NBA Salary Cap, Luxury Tax Set To Drop
Salary Cap And Luxury Tax Figures Will Dip
According to reports, the loss of the NBA’s China-centric income has played a part in an overall decline for the league’s revenue. Because of this, the league office has told teams the 2020-21 salary cap, and luxury tax figures will dip.
In an effort to give teams the ability to make informed roster decisions regarding the Feb. 6 trade deadline, the NBA was expected to deliver their revised projections of next season’s numbers as early as Thursday.
The advanced notice that would allow teams to have a better idea of their financials when conducting any player transactions over the next week is a departure from previous NBA protocol, as franchises have been left in the dark regarding such matters in the past.
Significance Of Salary Cap Dip
As we close out the current trade deadline and look toward another summer of business in the NBA, any drop in the future luxury tax or salary-cap figures would have an impact on luxury tax payouts, free-agency cap space, and salaries based on percentages of the salary cap. The latter item would include mid-level exceptions and max deals.
After the loss of the league’s China-driven revenue, many front-office executives around the NBA have been expecting or preparing for the 2020-21 cap projections to fall to $113 million, a $3 million slide from the original figure of $116 million.
Impact On Trade Deadline
However, the potential drop in revenue isn’t likely to impact the activity at the February trade deadline because salary-cap space is far less urgent this summer than in previous years for a couple of main reasons.
First of all, the free-agency pool is expected to be significantly weaker than years prior. Unlike last year, when players like Kawhi Leonard and Kevin Durant headlined a robust free-agent class, players like DeMar DeRozan would be near the top of the list of this summer’s free agents.
Second, only seven teams are likely to have salary-cap space above $9.8 million, which is the projected mid-level exception.
Perhaps those most affected by a salary-cap drop would be those who signed rookie-scale contracts over the past year, such as Pascal Siakam and Ben Simmons. These sorts of contracts are based on percentages of the salary cap.
Teams That Would Be Hit Hardest By Luxury Tax Figures
While we’ve covered the fact that most teams won’t be changing their strategy at the deadline because of the potential salary-cap drop, owners may be more concerned about how much they’ll end up forking over based on the projected luxury tax figures.
The teams most likely to suffer under this revenue decrease would be those expected to be luxury tax teams in 2020-21: Houston, Philadelphia, Golden State, Boston, and Brooklyn. Depending on free-agent decisions, Milwaukee, Denver, and the LA Clippers could also join that group.
Revenue Decline Will Be The NBA’s Main Concern
For example, the Warriors were expected to pay a luxury tax of $65 million under a $141 million salary cap/luxury tax figure. If the salary cap/luxury tax figure is cut to $138 million, Golden State could end up paying as much as $80 million depending on the 2020 draft and their use of the $5.9 million exception.
Taking a step back, NBA ownership and players will both be most concerned with the fact that revenue has declined at all. For a league that’s been trending upward, another year of decreased revenue could spark significant changes around the NBA.