Salary Cap expert Larry Coon explains how the NBA handles the Salary Cap during COVID-19
The NBA is officially returning on December 22. There's finally an end date, but nothing in-between has been figured out.
How much are players going to get paid? How low is the salary cap going to be after both COVID-19 and the China controversy? Are players going to sign one-year deals while waiting for a more normal season next year? Fortunately, we had the chance to speak with one of the leading salary Cap and CBA experts in the world, Larry Coon.
For the sake of full transparency, we're going to leave keep his Larry's quotes in full.
Q: How is the NBA going to handle the salary cap during a COVID-19 year?
A: "There’s a couple of ways to do it. Expecting less might not be the best way to do it. One of the things that the league likes to do is have some consistency in free agency from year to year. It shouldn’t matter when you happen to come up in free agency, the landscape should be the same regardless. Can you do that every year – no. Some years are better than other years.
Some years there’s a new CBA negotiated, so whether you’re a free agent this year or next year the landscape could change significantly. But in a year like this, where it’s so far down, they don’t want the players that happen to come up for free agency this year get the short straw in the whole deal. The way around that is to prop up the cap artificially. One thing they’re toying with is just leaving it at the same level as last year. If you go by the normal formula, where the cap is set on projected revenues for the upcoming season, then the cap would go down significantly. Team’s free agent money would dry up, it would just be a bleak desert of a free agency. They don’t want that to happen.
If you prop up the cap and make it look like normal season, then players are going to be able to negotiate, and the maxes would be the same. Players are going to be able to negotiate the same contract this year, that they were going to negotiate last year. But of course, there’s less money available because there’s less revenue coming in. There’s a way to address that too. One thing goes back to the fundamental part of the agreement between the players and the teams - which is the players and the teams roughly split the revenue that comes in up or down. Normally it’s an up year. This year is a down year, and by their fundamental agreement, the players are entitled to half of the money, half of the revenue. Since revenue is down, their entitlement goes down.
The way that you’d address that is through the escrow system that the NBA has. Think of it like federal tax withholding. You don’t get all of your money when you get your paycheck, and you reconcile that. You figure out how much of that withholding you to get back with a tax return. Escrow works the same way. They hold back an amount of their salaries, and then at the end of the year the players get the exact amount their entitled to, the owners keep the rest. Doing that, the players collectively get what they’re entitled to down to a dime. In a system like this when you’re propping up the cap, you just need a bigger escrow.
As long as you want to prop the cap up to make free agency this year look like free agency last year, then a bigger escrow solves all those problems. The other thing it does is that it doesn’t discombobulate the whole luxury tax system."
In essence, the NBA has less money going into the 2021 NBA season. To solve that issue, they prop up the cap artificially so that players don't completely get the short end of the stick. By propping up the cap, there's a chance to make things look a little more normal. This is also aided by their escrow system, which basically holds a player's salary back during the beginning of the season.
Q: Will players sign short term deals?
A: "If they don’t come up with a system and an agreement where they’re going to keep the cap where it was and the cap really goes down, you’re going to see a lot of one-year deals. You’re going to see guys with options, not take those options. The perfect example is Anthony Davis. There’s no way he’s opting out this year if the cap is going to be down this year. The guys who are going to be unrestricted free agents, those guys would sign a shorter deal. If the system props the cap up, then it doesn’t matter. It encourages players to sign long term."
Without a propped up cap, then players will absolutely sign short term deals. However, the likelihood of that happening is low. Otherwise, players like Anthony Davis wouldn't opt-out of their contract.
Q: What should we lookout for the most this season?
A: "There’s a couple of provisions in the CBA to handle where bad things happen. The league also has the opportunity to cancel the CBA entirely. The other provision is the unexpected drop in revenue provision. It basically says if something really bad happens, the two sides will work together on handling it. That’s what’s happening now.
What they’re trying to do is come up with an agreement on when to come up with the 2020-21 season. That sort of sets the basic parameters like how to set the cap. If they can set up with an agreement on that, then whatever situation comes up with, they’re able to make the best of the bad situation. This coming season is going to be another season that will hurt. We’re hoping things will be better in the 2022 season."
The salary cap will drop this season, it's inevitable. Shams Charania has already reported that the cap is expected to be $109 million. This is why figuring out the start date of the NBA season was so pivotal. That date helped solidify what the salary cap would be and helped avoid an utter disaster in player revenue. Like Larry Coon said, this season will hurt, but it could have been far worse.
