After it was announced the Warriors would play games at Chase Center without fans last month, team president Rick Welts was asked during a press conference whether the loss in ticket revenue might affect the salary cap. Welts, as well as general manager Bob Myers, acknowledged it would.
“Our player compensation system is based on basketball-related income,” Welts said. “And this will affect basketball-related income.”
“The answer we do know is it will,” Myers added. “To what degree, nobody knows.”
Hours after that press conference, the spread of the coronavirus forced the NBA to suspend its season indefinitely, presenting an unprecedented financial challenge for the league. Following years of financial growth, the combination of strained business relations with China and the coronavirus pandemic will bring the salary cap below previous projections. For the Warriors, it will present an obstacle as they seek to vault back into contention next season.
The Warriors will go into next season with the league’s highest-paid player in Stephen Curry, as well as the most expensive payroll among the 30 teams. After a 15-50 season, the Warriors had planned to spend this offseason in order to contend next season. The fallout of the league’s indefinite hiatus could change that calculus. Though the Warriors are among the NBA’s most valuable franchises, their salary cap and related flexibility will be based on the league-wide financial windfall.
According to several reports — including a FiveThirtyEight.com analysis that factored in the loss of ticket, merchandise and food sales and other sources of revenue — the cost of a canceled 2019-20 regular season and postseason could exceed $1 billion.
Even playing games without fans, as ESPN’s Brian Windhorst indicated is most likely, would salvage little income league-wide. Between things like tickets and concessions, NBA teams average roughly $2 million in revenue per regular-season game, while playoff games generate roughly $3 million per night (with the Warriors on the high end of the spectrum). With 259 regular-season games postponed, plus an estimate of playoff games, that translates to about $750 million in lost game-day revenue.
Because the salary cap is tied directly to revenue, such a substantial loss of income would result in a decline in the salary cap — something that has happened only twice over the past 35 years — potentially at an unprecedented rate.
Entering the season, the NBA was forecasting the salary cap to increase from $109 million to $116 million for the 2020-21 season. In January, partly due to damaged relations with China — started by Rockets general manager Daryl Morey’s tweet in support of protesters in Hong Kong that strained relations with the Chinese governments and businesses — the league dropped the projection to $115 million.
John Hollinger, a writer for the Athletic and a former Grizzlies executive, estimated that revenue losses from the shutdown could drop the salary cap by $8 million next year even if the league can salvage some kind of postseason. Salary cap expert Albert Nahmad wrote the hit could reach $16 million if the regular season and playoffs are lost.
That sort of cap decline would have several wide-ranging repercussions for a Warriors team facing a pivotal offseason.
Salaries for Curry, Klay Thompson and Draymond Green — currently set to represent 87% of the salary cap — would make up a greater portion of the Warriors’ payroll. That, and a more expensive luxury tax bill that comes with being over the cap, could further limit whatever flexibility the front office anticipated having.
Based on original salary cap projections, Jeff Siegel, founder of EarlyBirdRights.com, estimated the Warriors would pay roughly $50 million in luxury taxes. That number will increase with a salary cap decline. However, if the Warriors do not shy away from paying the league’s most expensive luxury tax bill, they could potentially take advantage of other teams trying to shed salary.
In that case, the traded-player exception — created when they traded Andre Iguodala to the Grizzlies last July — could become an even more valuable tool as it allows them to take a player who has a salary of up to $17.2 million onto their roster without sending money back, saving another team a significant amount of cap space.
While the largest-ever salary cap decline would be a strain on every team’s books, it may be something that could be avoided. Owners and players could collectively agree to set the salary cap higher based on 2020-21 revenue projections. The cap would likely still decline marginally, but it would prevent a drastic crash and subsequent cap spike in 2021-22 once the league resumes normal operations.
This is often referred to as “smoothing” the cap. In 2016, the league encountered a similar situation due to an influx of television money. But, rather than spread the increase out over several years, the cap jumped by more than $20 million in one summer. That cap spike is what allowed the Warriors to sign Kevin Durant. While the result was a dynasty for Golden State, the league could seek to avoid such a spike in the future.
“Nothing is certain and everything is on the table,” Siegel said. “This is almost like they are negotiating an entirely new CBA, but there’s also no precedent for this in the history of sports.”
Because of this uncertainty, league officials are wary of discussing the salary cap implications of this shutdown. While it is clear that such a substantial loss in revenue will result in a lower salary cap, no one knows by how much. That will depend on a host of factors and, most importantly, when the coronavirus pandemic subsides. As of now, everything is up in the air. For the Warriors, it makes an important offseason that much harder to plan for.
———
©2020 The Mercury News (San Jose, Calif.)
Visit The Mercury News (San Jose, Calif.) at www.mercurynews.com
Distributed by Tribune Content Agency, LLC.