While the NBA continues to work out plans to finish the 2019-20 season, the future economics of the league face immense uncertainty.
The league and the players' union will need to make adjustments to the collective bargaining agreement (CBA) and how the business of basketball operates given the projected decline in leaguewide revenue due to the coronavirus pandemic.
What will those changes look like? Here are eight proposed tweaks for next season -- the upcoming offseason and 2020-21 -- based on conversations with front-office executives and player agents, focusing on how to make the salary cap, max contracts and free agency work.
Issues with the current system
If you go by the letter of the CBA, there will be a drastic decline in the projected $115 million salary cap and $139 million luxury tax for 2020-21. One team's front office estimated the cap declining by as much as $25-30 million.
The initial cap projections were based on an expected $8 billion in basketball-related income (BRI), which is now expected to decrease by at least $1 billion and potentially as much as $2 billion. BRI takes into account a wide range of revenue from gate receipts to broadcast rights.
Using the standard salary-cap formula with $6 billion in BRI would have massive implications throughout the league, with the salary cap and tax line for 2020-21 plummeting to $95 million and $115 million, respectively. At least 25 teams would be in the luxury tax -- the most in league history. The Golden State Warriors' projected tax penalty of $45 million would increase to $160 million before 2020 free agency even began.
One executive mentioned that merely leaving the tax line at $139 million, but letting the cap fall, could solve that problem. However, it would not help teams that were planning to use space in free agency.
With only the Atlanta Hawks, Detroit Pistons and potentially the New York Knicks having cap space under this scenario, free agency would essentially be frozen. Almost every player with an option would pick it up, and 2020 free agents would be scrapping for any available money. Players such as Ben Simmons and Pascal Siakam, who agreed to rookie extensions last fall tied to a percentage of the cap, would lose at least $5 million annually.
And if revenue returned to a relative normal level for 2021-22, there could be a dramatic cap spike as in 2016, when the Warriors signed Kevin Durant, sparking issues concerning fairness and competitive balance. That might lead to a flood of players hitting the market in 2021, with 2020 restricted free agents -- such as Brandon Ingram -- looking to sign one-year deals and waiting for a future spending spree.
"The players' association cannot allow the 2020 free-agent class to fall on the sword," one agent told ESPN.
That's why a majority of teams said they expect the league and the union to negotiate new rules.
"The CBA was not built to handle pandemics," commissioner Adam Silver told players on a conference call this week.
And here's what those new rules could look like.
Proposal 1: Increase player escrow to 30%
The current escrow system withholds 10% of player salary. The money is put in an escrow account and ensures that player salaries do not exceed more than 51% of BRI. Teams use the escrow account to bring salaries back into line.
Here's the problem: There already is $3.3 billion in guaranteed salary for next season, plus at least another $500 million coming from free-agent signings, draft picks and waived players. If BRI drops significantly due to canceled games and/or games without fans, then the nearly $400 million in escrow isn't going to come close to evening out the BRI split. In a drastic scenario where BRI drops to $5 billion because the 40% of leaguewide revenue that comes from game nights in arenas disappears, players could end up receiving more than 80% of BRI.
The NBA could create a wider safety net by increasing that escrow withholding to 30%. There's a clause in the CBA stating that if BRI substantially decreases in one year and players receive more than their share, the league and the union "shall negotiate in good faith to agree upon an adjustment [to the CBA] in a manner reasonably satisfactory to the parties to address the issue."
A 30% escrow would give the league a $1.1 billion insurance policy in case revenue does seriously drop. However, that would not solve the cash flow problem facing many teams next season. Unlike the 25% player salary reduction that teams have the discretion to use now, the escrow salary sits in a league account and is not redistributed until after the season is completed.
Proposal 2: Use the 2019-20 salary cap and luxury tax for 2020-21
Multiple team executives said that keeping the cap and tax line at their current numbers of $109 million and $132 million, respectively, would bring a sense of normalcy to the league. Following the 2011 lockout, the league made a similar decision to keep the previous season's cap and tax numbers, even though it was operating under a new CBA.
This strategy ideally would give the NBA time to get its finances in order, with the hope that revenue will return to normal for the 2021-22 season.
