The 2020-21 salary cap will be set at $109.1 million and the luxury tax line will be set at $132.6 million, identical numbers from last year. The two sides also agreed to open the annual free agency negotiating period on Nov. 20, two days after the upcoming draft. Signings can be made official on Nov. 22.
Typically, the cap and tax numbers are tied directly to the league’s revenue, so a drop in revenue would lead to drops in the cap and tax line. To cope with the unforeseen losses caused by the pandemic, the owners and players agreed to hold the cap and tax numbers steady so that free agency business could continue as normal and so that teams wouldn’t be facing unexpected luxury tax bills. Going forward, the NBA and the players have agreed that the salary cap would increase by between 3 percent and 10 percent each year through the end of the collective bargaining agreement, which expires in 2023-24.
At least 10 percent of player salaries each season will be held in escrow to offset the decision to prop up the salary cap. That number could rise as high as 20 percent, according to ESPN.com, if revenue continue to lag. This new framework should help spread out the hit to each player over multiple seasons.
The NBA will provide financial relief to its luxury tax payers, as well: Taxpaying teams will see their payments decrease in proportion to the league’s revenue. If the NBA loses out on 40 percent of its revenue because fans can’t safely attend games in person, taxpaying teams will see their luxury tax bills drop by 40 percent. The salary cap has grown rapidly over the past decade, leading most teams to assume this growth would continue into the future. The new tax adjustment provides relief to teams that had invested in major long-term salary commitments before the pandemic.
Basketball is headed for a whirlwind month. Typically, the draft is held in late June, free agency opens July 1 and runs for multiple weeks and training camps open in late September. This year, training camps will open Dec. 1, a little more than a week after free agency signings can be made official.
The NBA and the players’ union must still reach agreement on a health and safety protocol for the upcoming season. The league plans to hold regular season games in empty arenas and to require its teams to travel extensively, rather than utilizing a single-site protective bubble as it did at Disney World for the 2019-20 restart and 2020 postseason.