Earlier this month Sports Business Daily reported the NBA was nearing terms on a massive new media deal with ESPN and Turner Broadcasting thought to be in the range of at least $2 billion annually, or about 1 Clippers franchise. This new media rights deal, set to start in 2016-2017, would massively eclipse the previous agreement by the Association, which netted around $930 million on average, the lowest mark among the NFL, MLB, and NBA. With a source reporting ESPN is committed "well over" a billion dollars for this new deal, and Turner soon to follow, $2 billion could end up being a low yearly projection.
Interestingly, while the increase in media rights for the NBA in this new deal has more than doubled, it is still dwarfed in comparison to the NFL's media rights deal, which comes in at a robust $6 billion annually. ESPN is currently paying $1.9 billion for the rights to broadcast Monday Night Football exclusively. That is close to the same amount the NBA is receiving for ALL of their nationally televised games for the right to stream only 17 regular season games and an outside shot at a wild card playoff game, albeit Monday Night Football is the highest rated cable network show. While the rhetoric surrounding the NBA is constantly about its booming popularity and international expansion, a simple look at finances serves as a chilling reminder that the NFL is still king.
But what are the implications of this enormous media deal on the rest of the league? Any increase in the national broadcasting revenue of the NBA correlates directly with an increase in Basketball Related Income (BRI). BRI as defined in the Collective Bargaining Agreement is essentially the aggregate revenues related to basketball operations collected by the NBA, NBA Properties INC, NBA Media Ventures LLC, other subsidiaries, league-related entities, and businesses in which the league or teams have at least 50% ownership. BRI is important for a number of different reasons, it is the financial lifeblood of the league and its players, governing their split in proceeds, but for our purposes it helps to determine the Salary Cap for a given year.
When calculating the salary cap for a given year, the NBA negotiates with the NBA Players Association to determine the projected BRI for the upcoming season during the July moratorium period, where audits occur for each team and the league. If there can be no settled agreement, the salary cap is based on the national broadcast deal added together with a 4.5% increase on the previous season's BRI. If a projected BRI is agreed upon, then the calculation for the salary cap is determined by taking 44.74% of the projected BRI, subtracting the total projected player benefits, and then dividing that difference by the number of teams in the league (expansion teams in their first 2 years are excluded).
In recent years the salary cap has been trending up with the current 2014-2015 cap set at $63.065 million, a substantial 7.5% increase from the previous season's $58.679 million salary cap (which had been slightly, artificially depressed by the league due to the way escrow payments work as a result of higher than normal total player salaries due to the Amnesty Clause.) The league is currently projecting a similar increase in the salary cap for the 2015-2016 season, with early estimates at $66.3 million, a 5% rate of growth; the league's baseline growth is 4.5% per year. The trickiness comes with the 2016-2017 season when the new broadcasting deal is set to kick in, and there could be at minimum at $1.1 billion dollar increase to the BRI for that season. An increase of that amount in one season could increase the salary cap in one gigantic jolt.
Estimating league BRI for the 2015-2016 at about $4.94 billion, consistent with league salary cap and luxury tax projections, we would see BRI rise tremendously to about $6 billion for the 2016-2017 season. This increase, by my math, taking player benefits to be about $210 million, would see the salary cap potentially jump by about $16 million, settling in around $82.5 million. Keep in mind this estimate is on the lower end of the spectrum accounting for a media deal of only about $2 billion dollars.
A huge spike in projected BRI for the 2016-2017 season also affects the luxury tax in a similar way to the salary cap. The luxury tax is calculated by taking 53.51% of the projected BRI, subtracting projected benefits, and dividing by the amount of teams. The luxury tax for this season is $76.829 million, a 7.1% increase from the previous season. The luxury tax projected for the 2015-2016 season is $80.7 million. For the 2016-2017 season with a new broadcasting deal, following the same math as above, the tax could be set as high as $100 million. This would have vast ripple effects around the league. Teams would be required to spend more, and with more money available, contracts would inevitably increase.
