How will the NBA's changes to the collective bargaining agreement affect teams in trades and free agency?
The league and the players' union announced last week that they have agreed in principle on a Dec. 22 start to the 2020-21 season as well as amended rules that will help navigate the challenges caused by the coronavirus pandemic. The NBA board of governors unanimously approved the agreement in a vote, with final details beginning to trickle in.
Here are the answers to the big questions and what those mean for teams and trades, plus what we're still waiting to find out.
What is the economic fallout?
Players, teams and the league as a whole are going to feel financial consequences related to the pandemic for the next three seasons.
Before March, the NBA was projecting $8.45 billion in basketball-related income (BRI) in 2020-21. We don't know how much that figure will drop yet, but considering around 40% of revenue comes from hosting games with fans, the decline will be in the billions.
In 2019-20 -- when 80% of regular-season home games were played in arenas with fans -- the NBA saw BRI drop from a projected $8.2 billion to $6.7 billion.
How much will players have to give back in salary?
This could have gotten ugly. The current system withholds 10% of player salary. The money is put in an escrow account and ensures that player salaries do not exceed 51% of BRI.
Here's the problem: There is already $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 does not come close to balancing out the BRI split. In a drastic scenario where BRI drops to $5 billion because the 40% of revenue that comes from game nights in arenas disappears, players' salaries could amount to more than 80% of BRI.
In 2019-20, players received 60.1% of BRI and had to give back $384 million that was held in escrow. Players also gave back $241 million consisting of a reduction in salary ($144 million) that started in May along with money taken from the playoff pool ($23 million) and post-career income plan ($97 million).
To fix the escrow system and ensure a fair split, the league had two options. The severe option was to increase the 10% escrow to as high as 30%-40% and recoup the owners' portion in one year. That would have seen players give back between $1.2 billion and $1.6 billion in salary. LeBron James' $39.2 million salary could have dropped to $23.5 million.
The more reasonable option that both sides agreed to was to spread the losses over three seasons. Players will see escrow increase from 10% to 20% in 2020-21, resulting in a projected $800 million insurance policy for the owners if players are on pace to receive more than 50% of BRI. The escrow withholding for James will now be $7.8 million instead of $15.7 million.
For 2021-22 and 2022-23, escrow will remain at 10%, though there is a good faith agreement from both sides that the number could increase to a maximum of 20%. The increase in escrow would occur only if there is a substantial loss in revenue.
Despite playing only 72 regular-season games, players will not have their contracts prorated for the 10 games missed.
How did the league set the salary cap and luxury tax for 2020-21 and future seasons?
Under previous conditions, the league would have used a formula based on revenue from the previous season when setting the salary cap and luxury tax for future years. That would have led to at least 25 teams being in the luxury tax -- the most in league history.
Instead of going by the letter of the CBA, both sides agreed to keep the $109.1 million salary cap and $132.7 luxury tax from 2019-20 for the coming season. Then, for the following two seasons -- 2021-22 and 2022-23 -- the cap and tax will increase by a minimum of 3% and a maximum of 10%.
This flexible, artificial cap will allow teams and players to plan for the future while dealing with fewer unknowns, which was a goal for both sides.
Will the flat cap and tax impact the trade and free-agency market?
Most front offices were hoping for a $139 million luxury tax line, which was the projected amount before the pandemic hit. That would have allowed some teams to use their full midlevel exception while staying below the hard cap.
For example, with the current $138.9 million hard cap on a $132.7 million tax line, the Los Angeles Lakers might have to decide between retaining Rajon Rondo and spending their $9.3 million midlevel exception on a free agent. It is unlikely they can do both without making a trade to clear some space.
The Milwaukee Bucks could be forced to waive Ersan Ilyasova, who has a non-guaranteed $7 million contract. Otherwise, the hard cap could prevent them from using their midlevel and $3.6 million biannual exceptions.
The reduction in the hard cap also has a direct impact when it comes to sign-and-trades.
