless spender, and perhaps some of McCollum’s 150 are guilty of that, each case is going to have a different story. Many come from humble backgrounds. While they may have helped generate millions of dollars for their schools and the NCAA, they weren’t allowed to earn income as students outside of a free education.
“I think there’s a lot of players and athletes who are first generations that just aren’t educated properly on how to manage money, how to manage wealth, and how to continue to make the money grow,” McCollum continued. “… So, I just cautiously advise people to really save, to really plan accordingly, because at some point, if we don’t continue to play, pay is definitely going to change or come to a halt.”
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There’s the other side of the player spectrum, of course. Stars such as LeBron James have a healthy flow of endorsement income, but an average player won’t come close. And while it may be difficult to muster sympathy for a league where almost everyone is earning over $1 million per season, what a player takes home is far less than his contracted salary.
Right off the top, the NBA takes off 10 percent, deducting from the players’ first 12 checks, as agreed to in the CBA. That money is held in escrow until July once the NBA’s audit determines if the players received the appropriate share of BRI. That figure, collectively, cannot go beyond 51 percent.
Before the season, players were projected to get their entire escrow back, but with Silver’s estimate of roughly $400 million in losses in China, the league was initially expecting to keep about $45 million of the players’ escrow.
Now that revenue is expected to drop at an unprecedented rate (perhaps $1-2 billion, depending on the resumption of the season), the players won’t get a cent of their escrow back this season.
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Looking at Alex Caruso of the Los Angeles Lakers, he’s contracted for $2.75 million this season. Over his next two checks, he’ll have $22,917 deducted from each to complete his $275,000 escrow payment.
The league typically takes 20 percent of the players’ first 50 percent of income in escrow, but none of the second half. For simplicity’s sake, if the NBA starts with a new 25 percent deduction (after the 12 escrow payments are complete) in order to offset the losses from the coronavirus shutdown, Caruso would be on the hook for $28,646 per check. That would be a total of $618,750.
That’s 22.5 percent of his contracted $2.75 million for the season. Factor in federal and California state taxes and Caruso’s take-home might be in the neighborhood of $1.05 million (about 38 percent)—less if he participates in a 401(k) retirement plan. He’d also owe in the neighborhood of $85,000 to his agent.
The Meaning of It All
Who reading this is going to shed a tear for a millionaire making less than he had expected? It’s probably too much money to elicit sympathy for those struggling to make ends meet while sheltering in place.
Still, all these details need to be sorted out by the NBA and NBPA to either get the current season back running or the next season. By the CBA, the league has the right to withhold almost 1.1 percent of a player’s check for each canceled game (which would be near the 25 percent proposed additional deduction). The league cannot unilaterally dock players for games that are postponed, only canceled.
Not every player and agent are comfortable with giving money back for games that might actually be played.
“Cancel them if you’re going to take the money,” a different agent said. “Because if they do resume, the players aren’t getting their money back.”
In the final accounting, which is an audit approved by both sides, the players will always end up with their designated share.
In simplified terms: If the league is bringing in $8 billion in income, and the players are contracted to earn $4 billion, the league is in balance. But if income drops to $6 billion, the players at $4 billion would be overcompensated by $1 billion.
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The first step would be the NBA keeping the escrow ($400 million in this example) followed by a reduction in the following year’s cap, which would need to account for the remaining $600 million overpayment. That’s a drop of $20 million ($600 million divided by the number of teams). By deducting that additional 25 percent for the final 12 payments, the league would make up $500 million getting the player share of BRI back into balance (or close to it). That would help stabilize the cap for the 2020-21 season.
To answer the agent who doesn’t like the idea of his player, who is on a multiyear deal, voluntarily giving up in the neighborhood of $4 million: If the players don’t agree to give back, the league may be more likely to cancel games and take almost the same 25 percent.
It’s the inverse of the issues faced in 2016, when the NBA’s salary cap jumped by $24 million with the most recent national broadcast deal. The only players who primarily benefited were that summer’s free agents, such as Timofey Mozgov, Luol Deng, Joakim Noah and Bismack Biyombo—who all received ill-advised contracts. Much of that was bad management decisions (hello, one-year deals), but most of the deserving players were already under contract and unable to cash in.
The NBA suggested smoothing the cap, reducing it artificially, while sending a massive check for the difference to the union to distribute to all players. The 2016 free-agent class wouldn’t have their payday, but every player would have benefitted from the increased income.
If today’s players aren’t willing to give back a portion of their salaries, it will be next year’s free-agent and draft classes that will be penalized. Teams that had expected to spend will find they’re taxpayers instead.
Before it comes to that, the league would likely be compelled to cancel games to trigger the CBA’s force majeure clause that allows for deduction without union approval. That would also open the door for the NBA to void the CBA itself, which could ultimately lead to another lockout.
The Greater Good
Games may be canceled regardless, but it’s time to look for the greater good, even if that means significant sacrifices on all sides. The league and the union must look beyond the emotions of this difficult time and find common ground.
Perhaps a line of credit from the league to the union to give aid to players who aren’t prepared to handle the additional reduction in income. The CBA does allow for loans in some cases, though not to minimum-salaried players or first-round draft picks on their rookie-scale contracts, but rules can be adjusted when the NBA and union work together.
Actually canceling games should be the last resort. Even if the league can’t resume until late into the summer, allowing for that possibility is crucial.
That’s going to take a voluntary financial sacrifice from the players to make a return this season viable.
It’s going to take significant consensus and participation. Some of what has been lost may still be recovered—if they navigate this minefield together.
Email Eric Pincus at firstname.lastname@example.org and follow him on Twitter, @EricPincus.
Bleacher Report’s Sean Highkin contributed to this story.