Currently, the NBA regular season is just over half-way through. This season has featured several captivating storylines such as: the “Battle for LA” between the Showtime Lakers and the Kawhi Leonard-led Clippers, the analytics-driven Rockets, and a highly competitive Eastern Conference post-LeBron James. As a result, NBA fans have enjoyed one of the most exciting and competitive seasons in recent memory. However, despite this highly entertaining season, the NBA finds itself generating substantially less revenue than it had projected for the upcoming season.
Although October 4, 2019 seems like a distant memory to most NBA fans, unfortunately, this is not the case for NBA players, franchises, and executives. On October 4th, Houston Rockets General Manager Daryl Morey tweeted an image saying “Fight for Freedom. Stand for Hong Kong.” Immediately following the tweet, there was tension between Morey and the NBA, Chinese leaders, and the Chinese Basketball Association. The NBA, as well as several of its star players, heavily market in China. As a result, this tweet had a substantial negative impact on the bottom line for numerous individuals, as well as the NBA as a whole. By way of one example, CCTV, Chinese state-run television, did not air the opening night of the NBA season.
As a result of the tweet, Nike and the NBA prepared for long term financial impacts from China’s retribution, however there was little discussion regarding trickle down effects on players who do not personally market in China. Unfortunately, the drop in league revenue from the Chinese market will impact the salary cap, therefore reducing the money available to impending free agents. According to an initial report from Adrian Wojnarowski and Bobby Marks of ESPN, next season’s projected cap was speculated to fall from $116 million to $113 million. More recently, Wojnarowski reported that the NBA told teams that the new projected cap for next season will be $115 million. However, the cap won’t be finalized until the league’s audit is completed during the July moratorium.
By way of its Collective Bargaining Agreement, the NBA’s salary cap is set based on league-wide revenue. Put simply, the CBA dictates that players receive about 45 percent of basketball-related income. Specifically, the CBA provides that the “salary cap will equal forty-four and seventy-four one hundredths percent of the Projected Basketball Related Income for such year, less Projected Benefits for such Salary Cap Year, divided by the number of Teams scheduled to play in the NBA during such Salary Cap Year.”
Accordingly, roughly half of the money that the League loses due to the China controversy will ultimately come out of the cap. A lower cap and luxury tax number for next season will obviously impact what teams do in the summer in terms of free agency, but the reason the League rushed the information out now is because it could also dictate what some teams do at the trade deadline. Another indirect impact of lower revenue for the NBA will be felt by “max contracts.” A lower lower salary cap decreases contract value for players such as Ben Simmons, LeBron James, and Kawhi Leonard, whose contracts increase, or decrease, yearly as they earn a percentage of their team’s salary cap.
Although the salary cap is not yet projected to drop significantly from its earlier projections, Wojnarowski reported that the overall loss to the NBA’s revenue was around $150-200 million. As calculated by Jack Maloney of CBS Sports, roughly half of that figure would be around $75M-100M, and then divide that figure by the 30 total teams, which demonstrated why the projected cap drop initially was is in the neighborhood of $3 million. However, Wojnarowski’s second report that there will be a $115 million cap next season indicates the League has either lost less revenue in China than expected or it has made up that revenue in some other way.
The current NBA season still has many twists and turns until we know who will raise the Larry O’Brien Trophy in June. Moreover, it appears that the impact from an October 4, 2019 tweet has yet to be fully revealed. As the NBA carefully moves forward, it is clear that anyone with a social media platform can learn a valuable lesson from this incident. Although Morey’s intentions were to support democracy, he conveyed his message in a manner which could have potentially put players and League employees who were in China for exhibition games in danger. Moreover, the fallout which is still not completely known, has negatively impacted players vying for free agent contracts in the upcoming season. The bottom line: regardless of our profession, we all need to think of the consequences of any social media post. As Herm Edwards, formerly of ESPN, famously said to players at the NFL Rookie Orientation, sometimes we just should “not press send,” on our posts.
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