An artificially flat cap has some issues, though. Consider these scenarios.
Giannis Antetokounmpo will be supermax-eligible at the start of 2020 free agency, whenever it occurs. The Milwaukee Bucks expected to be able to offer him a five-year, $250 million contract -- the largest in league history. That was based on Antetokounmpo being eligible for 35% of a $125 million salary cap for 2021-22. Will Antetokounmpo be as likely to commit to an extension if the league decides to hold the cap at $109 million for multiple years? What if the league provides no clarity on the cap, and Antetokounmpo doesn't know what his actual salary will look like?
Something similar goes for Donovan Mitchell and Jayson Tatum, who will be eligible to sign rookie extensions for 25% of the 2021-22 cap. These max-eligible players might be more likely to wait it out or sign short-term deals until the cap situation is more clear.
In this week's conference call with players, Silver stressed competitive balance as a priority when navigating potential changes. It would be unfair to put the Bucks, Utah Jazz and Boston Celtics at a disadvantage in retaining star players that did not exist prior to the pandemic.
Holding the cap in place presents these kinds of challenges for long-term team-building. By the start of 2020 free agency, will the NBA have an answer for what the salary cap in 2021-22 projects to be?
And if the cap is flattened, will there be enough revenue for small- and mid-market franchises to spend in free agency and remain competitive? Big-market teams such as the Golden State Warriors, Los Angeles Lakers and New York Knicks will have less money to distribute via revenue sharing if there are no fans in arenas. Depleting the traditional revenue-sharing fund could cost teams such as the Charlotte Hornets, Indiana Pacers and Memphis Grizzlies around $20 million annually.
Without a change to the revenue-sharing model -- which is agreed to by the 30 teams and by the league office, not the union -- even reaching the salary floor could be tough for some teams. Which brings us to the next proposal ...
Proposal 3: Reduce the salary floor to 80%
Some front-office executives said that reducing the minimum teams must spend on salary from 90% to 80% of the cap would help teams affected by a lack of revenue-sharing and gate receipts.
For example, including their 2020 draft pick, the Atlanta Hawks have $59 million in committed salary for 2020-21 -- $39 million below the floor. When teams fall short of the salary floor, they are required to pay out the difference to the players on their roster.
A temporary reduction of the salary floor until leaguewide income returns to normal would ease the burden on lower-revenue teams, while players would still receive at least their 51% share of BRI.
Proposal 4: One-year amnesty provision
The amnesty provision introduced in the 2011 CBA allowed teams to waive a player and remove his cap hit from their books, though they were still responsible for paying his salary. A one-year reintroduction of the rule could help cash-strapped teams, especially if the cap drops or remains flat.
Two teams told ESPN that the provision would help a franchise like the Detroit Pistons the most. Blake Griffin will count against their cap for $36.8 million and $38.9 million in the next two seasons. With this proposal, Detroit could amnesty Griffin and have over $50 million in room; without the provision it would have less than $20 million in space under a flat cap.
Proposal 5: Adjust the luxury tax
The league introduced a progressive luxury tax in 2011, with the financial penalties per dollar spent over the tax line increasing the further into the tax a team goes. There are additional penalties for being a repeat tax team in four out of five seasons.
Because there could be 12 tax teams if this year's $132.7 million line holds for 2020-21, executives suggested a few different options here:
1. Keep the projected $139 million tax line no matter what happens to the cap
Under this proposal, teams such as the Bucks, Rockets and Lakers, which were not projected to enter the tax before the hiatus, would remain below the threshold.
It would also soften the blow for tax teams like the Nets, potentially saving Brooklyn more than $20 million in its tax.
2. Modify the repeater tax or tax brackets
Teams that spend more than $132.7 million in salary but stay below $139 million would not be counted as a tax team for the current season. For example, if the Bucks spent $135 million in salary but exceeded the tax limit in the next three seasons, they would not be considered a repeater tax team.
Another solution is to make the tax brackets less harsh. Instead of a team being charged an additional $1.50 for every $1 spent between $0 and $5 million over the tax line, teams would be charged $0.50 for every $1 spent between $0 and $10 million over the line.
