Answering the biggest questions about the NBA's record TV deal
The NBA announced on Monday a new nine-year media rights agreement with ABC, ESPN and TNT to televise the league's games between the 2016-17 season and the 2024-25 season. The agreement is worth $24 billion, according to The New York Times, with an average annual value of $2.67 billion that is nearly triple the figure of the previous agreement ($925 million).
A deal of this scope is sure to have far-reaching effects, many of which could take years to unfold. The following is a quick-hitting rundown of what the NBA's new media rights deal means for the league, its players, and its fans.
Who is the deal's biggest winner?
For all of the warranted celebration of Adam Silver's deft handling of the Donald Sterling scandal, this agreement is the true defining moment of his young tenure. Silver was tapped to replace former NBA commissioner David Stern in large part because of his experience negotiating media rights deals and his vision for leveraging the league's digital popularity. Here, Silver has greatly increased his league's revenue base without the potential ugliness of a public bidding war, without the need for a change of television partners, which would inevitably lead to grumbling from viewers during the adjustment period, and without any procrastination in the negotiations. This new deal is rich, it continues partnerships that have been in place for decades, and it was reached nearly two years before it will go into effect. Those facts reflect well on both the health of the NBA and the skill of the league's commissioner.
Where will all that money go?
Television revenue, like all basketball-related income, is divided between the league's owners and players on a roughly 50/50 split set during the 2011 labor negotiations. The influx of new television dollars will therefore lead to a corresponding increase in the size of the league's salary cap and, by extension, the size of salaries available to individual players. The league's salary cap is set at $63.1 million for the 2014-15 season, a figure that was already up significantly from $58.7 million the previous season. When the new television deal kicks in for the 2016-17 season, the salary cap could balloon to as much as $91.2 million, according to a CBSSports.com estimate.
That's clearly a massive jump, one so large that it impacts the planning for all 30 NBA teams. Silver told reporters at a press conference on Monday that the league may pursue a "smoothing out" process that would ease the league into its new financial reality once the new television contract begins.
What does this mean for individual player salaries?
Many of the NBA's contracts -- max contracts, mid-level contracts, mini mid-level contracts, room exception contracts -- are tied to the size of the salary cap. Any time the salary cap increases, the size of those contracts show a corresponding increase. Similarly, the league's salary floor -- the minimum amount a team must spend on salary -- also increases whenever the salary cap increases. In other words, players are about to get paid like never before.
With both LeBron James and Kevin Durant on track to become unrestricted free agents in 2016, much of the attention regarding this new TV deal will be focused on the high-end salaries. The following numbers are merely rough estimates that depend on how the NBA chooses to roll out its new salary cap increases.
This summer, James signed a max contract worth $42.2 million over two seasons, and he will earn $20.6 million in 2014-15. If the salary cap does indeed rise to $91.2 million once the new TV deal kicks in, James could earn a starting salary of $31.9 million in 2016-17. The four-time MVP's next contract with Cleveland could be worth as much as $185 million over five years.
Durant is currently entering year four of a five-year, $89.2 million max rookie contract extension that will pay him $19 million this season. If the salary cap increases as projected, Durant's next contract, beginning in 2016-17, could start at $27.3 million. If he re-signed with Oklahoma City, he would be eligible to receive a five-year deal worth $158.6 million; if he signed elsewhere in free agency, he could receive $116.8 million over four years.
How does the timing of this agreement impact negotiations right now?
It can be said, without hyperbole, that this new television agreement renders almost all recent contract analysis outdated.
As an example, Suns guard Eric Bledsoe recently signed a $70 million contract over five years. Many observers felt that was way too much to pay a player based largely on potential, especially because Bledsoe was coming off of a knee injury. Under the current rules, Bledsoe's $13 million salary in 2014-15 amounts to roughly 21 percent of Phoenix's salary cap. Assuming the 2016-17 cap is indeed $91.2 million, Bledsoe's $14 million salary that year would represent only 15 percent of Phoenix's salary cap. Proportionally, then, paying Bledsoe $14 million in 2016-17 is the equivalent of paying him $9.7 million this season. Had the Suns signed Bledsoe for that amount, it would have been widely hailed as a major steal. As long as Bledsoe performs to expectations -- as a fringe candidate to make the All-Star team -- his deal will almost certainly look excellent once the new framework has a chance to play out.
This isn't simply a matter of scaling, though. The summer of 2016 promises to be a bonanza because a raised salary cap changes the spending power of many teams, including contenders.
