On Monday the NBA is announcing a new deal with ABC/ESPN and Turner that will keep the league on those broadcasters' channels through 2025 for the cool price of $2.67 billion per year, according to reports. (That's up from $930 million per year on the current deal, a near-tripling of the contract's value.) The deal will kick in for the 2016-17 season. Here are three practical consequences of the new deal.
Player salaries are going to explode
Under the current collective bargaining agreement, just about half of all of the NBA's basketball-related income is earmarked for player salary. The league's annual TV revenue is going from $930 million to $2.67 billion, an increase of $1.74 billion per season. (This assumes a flat contract, which may not be the case, but work with me here.) Half of that is $870 million. That's what players stand to gain per year from the TV contract bump.
Players are forecast to receive a combined $2.33 billion in salary this season. Now add an additional $870 million to that. That's an incredible increase ... without any increase in the pool of players receiving salary. (Even if there is two-team expansion in the near-future, you're only adding 30 players to the 450 current roster spots.) Total player salary will increase by 167 percent just because of the TV deal, excluding any other growth.
The salary cap will explode, too. Based on current NBA projections and the new TV deal, basketball-related income in 2016-17 could reach $6.7 billion. If that were the case and benefit costs remained relatively stable, the team salary cap would be about $94 million. For comparison's sake, this season the salary cap is at $63 million.
Max contracts are built off the salary cap. First-round picks coming off their rookie deals can sign for up to 25 percent of the cap. Right now, the first-year salary for a max extension for such a player (someone like Kyrie Irving) is $15.75 million. Under the new TV deal, it'd be $23.5 million. For a player with 7-9 years of service, like Kevin Love, the max is 30 percent of the cap. Under the current cap, that's about $19 million in starting salary. With the new TV deal, that could be something like $28 million. For a player with at least 10 years of service, like LeBron James, the current starting max salary is 35 percent of the cap, or $22 million. Under the new TV deal, that'd be about $33 million.
Let's put it another way. Kevin Durant will be a free agent in 2016. Assuming the TV deal kicks in at $2.67 billion and the NBA doesn't work out a way for more gradual salary cap increases, Durant would be eligible to sign a five-year deal worth $162 million with the Thunder. If he wanted to sign with another team, he'd be eligible for four years, $120 million.
There is just a ton of money on the table for players here. But not yet, which brings us to our next point.
Players are going to angle to be free agents in 2016
Unless the NBA finds a way to smooth out the salary cap leap to come -- which the players' union would have something to say about -- the 2016 free agent market is going to be one insane gold rush. Any player who is a 2015 free agent would be wise to take a one-year deal and get back into the pot in 2016. Players with early termination options in 2016 or soon thereafter will take them and hit the flush market. Teams who have options on players are likely to pick them up in order to lock in "old salary cap" deals as long as possible. And players now negotiating early extensions and the like will be pressing for opt-out years early in the deal.
Remember that LeBron's camp made it so that King James could become a free agent again in 2016. That was not an accident, and that was not solely to put pressure on the Cavaliers. That was so LeBron could cash in on a fat new deal with that new TV money. (LeBron is potentially in line for a five-year, $190 million contract in 2016.)
If the NBA smooths out the cap increases, things might not get too crazy right away. But salaries are going up a massive amount, and players are going to do everything they can get in on the action.
We might avoid another lockout
This deal is so massive that it might just erase the losses that a number of teams claim they are still suffering. Before the 2011 lockout, the league claimed 21 teams were losing a combined $300 million per season. The results of the lockout deal lowered player salary about $300 million per year, which -- by the NBA's explanation -- gets the league as a whole to break-even. But that still means that about half the league is losing money any given season.
More NBA Changes
NBA to air awards show in new TV deal
The new awards show will be televised on TNT and will mirror similar arrangements in the NHL and NFL.
More NBA Changes
This new TV deal won't just pump more dough into player salary -- half of it will essentially go toward the NBA's bottom line without adding additional costs. The NBA's cut of the current TV deal after subtracting player salary is $465 million. Under the new deal it will be roughly $1.3 billion, an increase of $870 million per year.
That should get the league well into profitability. In fact, assuming the league really is breaking even right now, the new TV deal would allot about $30 million in profit per season for each team. Some teams will profit more, which means some teams could profit less or even still lose money. But the argument that the league's franchisees are not on the whole making any profit will not be a valid stance.
That said, we could still have a stoppage. Players' salaries are going to explode so much that $30 million in average profit per season might seem too modest in comparison. Some franchisees still think 45 percent -- not 50 percent -- is an appropriate share to go toward player salary, and others think the basketball-related income formula needs to be overhauled. Players might also decide that the ever-increasing franchise sale prices need to be addressed. Even with the new TV deal, no player is making Herb Kohl or Donald Sterling money. There are some potential sticking points here. The sticking points just happen to be less crushing when everyone is sharing an extra $1.7 billion per year.
We aren't out of the woods until we're out of the woods, but this cash infusion certainly helps avoid yet another stoppage.