How will the NBA and National Basketball Players Association's plan to withhold players' salaries work?
With the season suspended due to the coronavirus pandemic, both sides agreed to a plan that will withhold 25% of each player's paycheck beginning May 15, according to a report by ESPN's Adrian Wojnarowski. This clears the way for a gradual reduction in player salaries in case the rest of the season is canceled under the force majeure provision.
ESPN insider Bobby Marks breaks down all the details and ramifications -- based on a memo sent from the union to players and their agents -- including the potential effects on players such as LeBron James, Ben Simmons, Pascal Siakam and Brandon Ingram.
Does this mean the NBA season is going to be canceled?
No. If the NBA thought that the season was not salvageable, the league would have canceled by now and enforced the force majeure clause in the collective bargaining agreement (CBA).
That clause -- which covers several catastrophic circumstances, including epidemics and pandemics -- would have seen players lose roughly 1% of salary for each game canceled.
The total salary lost due to a canceled season would equal roughly $850 million.
How does this new agreement work?
Players will continue to receive their full paychecks through May 1. Starting on May 15, the remaining salary owed to players will be reduced by 25%.
The total deduction will be spread out in one of three ways.
For a player who is under contract for next season, the deduction will be spread out across 16 paychecks -- consisting of the remaining 12 this season (through Nov. 1) along with the first four next season (starting on Nov. 15 and ending Dec. 31). For example, Boston Celtics forward Jayson Tatum will have his salary reduced by a total of $1.06 million from May 15 to Dec. 31 (with $66,269 coming out of 16 paychecks). Tatum's base salary this season is for $7.8 million.
For players who have player options for next season or are not under contract, they will have their deductions spread out across the 12 remaining paychecks this season. The Brooklyn Nets' Joe Harris is a free agent this summer and will see $86,516 taken out of each payment through Nov. 1 (or $1.04 million total). If Harris were under contract for next year, $64,887 would have been taken out of each installment.
Players who are on a shortened pay schedule that ends on May 1 will see their deduction start on Nov. 15 and end on Dec. 31. Players who fall into this category will see their deduction spread across only four paychecks.
In total, that 25% reduction of remaining player salary is equal to $475 million (or 12.5% of the total salary owed to players).
Could the players have done nothing and continued to collect their paycheck in full?
Yes, but it could have cost them this summer.
Players could have continued to receive full paychecks during the season suspension -- like they did on April 15 and will on May 1 -- but if the NBA enacts force majeure and cancels some or all of the remaining games, players would run the risk of not receiving a paycheck come late summer or fall.
Starting the reduction on May 15 significantly lowers the amount deducted per paycheck by spreading it across a greater period of time.
What happens if the NBA season does get canceled or resumes with a shortened schedule?
The players will have their salaries further reduced. The union outlined that in a worst-case scenario -- with all regular-season and playoffs games canceled -- players could lose up to an additional 15% of their remaining salary.
The current 25% reduction of remaining salary per player is equal to the NBA canceling 12.5 games. While the reduction starts on May 15, there should be a more clear picture by June 15 of how many games could get canceled. If more or fewer than 11.5 games are lost, the reduction amount will be adjusted.
If the NBA implements force majeure, resulting in 23 games lost (and around a 25% reduction in total player salary), the losses for all players could increase to $866 million.
Will this impact players who signed rookie extensions last year, such as Ben Simmons and Pascal Siakam?
These players will see a 25% reduction in pay, but that reduction will be based only off their 2019-20 salary. So Siakam will lose $294,000 of his $2.35 million base salary for 2019-20, as opposed to $3.6 million of his $29 million base salary for 2020-21.
Similarly, restricted free agents will have their pay reductions come out of only their 2019-20 salary -- not future earnings. If Brandon Ingram receives a max salary and returns to the New Orleans Pelicans, the reductions will still come out of his $7.2 million base salary for 2019-20.
How are players who will not receive a paycheck past May 1 impacted, such as LeBron James?
Unlike the 90% of NBA players who receive a salary over 12 months, James is part of a small group of players who received 12 installments from Nov. 15 to May 1. Because James will not receive a salary payment on May 15, he will not owe the NBA anything -- for now.
James is owed 50% of his $39.2 million salary by Oct. 1, and he will receive reductions beginning with either that payment or in the November and December pay cycles.
With a 25% reduction in remaining pay, James would owe the NBA $5 million. If the rest of the season is canceled, that number would increase to $9.2 million.
Are there any players on shortened pay schedules who will become free agents this summer? What happens with their salaries?
Yes, just one. The Sacramento Kings' Kent Bazemore is a free agent this summer and will have received his full $19.3 million salary by May 1.
According to the memo, a player who was on a six-month pay schedule and not under contract for next season will have his salary reduced over the November and December pay period if he re-signs with an NBA team.
Based on a 25% reduction for this season, Bazemore would lose $2.6 million.
Kentavious Caldwell-Pope and Otto Porter Jr. are also on shortened pay schedules, but both players have player options for next season and are unlikely to become free agents. If they do hit the market and sign new contracts, they would lose money similar to Bazemore.
What happens to the 10% escrow that has already been deducted out of the paycheck for each player?
That is to be determined until after the season.
Starting on Nov. 15 and ending on May 1, the NBA has collected 10% of salary from each player. The projected $375 million of escrow is used to make sure that the players do not receive more than the 51% of basketball related income (BRI) agreed upon in the CBA.
Before the projected loss in revenue from the NBA's preseason conflict with China and the COVID-19 pandemic, players were projected to get back the full $375 million of escrow. That money would be returned to teams instead if the withheld player salaries cannot even out the BRI split given a significant drop in revenue.
What impact will this have on next season's salary cap?
The impact on the upcoming salary cap and luxury tax will not be known until after the season is concluded.
The memo obtained by ESPN outlines that the salary cap and tax level for next season will be negotiated with the NBA after the completion of the BRI audit from this past season.