ESPN's Zach Lowe reported that Milwaukee has explored the idea of a possible Bogdan Bogdanovic sign-and-trade with the Sacramento Kings. However, because Milwaukee has $131 million in committed salary (and $124 million without Ilyasova), navigating a trade and remaining below the hard cap becomes difficult.
The Boston Celtics, Brooklyn Nets, Golden State Warriors and Philadelphia 76ers all project to be impacted by landing in the luxury tax. However, sources told ESPN that in an attempt to ease the tax burdens of teams that had been planning on the salary cap and luxury tax continuing to steadily rise, the NBA will reduce the luxury bill for teams at the end of the 2020-21 season by the percentage that the league's BRI declines from initial projections.
For example, if BRI drops 30%, the Warriors' luxury tax bill could be reduced from $60 million to $42 million. It would also lessen the financial pain of the Warriors using their full $17.2 million trade exception.
What are the major effects of next year's salary cap projection?
Here's how the league is projecting cap and tax increases moving forward, though these numbers can certainly change:
2021-22: $112 million cap | $136.6 million tax
2022-23: $115.7 million cap | $140 million tax
2023-24: $119.2 million cap | $144.9 million tax
With a $112 million cap, Milwaukee's supermax extension offer for Giannis Antetokounmpo would be worth $228 million over five years. Any other team with cap space in 2021 would be able to offer Antetokounmpo a four-year, $145 million deal.
Blazers star Damian Lillard signed a four-year, $196 million max extension last July based on a projected $125 million salary cap. That extension is now projected to be worth $176 million -- a $20 million decline.
Because there is more clarity on the salary cap for 2021-22 and 2022-23, expect rookie extension candidates such as Jayson Tatum and Donovan Mitchell to take an aggressive approach to getting a deal done. Max extensions for both players would start at $28.1 million annually and total $163 million over the life of the deal. Without an agreement on an artificial cap, both players might have been more inclined to turn down big extensions and wait for a significant cap spike.
The cap will impact extension negotiations between Miami and All-Star Bam Adebayo. An extension at the same amount as likely extensions for Tatum and Mitchell would take Miami out of contention for Antetokounmpo or another max player in 2021. But in the unexpected scenario of a 10% cap increase, the Heat would have the flexibility to extend Adebayo while maintaining a max slot. The trouble for the Heat is that they won't know until eight months after the deadline what they can and should offer to extend their cornerstone center.
Few teams have cap space this year, but that will change in 2021. ESPN is projecting that 15 teams could have real space, including the Hawks, Hornets, Bulls, Cavaliers, Mavericks, Pistons, Pacers, Lakers, Heat, Wolves, Knicks, Suns, Blazers, Spurs and Raptors. The Mavericks and Lakers would need to shed salary to create a full max slot.
What are the other key dates and deadlines?
On Sunday, the league and the union agreed to a series of key dates that are integral to the league's transactions, including:
The Lakers' Anthony Davis has until Nov. 16 to opt into his $28.8 million contract for 2020-21.
The Celtics' Gordon Hayward has a deadline of Nov. 19 for his $34.2 million player option.
The Knicks have until Nov. 19 at 3 p.m. ET to make decisions on the partially guaranteed contracts of Elfrid Payton, Reggie Bullock, Wayne Ellington and Taj Gibson. New York could have up to $44 million in cap space if all four are waived.
The Warriors' $17.2 million trade exception will now expire on Nov. 23.
The last date to use the stretch provision on a player is Dec. 9.
The last date to exercise an option on a rookie scale contract is Dec. 29.
Free agents who sign contracts before Dec. 13 are eligible to be traded starting Dec. 13.
A free agent who signs with his own team for greater than 120% of his previous contract can be traded starting on March 3.
April 9 is the last day for a player to be waived and still eligible for the playoffs.
Those dates all reflect a mapping calendar the NBA instituted using the abbreviated 2020-21 season, helping adjust all transactions to a standard season timeline.
For example, if Dennis Schroder is officially traded to the Lakers on Nov. 22, he cannot sign an extension that exceeds more than three seasons until Feb. 24. Schroder also cannot be traded to another team if his contract is aggregated until Dec. 11.
The date of the 2021 trade deadline has yet to be finalized.