So how does this potentially affect the Clippers? As a team that has hovered near the luxury tax, but far enough below the apron in order to utilize the Non-Taxpayer Mid-Level Exception and Bi-Annual Exception, a substantial increase in the tax line would be welcome. Unfortunately it doesn't appear the Clippers can dodge the repeater tax penalty unless they avoid the tax next year. The repeater penalty is calculated if a team has paid into the tax at least 3 out of the past 4 years, and the Clippers paid in 2013, this season, and probably will next season too.
However, with the 2016-2017 season and new money, the Clippers may gain a short amount of financial maneuverability. Both Chris Paul and Blake Griffin are currently locked into deals that extend through 2017-2018, with an early termination after the 2016 season, which they will probably take. Their max contracts are tied to the salary cap, (though in a slightly different way, 42.14% of BRI is used instead of 44.74% because of historical CBA reasons) a max contract under the increased salary cap will inevitably be much higher than current max contracts. For this reason stars like LeBron have signed short deals in order to exploit this to earn higher salaries.
For instance, in 2016-2017 Chris Paul is going to make $22,868,827 million and Blake Griffin, $20,140,838 million. In the 2017-2018 season after opting out, they would both be eligible for new contracts of starting years at potentially $27,048,000 and $23,184,000. The benefit for the Clippers concerning Paul and Griffin's contracts would be the one year cap window in the 2016-2017 season as the salary cap potentially jumps up to 82.5 million. The Clippers having only about $60.5 million committed in salary to Paul, Griffin, Hawes, Wilcox, Bullock, and the stretch money, opening up about 22 million in cap space and almost 40 million to the luxury tax. If Griffin and Paul are smart, they may not use their ETO. There will probably be a short lockout after the 2016 season when the NBAPA will inevitably opt-out of the current CBA in order to try and reclaim some of the gross revenue percentage splits they gave up in the previous deal when the league was "struggling." This could result in a further increase in the salary cap, so Paul and Griffin may want to wait an extra year to get the most money. This would allow the Clippers the benefit of having two max contract players on the books under the terms of the old BRI for two seasons, giving them substantial financial flexibility compared to other teams in which to sign meaningful players (maybe a first-rate SF finally). This window of cap room would inevitably close as Paul and Griffin re-up for new max contracts (although Paul may not be able to sign a full 5-year max because of the over-36 rule), and the Clippers would re-normalize at higher rates for the salary cap and luxury tax.
One question may be what to do with all of the projected salary cap room the Clippers may have to start 2016-2017. Enter DeAndre Jordan and the inevitable contract extension he will receive at the end of this year. While some may argue that Jordan may want the max, or be given it by another team because of the dearth of defensive big men in the game, giving him such a contract may not be that bad in the long run for the Clippers. If the team were to resign him for something along the lines of a Chandler Parsons/Gordon Hayward type deal of say a 4 year deal at 60 or 65 million, that may come to look reasonable or even the norm for big men in the new salary cap era; same goes for other close to max contracts signed before the salary cap boost. This kind of deal would be fair and could still leave the Clippers with the opportunity for massive financial flexibility in the 2016-2017 window. Signing Jordan to this type of deal, with an eye on the future, could possibly hamper their financial prospects next offseason and drop a hefty tax bill in Ballmer's pockets; the minimum they could cut down to guaranteed salary with Griffin, Paul, Jordan, Redick, Hawes, Wilcox, and stretch money is around $71 million, about 9 million below the luxury tax and $15 million below the apron, still needing to sign 7 players.
The new media deal with the NBA is far from finished, and still has lots of unknown factors associated with it. The league is still unsure as to how they are planning on rolling out this dramatic increase in BRI, if they are comfortable with a sudden jump in the salary cap, or if it should be spread out more evenly. Some believe next year's salary cap could be higher than anticipated, around $70 million, as the league starts to add in the new money. Along these same lines, a $1.1 billion dollar increase is the projected average from each year, but often media deals have escalator clauses built into them, meaning the first few years of the new deal may be less than $1.1 billion, helping to stop as dramatic an upsurge. No matter how the league chooses to go about its business, it's clear that we are headed for a new salary cap era in the very near future, and the teams that can best project into the future and strategize accordingly will no doubt come out on top; hopefully that will be the Clippers.