It happened. We all knew the new NBA broadcasting deal was going to be big, but the reported numbers have blown everyone out of the water. The New York Times reported last night that the new deal will continue with Turner Broadcasting and ESPN, holding off a late push from Fox. The numbers are massive; for nine years through 2024-2025 the deal will total $24 billion dollars, that's an average of about $2.66 billion dollars per year. There are a couple of other details that have been released about the deal including the creation of a mobile or tablet streaming option for customers that don't have television providers, something probably similar to Verizon's mobile deal with the NFL. Needless to say, this new broadcasting deal is a testament to the growing popularity of basketball worldwide.
As I have previously written here about what the new deal could mean for the salary cap, I would encourage anyone who hasn't read it to check it out for some background on the way BRI and the salary cap will technically be affected, as well as some implications for the Clippers.
But what has changed between a couple weeks ago when I wrote that last projection and now? Obviously the sheer size of the deal and numbers involved. Size matters in this case and going from $2 billion a year to $2.66 billion is a big difference (it's two-thirds of what the NBA currently makes on its broadcasting deal).
Depending on how the league chooses to implement this new broadcasting deal, we could see a lot of "smoothing" going on over the next couple of salary cap years. One option is to attempt to prevent one massive salary cap jump in the summer of 2016 by spreading out some of the new broadcasting money to the 2015-2016 season, where the cap projection now stands at about $66.3 million. Some teams have been under the impression that the cap for next year could be around $70 million.
However, the league will still have a massive jump of some kind with the new 2016 season, despite whatever smoothing they might be able to conjure. Most media contracts have escalator clauses built into them, so it is unlikely that the first year revenue will meet the average of $2.66 billion. More likely is the idea that the contract will start at around $2.1 billion with yearly increases up to $3.1 billion in the final year. This would help to smooth out the spikes from new money coming in, however it could still lead to a salary cap at about $83 million and a luxury tax at about $100 million for the 2016 season. If the league were to just go on the average revenue of $2.66 billion, we could see the cap rise to around $93 million and a luxury tax of about $112 million.
This jump in the salary camp affects teams in two different ways: teams that already have superstars under long-term max contracts, such as the Clippers, would suddenly have a lot more room under the cap by which they could sign players they wouldn't have had room for before. Secondly, teams with no long term contracts on their books will suddenly have lots more cap room than expected to play with, the Lakers will have almost all of the cap cleared in 2016, being able to potentially offer 2 or close to 3 max contracts. Personally I believe that teams in the first scenario have the most to gain, as for a short period of time, their stars will be playing for comparatively tiny contracts. Imagine the value Stephen Curry's contract will have in 2016 when a max contract for him could tally at around $23 million (or $28 million depending on if it is $2 billion or $2.66 billion assumed), but instead Curry is playing for only $12 million. If any team is going to be scary with their financial flexibility in the next couple of years it will be Golden State.
So how will all of this affect the Clippers and potentially the league? Many have speculated that the Clippers hopefully were trying to work out an extension for Deandre Jordan this summer in order to lock him down from becoming a free agent this summer (much like what the Nuggets just did with Kenneth Faried). As I detailed in my last post, the Clippers could still benefit from signing DJ to a long term deal next summer, before the cap rising significantly. However, if I'm in Deandre's shoes as a big man that's only going to get better and is rarely, if ever, injured, I'm betting on myself and only signing a one year deal like LeBron, in order to sign a max deal in 2016 when the money rises. How many other players will think to prioritize big dollars over long-term security and sign short contracts in order to take advantage of the raised cap? Will Klay Thompson only sign a one-year deal to sign another max under the new cap? How smart do the Suns look for locking up the Morris twins and Bledsoe under long term contracts now?
Another potentially hairy situation could come with the rookie salary scale and the different exceptions to the salary cap (mid levels and bi-annual). All of these have salary scales negotiated in the 2011 CBA that are locked in until 2021. However, if the cap drastically rises in 2016, it will make rookie salaries into even greater means of value. Also, will it be realistic to think a team could sign anyone good for a MLE of about $5.6 million in 2016 when the cap jumps? These are potential issues that the NBA and the Players Association hopefully can work out through negotiation together.
Speaking of the NBA and the Players Association, many are speculating that the players will utilize their 2017 opt-out of the current CBA creating a player strike against the NBA. In the new CBA, the player's revenue share was dramatically decreased from 57% to what will be 51% when the owners claimed the league was struggling. However looking at the new broadcasting deal and the Clippers selling for 2 billion dollars, it may be hard to claim that anymore. The players could opt-out in order to try and regain some of the points within negotiations, though it may be unlikely (see both NFL and MLB players make less already than the NBA). Or negotiations could even be an opportunity to hammer out some other ideas like a hard cap or demolishing the max contract idea. Overall, this is also not a bad thing for the players or owners, as broadcasting revenue equates to more money for everyone in this situation. As most of us know however, when more money is added into a situation, it can often complicate it and inflate both sides' hubris in negotiations. Hopefully we don't have a player strike or lockout from the owners, but it may be more realistic to just hope it doesn't take as long as last time.
Lastly in how this deal can affect the Clippers potentially from this new broadcasting deal is from their own local broadcasting deal. The Clippers' contract with Fox Sports expires after the 2015-2016 season, right as this new broadcasting deal is set to kick in for the league. If anything, this will likely help to raise the bar in terms of negotiating for the Clippers as they can point to the increased value of basketball viewing around the country. With sports becoming an increasingly important source of cable programing for TV, I wouldn't be surprised to see a huge bidding war for the Clippers, arguably the most exciting team in the league, hopefully approaching the deal the Lakers received from Time Warner, which nets them over $200 million annually. Maybe Steve Ballmer saw this all coming, which may be why he was willing to pay much more than everyone else for this team.
The NBA must be ecstatic about this new broadcasting deal as it signals a new era of recognized popularity and status as a national sport. However, the new broadcasting deal leaves a lot of holes to be filled in by the league as to how it will realistically be implemented over the next couple of years. Eventually everything will settle down and return to normal, just a much bigger normal, but those interlude years could be very chaotic for both front offices and players. It will be interesting to see how smart teams take advantage of this as an opportunity, and how others get left behind. What we can glean from all of this is that Notorious B.I.G. was correct: "Mo Money Mo Problems."