The massive infusion of money will have a ripple effect both within the NBA and throughout the sports world, but the primary impact will be felt in regard to player salaries and free agency.
Teams, players and their agents have been anticipating the explosion for some time. LeBron James was eligible for a four-year, $88 million contract when he decided to return to the Cleveland Cavaliers but elected to sign a two-year deal – with an opt-out clause after the first year – with the expectation that his maximum contract would be substantially larger with a new, more lucrative broadcast deal in place by 2016.
Players and owners agreed to split 50 percent of basketball-related income – revenue from broadcast rights, merchandise and ticket sales, etc. – in the last collective bargaining agreement reached after a lengthy lockout in November 2011. The salary cap increased from $58 million to $63 million for the 2014-15 season, the largest one-year increase since the cap was created. For perspective, the cap had only moved up by $635,000 from the 2011-12 season to the 2013-14 season.
With broadcast revenue set to increase by nearly $1.74 billion, players stand to gain an additional $870 million while the pool of about 450 remains the same – unless the league decides to expand, an option that NBA commissioner Adam Silver said earlier this year that he isn’t currently considering.
The expected revenue spike from the new broadcast deal for the 2016-17 season could make the 2014-15 increase laughable in comparison. In preparation for a “profound effect” that the deal will have on salaries, Silver said he planned to work with the players’ union to create a possible bridge for next season to avoid a dramatic change in the salary structure.
Such a move to “smooth in” the increase could also affect a free agent class for the Summer of 2015 that will include all-stars Marc Gasol, LaMarcus Aldridge, Rajon Rondo and Kevin Love, who could potentially risk long-term security for one-year deals that would put them in position to cash in later.
“A lot of it is sort of happenstance on who happens to have a free agent, who has cap room, what class happens to be coming up,” Silver said. “As we all know, certain agents and players have been timing their contracts so that they would become free agents in ’16 ’17, knowing that we were going to be entering into new television agreements.”
James would appear to be one of the greatest beneficiaries come 2016. With more than 10 years of service in the league, James is entitled to receive 35 percent of the salary cap in a maximum contract (maximum deals begin at 25 percent for players with fewer than six years of experience). Set to earn $20. 6 million this season and $21.6 million next season, James could see his salary balloon into the $30-million range with his next contract with the Cavaliers.
“It was being a businessman,” James told reporters in Cleveland about his decision. “I understand the business of this sport.”
Kevin Durant will be a highly coveted unrestricted free agent in two years and should also experience a huge financial windfall based on the latest agreement — and he wasn’t hurting after agreeing to a reported 10-year, $300 million deal with Nike last summer.
His next NBA contract could yield an annual salary closer to that number. The deal could also give Oklahoma City an advantage to keep Durant with a five-year contract, as the Thunder could offer an additional year other teams can’t under the current collective bargaining agreement. Now the money attached to that extra term will be more sizable than ever.
Dwight Howard surrendered $30 million when he rejected a maximum-salaried contract to leave the Los Angeles Lakers and join the Houston Rockets in 2013. The difference in financial sacrifice for Durant making such move could now possibly reach close to $40 million – or more.
Washington Wizards guard Bradley Beal and New Orleans Pelicans center Anthony Davis could be restricted free agents in 2016 and stand to see significant salary bumps from their current rookie deals. The first-year for a maximum contract for a player with fewer than six years of experience could potentially go up from $14.7 million this season to more than $20 million.
Twenty-two of the league’s 30 teams currently have less than $40 million committed to player salaries for the 2016-17 season. The Los Angeles Lakers only have two players on the books for that summer, with a total commitment of $8.7 million. Those situations will change, of course, with draft picks, trades and other player moves in the interim but the summer of 2016 could be the most active that the NBA has ever witnessed.
The new broadcast agreement speaks to the profits generated from advertisers who understand the value of live sporting events – especially among an increasingly younger audience for NBA games – while other forms of entertainment programming can be watched at other times. The NBA worked out a deal with ESPN to create a new live online video service to show regular season games on live, delayed and on demand platforms. The service would be available to people who aren’t cable or satellite customers.
“Sports programming in general is on the rise,” Turner Broadcasting system president David Levy said. “From a ratings perspective, it’s probably the last, I would say, destination programming on television, appointment viewing. And so if we can get a piece of this premium sports property and maintain it for the next nine years, for almost the next decade, it’s something that we wanted to do.”
NBA Finals ratings will never come close to the heyday of Michael Jordan’s reign with the Chicago Bulls but the league has recovered from lull in the mid-2000s to generate ratings above 10 in four of the past five. The San Antonio Spurs’ five-game victory over the two-time defending champion Miami Heat drew a rating of 9.3. ESPN President John Skipper said the network’s ratings were their highest over the past four years.
Under the previous collective bargaining agreement, the players received 57 percent of the league revenues and the huge giveback prompted speculation that the players’ union would opt out of the deal in 2017, which could lead to another lockout. Silver said in April that he had “no expectation” that the players would take that route but the new broadcast agreement makes that a distinctive possibility.
Michelle Roberts, the newly-elected executive director of the National Basketball Players Association, said in a statement on Monday, “Our job will be to ensure that the players receive their fair share of the results of their efforts and that we do everything possible to maintain the growth and popularity of the game.”
League owners also have the option to scrap the current CBA, but stand to make considerable profits as team valuations continue to increase. Given the current context, Steve Ballmer’s $2 billion purchase of the Los Angeles Clippers doesn’t look so audacious.
“There’s never been a better time to be a basketball fan. There’s never been a better time to be an owner of an NBA franchise or frankly any professional sports team,” said Wizards owner Ted Leonsis, who purchased the franchise in 2010 and served as chairman of the NBA’s media committee. “Certainly this is a deal that is significant enough that it shows the value enhancement for owning a team. And I think that’s a very, very positive to know that you’re going to have this kind of additional revenues that you can model into your revenue and your cash over a nine year period.”
Three years ago, owners complained of overwhelming financial losses and blamed player salaries for limiting their ability to sustain profitability, leading to a lockout that produced a 66-game season. James said that strategy “will not fly with us this time.”