3. Eliminate the progressive tax
Prior to the 2013-14 season, teams were charged only $1 for every $1 spent over the tax. By reverting back to that system with a $132.7 million tax threshold, the Philadelphia 76ers would have a $13 million tax bill -- rather than paying $42.7 million if there are no changes at all.
A counterargument here is that tax teams such as Boston, Brooklyn, Golden State and Philadelphia will be rewarded for spending because all four teams are already projected to be in the tax. And, of course, any proposal to cut tax bills means there's less money heading to teams that typically receive these tax funds.
But most executives and agents were in agreement that there are better ways to redistribute money across teams than an unexpectedly punitive tax for one season.
Proposal 6: Cap smoothing
Multiple teams recommended that artificially smoothing the cap over the next three seasons -- the remaining years on this CBA -- could be the best solution for the league and players. This would remove BRI from salary-cap calculations, allowing the league and the union to agree on a set number.
"Spread the pain in revenue loss over four seasons instead of one," one executive told ESPN.
The cap was projected to rise to $115 million in 2020-21, $125 million in 2021-22 and $131 million in 2022-23, with the tax line increasing to $139 million, $151 million and then $159 million.
Here's how one smoothing proposal could look:
2020-21: $112 million cap, $136 million tax
2021-22: $118 million cap, $143 million tax
2022-23: $123 million cap, $150 million tax
This would allow teams to continue to plan for the future without so many unknowns. It would also avoid giving some big-market teams an advantage during a cap-spike season -- the kind of advantage that resulted in 2016 when the league and union couldn't agree to a smoothing proposal after the new national TV deal kicked in.
Under this plan, the Bucks could still offer Antetokounmpo the largest contract in NBA history. Simmons and Siakam would see only slight decreases on their max extensions. Instead of 25 teams being in the luxury tax, only the franchises already clearly headed for the tax would face penalties. Atlanta, Charlotte and Detroit would still have cap space this summer.
One issue with this proposal is that players could end up deflating their own salaries if revenue returns to expected levels in future seasons. Players might end up with less than 51% of the BRI split, unless measures are put in place to return a portion of league revenue to players to keep that split in place.
Proposal 7: Player contracts are counted as percentage of the cap
This drastic scenario would overhaul the entire salary system.
Multiple teams suggested that if the salary cap decreases significantly, then players' cap hits should decrease by a proportionate amount.
For example, if the cap falls to $95 million, Stephen Curry's $43 million contract would count as only $35.4 million for cap and tax purposes. The difference in salary would be put into an escrow account and given back to Curry if BRI for players does not exceed 51%. Doing the same for all Warriors players would leave Golden State with $29 million in tax penalties, rather than $160 million.
The extensions for Simmons and Siakam would count for only $23.8 million next season, but they'd still be able to receive their full $28.8 million amount if the BRI split evens out. The Hawks would have $36 million in 2020 space under a $95 million cap, rather than $48 million in room under a $115 million cap.
This is somewhat similar to the increase in rookie-scale contracts in 2017. Ingram has a $7.2 million cap hit for the Pelicans but actually was scheduled to earn $10.5 million this year.
Proposal 8: Roster expansion
Although teams are allowed to carry 20 players during training camp, they are restricted to 15 players during the regular season, with 13 active for each game. Referencing concerns if players become ill and/or need to isolate for weeks, some team executives are proposing an increase in roster size.
The active list would remain at 13, but the max roster size would increase to 17 under this proposal.
There already is a hardship rule in place in case of injury or illness, but a team can add a 16th player only if four players who are sick or injured miss at least three regular-season games and are deemed out for a minimum of two weeks.
The revised roster rule would allow teams to sign an extra player immediately if needed, but there would be restrictions on the contracts for players taking the 16th and 17th spots. The contract would be for only one year, there would be no guaranteed salary protection and the player would become an unrestricted free agent in the offseason.
Several executives also said they would want to allow players on two-way contracts this season to be playoff-eligible if the season resumes, making Oklahoma City Thunder guard Luguentz Dort eligible for the postseason, for example.