“Certainly, [billion-dollar estimates] were never numbers that were coming from league sources,” Silver said. “The magnitude of the loss will be in the hundreds of millions of dollars, certainly. Probably less than $400 million. Maybe even less than that.”
But the spread of the novel coronavirus, which forced the NBA to suspend its season last week, presents an even greater financial challenge to the league. It could push the NBA’s revenue hit past the $1 billion threshold, according to team executives and media estimates, should the rest of the regular season and postseason be canceled. For a league that had enjoyed a decade of prosperity, the combination of the Hong Kong controversy and the coronavirus crisis represents an unprecedented and wholly unexpected financial challenge.
Consider: Over the past 35 years, the NBA’s salary cap, which is tied directly to the league’s revenue, has shown annual declines just twice and never by more than $2.3 million. Silver’s tenure, meanwhile, has been defined by remarkable growth. When he stepped in as commissioner in February 2014, the salary cap was $58 million. That number has nearly doubled to $109 million this season, thanks in large part to lucrative new media rights deals. The league’s annual revenue now tops $8 billion, more than double what it was a decade ago.
Gauging the precise economic hit of the NBA’s suspended season is impossible, but one high-ranking team executive said that the total damage could reach $40 million per team, or more than $1.2 billion, if the playoffs are lost. Similarly, a FiveThirtyEight.com analysis estimated that lost revenue could exceed $1 billion if the NBA can’t resume play.
The money adds up quickly. Gate receipts and ticket prices vary widely based on market factors, but NBA teams average roughly $2 million of revenue per regular season home game. There have been 259 regular season games postponed, and last year’s playoffs saw an additional 82 games. Conservatively, that’s nearly $700 million in lost game-day revenue.
John Hollinger, a writer for the Athletic and a former Memphis Grizzlies executive, estimated that those losses could translate to a salary cap decline of $8 million next year, easily the largest ever, even if Silver can salvage the playoffs. A Bleacher Report estimate said the salary cap hit could reach $15 million if the season is lost.
Such a drop would have numerous wide-ranging repercussions.
Young stars such as Toronto Raptors forward Pascal Siakam and Philadelphia 76ers guard Ben Simmons signed maximum contract extensions before the season that were worth 25 percent of next year’s salary cap figure. Those contracts would drop proportionally with the salary cap, potentially costing both players millions in anticipated earnings.
Free agents set to hit the market this summer would also be hit hard, with potential suitors having less spending power than initially expected. A lack of superstar talent was going to make this summer’s free agency period relatively quiet regardless, but the changing market dynamics could encourage some players to exercise their contract options and delay free agency until 2021. Second-tier players also might be forced to settle for one-year contracts and hope that more money is available next summer.
Teams, meanwhile, could also be forced into tough spots. Entering the season, the NBA was forecasting the salary cap to rise from $109 million to $116 million. ESPN.com reported in January that frayed relations with China could drop that estimate to $113 million. As recently as two months ago, in other words, teams were still operating under the assumption that the cap would rise.
Now teams could feel the squeeze in multiple ways. If the cap declines, the luxury tax line also would decrease. Teams already projected to be in the luxury tax would face steeper bills. Teams hovering underneath the line could now wind up as taxpayers, thereby forcing them to trim salary to avoid an unexpected bill next year. These dynamics could lead some owners to push for the NBA to maintain the salary cap at its current level, but this strategic approach would require successful negotiations with the players association.
The NBA clearly has more pressing concerns than its 2020-21 salary cap situation as it continues to handle the short-term fallout from the coronavirus, but these major financial questions are both looming and unavoidable.
Indeed, salary cap dynamics have played a vital role guiding the league’s direction in recent years. The massive cap spike of 2016 enabled the Golden State Warriors to sign Kevin Durant in free agency, thereby forming a superteam that defined the next three seasons. The frayed relations with China over Morey’s tweet and the coronavirus might not realign the league’s competitive landscape to that same extent, but the scope of their combined damage will unquestionably shape professional basketball once it’s safe to resume play.