More than two months after the NBA suspended operations indefinitely due to the COVID-19 pandemic, both team owners and players are working desperately to bring basketball back. It could be especially crucial for NBA teams given the financial ramifications already at stake.
If the NBA can’t return this season and the playoffs are canceled, the league would lose nearly $1 billion alone in television revenue. It would account for just part of the $2 billion in lost revenue lost in the NBA’s worst-case scenario.
Even in a best-case scenario for the league, the season would return in empty stadiums and would still have a staggering financial hit for the NBA.
NBA luxury tax a lingering danger for teams
The NBA entered the 2019-’20 season with a $109.1 million salary cap and many were expecting the salary cap to skyrocket even further next year. Trouble started brewing early in the season after the league lost its China-driven revenue, a result of Daryl Morey’s tweets, which led to the league projecting a $139 million luxury tax.
It was troubling news for teams like the Philadelphia 76ers ($147 million) and Golden State Warriors ($145 million). Meanwhile, teams like the Brooklyn Nets, Houston Rockets, Milwaukee Bucks and Los Angeles Clippers faced the probability of going over the luxury tax.
COVID-19 pandemic could push most teams past the luxury tax
Now, due to the economic crisis brought on by the COVID-19 pandemic, the NBA could be on the brink of a significant problem. One that could leave organizations desperate to trade massive contracts this offseason, fearing a grim fate next year.
Now, a top NBA executive is projecting that 25 teams could wind up in the luxury tax next season. According to The Athletic’s John Hollinger, the executive predicts that a majority of organizations will exceed the luxury tax in the 2020-’21 season, ultimately leading to fire-sale trades and an unprecedented use of the stretch provision on notable players.
Currently, per Spotrac, six teams are either over the luxury tax or within $10 million of it in committed salaries for next season. If the executive’s projection unfolds, the NBA salary cap would likely drop below $100 million next season. A shrinking luxury tax could send both contenting and non-contending teams into the luxury tax.
It leaves everyone around the league desperately needing the NBA season to return and for a normal playoff format. However, with all the uncertainty around when and how that could happen, NBA teams would be wise to start preparing for significant changes and roster turnover.