LOS ANGELES — Stopping the NBA season was an easy decision for Commissioner Adam Silver. Once players started contracting the COVID-19 virus, the health and safety of the league took precedence over the potential financial repercussions. While it had to be a painful choice, it wasn't a difficult one.
Starting the NBA back up, be it this season or next, will be significantly more challenging than stopping it, and the players are likely to bear the brunt of roughly half the lost revenue.
The logistics of how the league might be able to continue is complex and not without risk. The path ahead is unlikely to include fans, instead potentially cloistering the players in a central location like Las Vegas under extreme isolation and quarantine.
Eric Pincus @EricPincus
Thinking it over a little more, if I had to guess, they put up everyone at the Mandalay Bay and set up something similar to what they have for the G-League showcase. All games in the same hotel they're staying - no one leaves the premises for the duration of the season https://t.co/w4W9TWDwQ2
Whatever the path, the league is likely to take on significant losses, be it losing gate revenue, canceling the rest of the regular season or even ending the 2019-20 year without a champion.
What the league does have is time. Time to decide when it's right and safe to continue. Those choices can be pushed off even beyond June when player contracts are scheduled to either expire or roll over to the 2020-21 season, but only if the NBA and players union agree to work together. The collective bargaining agreement (CBA) that binds both sides may be limited in its scope, but both sides in concert can do whatever is needed to set things right.
Without that joint effort, the CBA is bound by its force majeure language, which allows for the league to withhold player checks for games that are canceled, not postponed. Most players are scheduled to be paid next April 15.
That's the running clock on the next step for the league: reducing player salaries in anticipation of significant losses.
As ESPN's Adrian Wojnarowski recently reported, the NBA and the players union are "discussing scenarios for withholding up to 25 percent of players' remaining salaries in a league escrow should regular-season games eventually be canceled."
The key word is "discussing." The league and the union must collaborate to resolve the mess that is the 2020 shutdown, but how quickly will they reach an agreement?
If games are canceled, the league can deduct approximately 1.1 percent for each lost contest (including about 5.6 playoff games per team). For a high-paid All-Star like LeBron James, he'd be on the hook for over $400,000 per game.
While players typically receive their final paycheck Nov. 1, months after the season ended, a select few have accelerated pay schedules, including James. By force majeure, James would need to "promptly pay the difference directly" to the Los Angeles Lakers.
But the league isn't necessarily ready to start canceling games, and the NBA doesn't have the right to hold back salaries for games that have simply been postponed.
How comfortable will players be with giving back money for games they still may play? Would they be guaranteed to recoup those funds once placed into escrow? Or will the league need to keep it all to help offset what could be a significant drop in the NBA's basketball-related income (BRI) for the currently stalled season?
Some canvased agents didn't know enough of the details being discussed to voice a strong opinion—other than to agree that once that money is taken from the players, they're not getting it back.
But the unfortunate reality remains: The players are going to be hit hard financially by the pandemic. The CBA guarantees the players between 49 and 51 percent of the league's BRI each season. Assuming an even split, for simplicity's sake, a $1.2 billion loss in NBA revenue would translate to a $600 million hit to the players.
It's inevitable in one form or another and why the union would even be considering a 25 percent withholding. The league already holds 10 percent of each player's check in escrow, per the CBA, to help the numbers balance at the end of each season. If the players were collectively underpaid in relation to the revenue split, that money goes back to them through the union.
If the players were overpaid as a group, the league can keep some or all of the escrow, which is either paid back in equal shares to the teams or held onto by the league for other purposes. For the 2018-19 season, approximately $369 million was withheld in escrow. Most ($308 million) was returned to players, though about $2 million was distributed to each team.
Before 2019-20, the league projected that players would get back their entire escrow for the coming season, plus an additional $5 million shortfall payment from the league. After Houston Rockets general manager Daryl Morey insulted the Chinese government with a pro-Hong Kong tweet, the league revised that estimate with a lower salary cap for 2020-21 ($115 million instead of $116 million). Instead of a $5 million team shortfall, the players were now expected to lose $45 million of their escrow withholdings—a $50 million swing.
Because of the shutdown, the league will probably need to keep the entire escrow (roughly $380 million, based on approximately $3.8 billion in player salaries) and then some. That’s an additional $335 million (after losses from the Chinese market) plus another 15 percent if the union agrees to that 25 percent withholding, which could amount to around another $329 million.
For Anthony Davis, who would normally get paid $24.4 million of his $27.1 million salary throughout the year, an additional 15 percent reduction starting April 15 would drop his total take-home on the year to an estimated $22 million.
While this may be an extreme simplification (though it may not seem so!)—one that doesn't address player benefits, James and others who have already received the bulk of their salaries, and the exact BRI split to the decimal—that $664 million deducted from the players would go a long way toward balancing losses in the $1.2 billion range.
If it ends up being less than the league needs to reach the revenue split, the players would get a portion of their money back.
Without extreme measures, a drop in revenue for the current season will cause the 2020-21 cap to fall significantly. The players can help prevent financial chaos in future seasons, but only if they work with the league by giving back money without games being canceled—since a chance remains for completion of the year, even if it doesn’t return until the summer.
If the players don’t agree, the league may have no choice but to officially cancel part or all of the regular season and even the playoffs. If so, with approximately 17.5 games remaining plus about 5.6 playoff contests per team, that would be 24.8 percent of each player’s check—awfully close to the reported 25 percent the league is asking for in lieu of cancellations.
Any major decision outside the scope of the CBA needs to be agreed to by the league and the union. Their interests align in trying to protect as much income as possible. Imagine a $95 million salary cap for next season instead of $115 million. That would immediately dry up much of the free-agent market and immediately reduce the contract extensions of Ben Simmons and Jamal Murray by roughly $29 million each.
Players may not like the idea of giving up 25 percent, only to be asked to finish out the season without cancellations, given they may play the games and still not get that money back.
A centralized, quarantined season in a city like Las Vegas would cost millions to produce. Teams would lose their gate revenue. Local and national television contracts would take a hit. One single mistake could lead to reinfection and bring it all down again to a screeching halt.
None of this is "fair," but in the grand scheme, people around the world are losing their lives. Basketball and the money surrounding it have to be a lower priority.
Still, the league has significant motivation to finish out the season, beyond minimizing losses. It's to get back to the game that is not only loved by the players, owners, executives and team staff but also its massive worldwide fanbase.
Email Eric Pincus at firstname.lastname@example.org, and follow him on Twitter, @EricPincus.