Often, in recent years, contenders and second-tier teams whose payrolls are above the salary cap line have been forced to make due with their mid-level exceptions as their primary method of improving their rosters. This summer, the Thunder tried and failed to land Pau Gasol before settling for Anthony Morrow, a skilled shooter but hardly a big name addition. In similar situations, the Clippers added Spencer Hawes and the Blazers added Chris Kaman with their mid-level exceptions in hopes of shoring up their depth. Come 2016, all three teams would be well under the new salary cap line and therefore armed with improved flexibility to add an impact player or players.
What's more, any frugal team that is currently operating below the salary cap line -- think Atlanta, Orlando, Milwaukee and so forth -- would have gobs and gobs of salary cap space to throw at A-listers (and whoever is left once they miss out on those big names). The Magic's four-year, $32 million contract for Channing Frye, which looked questionable when it was signed this summer, could be an early sign of the riches to come for role players.
Teams spent years positioning themselves for the summer of 2010, in which James, Dwyane Wade, Chris Bosh, Amar'e Stoudemire, Carlos Boozer and others were all free agents. A similar approach -- by both players and teams -- should be expected for 2016. If you're a team, you want to remain as unencumbered as possible for that summer, so that your hands are free to make transformational signings. If you're a player, you would much rather become a free agent in 2016 rather than 2015 because the spending power available to your bidders will be significantly increased.
Will this impact the NBA's upcoming labor negotiations?
That is still to be determined, although the discourse around those negotiations will be changing. In 2011, the NBA laid off 11 percent of its employees and adopted a bargaining position around its need to overhaul the fundamental economics governing the league. The players had to make massive concessions, the owners argued, because the financial model was broken. Well, $2.6 billion per year in media revenue doesn't exactly scream "broken model." Silver, Wizards owner Ted Leonsis, and ESPN executive John Skipper all hailed the league's economic health on Monday. Pleading poverty won't cut it when the owners line up against the players during 2017 labor negotiations (assuming either side opts out of the current deal).
That said, the owners surely feel emboldened by the changes to the collective bargaining agreement. Their argument will likely be along the lines of: "By decreasing the length of salaries, strengthening the luxury tax system, improving our revenue sharing, and thereby shoring up the financial health of our teams, everyone has benefited! Our league is more valuable than ever and that improvement has trickled down directly to the players. Why should we let up now?"
Silver has made it clear that he eventually wants a hard salary cap, and such a major expansion of the revenue pie could give him the opportunity to phase in that system logistically. The players union has always opposed that setup, but the scope is this new media deal is huge. Is a hard cap set at $90 million palatable to players in a way that a $60 million hard cap never could have been? Does it remain a matter of principle if the cap line is set so far above current standards?
One might argue that this new deal gives owners more incentive to keep the games rolling so that they can cash their checks, as opposed to 2011 when the lost games theoretically saved some owners from losing money. Don't overlook the fact that the players blinked way before the owners when it came to the prospect of lost income. This new media deal -- and the increased salaries it promises -- represents a greater carrot for the players to do whatever it takes to stay on the court. And it may encourage owners to push for further basketball-related income sacrifices from players. New NBPA executive director Michele Roberts will have her hands full convincing the players that it's worth digging their heels in for the long haul when the rewards for reaching a deal are so much greater. Any individual owner can absorb the lost income from a season over the other eight years of guaranteed money from this deal; a player, whose worth is millions rather than billions and whose average career length is five years, obviously doesn't have the same luxury.
What can fans expect from the new media deals?
It would be a mistake to allow the announced improvements to the NBA's media products get lost amid all the speculation over increased salaries. The league and its partners announced a number of improvements and plans for additional services in a press release. Here's a sampling of what's to come in 2016-17...
• NBA games will be available seven days per week on national channels: Monday (NBA TV), Tuesday (NBA TV), Wednesday (ESPN), Thursday (TNT), Friday (ESPN), Saturday (NBA TV) and Sunday (NBA TV, ABC/ESPN).
• TNT will broadcast 12 more games per year (increasing from 52 to 64), with the new games supplementing the network's current Thursday night doubleheaders.
• ESPN will broadcast 15 more games per year (increasing from 70 to 85), sticking largely to the Wednesday and Friday schedule.
• NBA TV will broadcast at least 100 regular-season games per year.
• ESPN will televise 20+ NBA D-League and Las Vegas Summer League games.
• The NBA will produce an annual end-of-season awards show, an idea that Silver has floated in the past.
• Both ESPN and Turner will improve their digital offerings, with ESPN pursuing an online streaming service for its games and Turner streaming its games while expanding its mobile-friendly delivery of highlights.
To boil it down: more, more, more. More NBA games will be available to watch in more ways and more league-related digital content will be available via digital delivery than under the current agreement. Diehard hoops fans should be salivating.