The next NBA TV contract and its impact on the Free Agency
We are at the end of June. The Free Agency is about to begin, and greenbacks about to be spent. Every year at this time, very large contracts are signed between players and NBA franchises. This will once again be the case from this Thursday, June 30 and during the first days of July, with certain contracts even risking making you dizzy. But with the new NBA TV contract looming and a salary cap that should rise significantly around 2025, these new deals will seem much smaller in a few years.
The impact of a new TV contract on the salary cap
The salary cap (or salary cap) is at the heart of the financial structure of the NBA. For the 2022-23 season, it is estimated at $123.6 million, which represents the spending “limit” (in annual player salaries) for Great League franchises. Obviously, this is a limit that can be exceeded through a number of exceptions, some teams being squarely in the luxury tax, set at 149 million for the coming season. The amount of the salary cap depends directly on the income collected by the NBA – the famous Basketball Related Income (BRI) – and it is precisely at this point that TV rights come into play: to put it simply, the bigger the new TV deal, the more the League’s income explodes, the more the salary cap climbs, the more the player salaries are high. According to the latest estimates from a few months ago (via CNBC), the new contract between the NBA and the TV channels could go up to… 75 billion dollars over nine years, and would start from 2025 after the expiration of the current deal. For comparison, the last television contract signed by the NBA with ESPN / Turner in 2014 was for an amount of 24 billion over the same duration. We are therefore potentially on a sum three times higher than eight years ago. At the level of the salary cap, we could thus reach 170 million dollars by 2025 if we are to believe Forbes, which is based on estimates made by a source close to the League. Nevertheless, following the extremes of the summer of 2016, when the spectacular increase in the salary cap (from 70 to 94 million in one summer) caused the signing of unthinkable contracts (hello Timofey Mozgov and his 64 million over four years) and allowed the he arrival of a certain Kevin Durant at the Warriors, it is possible that the NBA will put in place a gradual increase in its ceiling (year by year from 2025), even if this will be decided during negotiations between owners and players. In any case, no matter how, the salary cap will increase significantly in the future, and this could directly impact the behavior of leaders from Free Agency 2022.
How does the salary cap work in the NBA?
Overpaid today does not necessarily mean overpaid tomorrow
When you associate the future increase in the salary cap with the fact that the COVID period now seems behind us, and that the NBA remains on a « normal » season where it has regained all its financial power with in particular the presence of fans in the stands, we can say that the current context is rather conducive to the signing of large contracts. As much to recruit a player as to extend it. If we take for example the case of Bradley Beal, eligible for an extension of 248 million over five years this summer, we know some (including a fan of the Suns who will not be mentioned) who are quite cold at the idea of releasing such a deal on Bealou. We can understand it, because already the back of the Wizards remains on a not great campaign in Washington this year (23.2 points and 6.6 assists on average at 45.1% in shooting including 30% at 3-points, his lowest figures since 2018 apart from assists), and then because we have seen in recent seasons that this type of contract could quite quickly weigh down a franchise and severely limit it in its room for maneuver to build around it. Reasons to be wary. But when you take a closer look and take into account the future increase in the salary cap, it stings a little less. We explain all this to you with figures. If the Wizards extend Beal for the amount listed above, his new contract will start at $42.7 million in 2022-23 (source Bobby Marks fromESPN), i.e. 35% of the salary cap. His salary will then rise from year to year to reach 54 million in 2025-26 and 56.4 million in 2026-27. The amount obviously remains colossal – especially since Bealou will have passed his thirties at that time – but with a cap of 170 million instead of 120 (or a little more because it will continue to increase gradually between 2022 and 2024), while right now it’s not quite the same story. So as said above, not sure that we are witnessing such an explosion of the course from one year to the next, but it is clear that the deal that Beal will potentially sign this year will weigh less in the Wizards’ accounts in 2025 or 2026 than in 2022 or 2023.
This is just one example among many. We could also cite that of the young pivot Deandre Ayton, eligible for a five-year, $177 million extension with the Suns this summer. Currently, given the way his season ended in Phoenix, we don’t necessarily want to give him such a deal, and the Cactus seem to be quite okay with that. But the $39 million he can potentially make in 2026-27 with such an extension will sting much less with the new salary cap, especially if Ayton – 23 today – is an All-Star in his career. prime at this moment. All this to say that the overpaid players of today may no longer be the overpaid players of tomorrow. Some could even turn into a « good contract » in the new economic situation of the League, compared to the deals that will be signed from the Free Agency 2025. These will push the salary bar even further, a maximum contract that can potentially reach 350 million dollars over five years (!) based on the estimates of Forbes in the case of a salary cap of 170 million dollars. A bit like in 2016, we imagine that the players will do everything to position themselves as a free agent in 2025 or 2026 just to fill their bank account.
When you see astronomical sums falling during Free Agency 2022, or next year when more teams should have salary caps, remember that they will be slightly or strongly amortized from 2025 and onwards. of the new TV deal. From there, the norm will change and old contracts will no longer actually align with the new NBA salary cap. What push the leaders to spend a lot during the next two-three years.
Text sources: CNBC, Forbes, ESPN
