The NBA is rumored to be on the brink of securing a monumental 11-year, $76 billion TV deal with NBC, Amazon, and ESPN, set to commence after the 2024-25 season. This potential agreement stands to reshape the financial landscape of the league in significant ways. While the deal would not be likely to impact the salary cap until the 2025-26 season, teams like the Lakers could see an impact right away. While the cap will not increase this offseason, expected future increases in the cap/luxury tax thresholds may allow them to spend to retain players they have under control (D’Angelo Russel, Christie, Lebron) as they know the penalties of an expensive roster would go away next year. Here is a primer on what the new TV deal would mean for NBA teams:
Increased Revenue
This massive TV deal would considerably boost the NBA’s overall revenue. Television contracts are a major component of the league’s income, alongside ticket sales, merchandise, and sponsorships. The influx of cash from such a deal would elevate the NBA’s financial standing to new heights.
Higher Salary Cap
The NBA salary cap is tied to the league’s revenue through the Basketball Related Income (BRI) formula. As revenue increases, the salary cap rises accordingly. An 11-year, $76 billion TV deal would lead to a substantial increase in the salary cap, providing teams with more financial flexibility to sign top talent.
Player Salaries
With a higher salary cap, teams will have more resources to offer larger contracts. This means we can expect a rise in the maximum salaries for elite players, as well as higher average salaries across the board. Players will benefit from greater financial rewards as the league’s revenue grows.
Luxury Tax Threshold
The luxury tax threshold would also rise alongside the salary cap. Teams would be able to spend more on player salaries before incurring luxury tax penalties. This could encourage more aggressive spending by franchises aiming to secure top-tier talent without the immediate burden of luxury taxes.
Contract Structures
Anticipating the cap increases, players and their agents may seek to structure contracts to capitalize on the new financial landscape. This could result in more short-term deals or contracts with opt-out clauses, allowing players to re-enter free agency at optimal times for maximum earnings.
Competitive Balance
The increased financial capacity might impact the league’s competitive balance. Wealthier franchises could potentially spend more on star players, widening the gap between big-market and small-market teams. However, the NBA’s revenue-sharing mechanisms are designed to mitigate these disparities and maintain competitive fairness.
Collective Bargaining
A deal of this magnitude will likely lead to adjustments in the Collective Bargaining Agreement (CBA) between the NBA and the players’ union. Negotiations will focus on how to fairly distribute the increased revenue, ensuring fair compensation for players while maintaining the league’s financial health.
Estimating the Impact
To estimate the impact of a new TV deal on the NBA’s salary cap and luxury tax levels, we need to consider the expected revenue increase and how it translates into the cap. Here are the steps to approximate these figures:
Current Situation
- Current TV Deal: $24 billion over 9 years ($2.6 billion per year).
- New TV Deal: $76 billion over 11 years ($6.9 billion per year).
- Current Salary Cap: Approximately $136 million (2023-24 season).
- Current Luxury Tax Threshold: Approximately $165 million.
Step-by-Step Calculation
Revenue Increase:
- Current TV revenue per year: $2.6 billion.
- New TV revenue per year: $6.9 billion.
- Increase in annual TV revenue: $6.9 billion – $2.6 billion = $4.3 billion.
Percentage Increase:
- Percentage increase in TV revenue: $4.3 billion / $2.6 billion = 165% increase.
Impact on Salary Cap:
- Assuming a direct correlation (simplified), a 165% increase in TV revenue could lead to a similar percentage increase in the salary cap over time.
- Current Salary Cap: $136 million.
- Projected Salary Cap increase: $136 million * 1.65 = $224.4 million.
Luxury Tax Threshold:
- Applying the same percentage increase to the luxury tax threshold.
- Current Luxury Tax Threshold: $165 million.
- Projected Luxury Tax Threshold: $165 million * 1.65 = $272.25 million.
Max Deals:
- Max contracts are a percentage of the salary cap.
- For a player with 0-6 years of experience: 25% of the cap.
- For a player with 7-9 years of experience: 30% of the cap.
- For a player with 10+ years of experience: 35% of the cap. Using the projected cap of $224.4 million:
- 0-6 years: $224.4 million * 0.25 = $56.1 million per year.
- 7-9 years: $224.4 million * 0.30 = $67.32 million per year.
- 10+ years: $224.4 million * 0.35 = $78.54 million per year.
Impact on the Lakers
The potential new TV deal could have significant implications for the Los Angeles Lakers, particularly in terms of their cap management and strategic planning. While the deal wouldn’t impact the cap until the 2025-2026 season, the Lakers could be more aggressive in going over the cap this offseason as they’d know it would be a temporary one-year event. Additionally, the club may spend more of the coming revenue now on areas they aren’t restricted (Dan Hurley’s $100m deal anyone?). Here is a rundown:
Current Commitments and Extensions
- Anthony Davis: Recently re-signed to a five-year extension, locking him in as a cornerstone for the Lakers. While it was a max extension, the deal could become a valuable one assuming the max deal sizes rise dramatically under the new deal.
- LeBron James: Holds a player option for one more year. He may opt out and re-sign a three-year max extension, potentially adding substantial financial commitments. While his extension would be in the $55M per year range, that would be $20M+ less than a max deal under the new framework.
- D’Angelo Russell: Has an option at $18.5 million. He may opt out in hopes of securing a more lucrative long-term deal, possibly a five-year, $100 million contract. That would be less than 1/3 of a max deal under the new tiers.
- Max Christie: Expected to receive a new contract as a restricted free agent, adding to the Lakers’ financial obligations. If they end up having to match an offer sheet of $6M – $8M, that would be nominally under a minimum deal once the new tiers go into place.
Head Coaching Search and Staff
Paying a coach $15M per season on a $100M+ guaranteed deal is not something that you would expect from the Lakers in the past. The past, however, did not include a massive cash influx that is expected with the new TV deal. The Lakers own share of TV revenue would see them take in almost 200% more cash from the NBA (hundreds of millions per season) and it would be wise of them to deploy a portion of it into the team as opposed to the owner’s pockets. So spending $25M a year on a top tier coaching staff seems like the logical thing to do. This makes the pursuit of Dan Hurley (and the rumored desire to add high paid assistants to a potential Redick staff) make sense.
Financial Implications
These commitments could push the Lakers’ payroll close to $200 million, significantly over the current salary cap and into the second apron. The second apron brings additional penalties and restrictions, limiting the Lakers’ flexibility in free agency and trades. However, with the anticipated rise in the salary cap and luxury tax threshold due to the new TV deal, the Lakers’ financial situation could improve dramatically.
Future Cap Space
If the salary cap rises to the projected $224.4 million and the luxury tax threshold to $272.25 million, the Lakers could find themselves well within the new financial limits, avoiding luxury tax penalties. This could make them more willing to spend aggressively to retain their core players and add new talent this season, knowing that the financial landscape will improve.
Smoothing Mechanism
One important factor to consider is the NBA’s potential use of a smoothing mechanism to phase in the cap increases gradually. This approach was used in the last TV deal to prevent sudden spikes in cap space, which led to overinflated player contracts. Smoothing could temper the immediate financial benefits but would still provide a steady increase in cap space over several years.
In summary, the rumored 11-year, $76 billion TV deal would significantly enhance the NBA’s financial landscape. For the Lakers, this means potential relief from luxury tax penalties and increased flexibility to build a competitive roster. While the exact impact will depend on the implementation of the new cap figures, the overall outlook is promising for both the league and the Lakers’ future.
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