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Inside the Economics & Timeline of the Accelerated 2020-21 NBA Season Start



By Eddie Gonzalez

 

By the time LeBron James declared “I want my damn respect,” while cradling his 4th NBA championship and Finals MVP trophies, 355 days had passed since his opening night loss to the Los Angeles Clippers back in October 2019. Then, in October 2020, the most unique and unprecedented season in NBA history officially came to an end. It will only take 71 days for the next season to tip off, complete with its own bit of odd and trying circumstances the league must once again persevere through. 

 

The league’s Board of Governors and the NBPA agreed to an amended collective bargaining agreement, setting the stage for a December 22nd return for the NBA and opening the door for a normal schedule for the 2021-22 season next year. The 72-game season will extend into July, but finish before the 2020 Summer Olympics, another sticking point during negotiations. But more important than the timing and length of the season, it’s estimated the December start, rather than the MLK Day start in late January that the players reportedly favored, will keep the league from losing between $500 million and $1 billion in revenue. 

 

The nearly full, 72-game season ensures broadcast partners ESPN and Turner Sports as many games as possible, and as normal a television schedule as possible. After the bubble’s initial burst of viewership, ratings slipped, so Turner and ESPN will be hoping a return to normalcy and typical viewership patterns will lead to some return on investment as they pass the midpoint of the current 9-year, $24 billion TV and media rights deal between the three parties. Avoiding a clash with the also-delayed Olympics in July and August, potentially during pivotal playoff rounds and even the Finals, is key after an overload of sporting options on TV may have played a key role in the aforementioned ratings slip. 

 

With some of the finer points and money issues sorted out, the biggest question going into this NBA season is just how many fans will be allowed into arenas. Yes, after the successful, forward-thinking Orlando bubble, the NBA is returning to its arenas and some sort of traveling schedule, and they’re planning to open their doors to spectators. In accordance with local regulations, the NBA’s plan at the moment is to open arena suites to fans, at 25-50 percent capacity. According to Shams Charania, there is even talk of courtside fans, 10-12 feet away from the court, under social distancing protocols, with masks and maybe even subject to testing. 

 

The push for paid spectators is understandable, even with the risks that poses. It’s estimated that a season without fans in arenas would cost the NBA upwards of $4 billion, or 40% of the league’s total revenue. That number, coming right after a season where the league lost 10% of its revenue, including $800 million in gate receipts, would be catastrophic. There are some safeguards in place to protect both the league and the players even if there’s a massive dip in revenue this season. 

 

But inviting fans into arenas will be costly as well, and come with a unique set of complications, so that will have to weigh into the league’s decision. The bubble cost the league $190 million in operating costs, $10 million more than anticipated, and that was for a truncated burst of games, not a full schedule spread across 21 states and two countries as the teams return to arenas. It’s unlikely the league would require rapid tests upon entry to the arena for fans, but protocols will have to be put into place for teams, staff, arena workers and the like. As of now, testing won’t be required for suites admitting 25% of capacity, but if teams want to allow 50% capacity testing will be required, or extremely low local positivity rates.

 

Plus, unlike the sprint that was the bubble, this will have to be maintained over the course of a 7 month season, longer than any other league has attempted. Plus, unlike the MLB and NFL, who had their own issues that threatened both seasons and caused game postponements and cancelations, every NBA game will be played indoors. The Los Angeles Lakers have already declared that their 2020-21 season will start without fans, and other teams will likely follow suit going forward. 

 

The salary cap this year will remain the same as it was for the 2019-20 season, $109 million, stabilizing salaries for the players for at least this season. After each side presented various scenarios for the percentages of player’s salaries set to go into escrow this season as the league determines the basketball related income in order to maintain the agreed upon 50/50 split, a compromise was made. The standard 10% of salaries will remain in escrow, but if the league’s losses demand an even bigger slice of the player’s salaries be cut into to maintain the 50/50 BRI split, that loss will be spread out across three seasons, and players can never have more than 20% of their salaries in escrow. It’s a complicated dance to ensure both sides receive their agreed upon split of the league’s revenues, but a necessary evil as the league pursues a return to normalcy for the league’s finances.   

 

One stabilizing factor is the league’s television money, which makes up 50% of the league’s revenue. But there are some complications there as well, as the league looks to its future financial makeup. League wide ratings dipped last season, even before the pandemic and the bubble in Orlando. While the league’s most popular franchise and player were an exception to the ratings woes before the pandemic, even LeBron James and the Lakers historic 17th title weren’t enough to save the league from the worst NBA Finals ratings in history. While some of that can be written off as pandemic related and in line with a massive dip in television viewership across the board, it does remain cause for concern. The return of stars like Stephen Curry and Kevin Durant could provide a boost, as could an incoming worldwide curiosity like LaMelo Ball. Last season the NBA banked heavily on the buzz surrounding Zion Williamson, slotting the Pelicans for a franchise-record 30 national TV games, a bet that flopped when Zion missed the team’s first 44 games with a knee injury. 

 

One result of the new league landscape that will benefit some teams and free agents is the restructured luxury tax rules, resulting in smaller penalties for teams whose salary takes them into the tax. The adjustment, reducing the luxury tax bill by whatever percentage projected league revenues decline, is meant to ease the financial burden of teams who were anticipating a higher salary cap and luxury tax threshold for years and built their team around those expectations. But it could serve as a boon to their roster building process in this abbreviated offseason, and the four teams in the tax at the moment, the Nets, Warriors, 76ers and Celtics, may be more willing to splurge on salary and free agents with a less damaging penalty this year. Teams not in the tax are likely to see this as an unfair disadvantage, especially as they compete for free agents and all four of those teams are contenders going into the season. The Warriors, yet again, are especially likely to rankle opponents as they have a $17.2 million trade exception they received when they traded away Andre Iguodala last season, and they may be more willing to actually use it with a less cumbersome tax penalty. 

 

Through all of these complications, the league remains resilient. The persistence of the players and the NBA to continue and finish the 2019-20 season resulted in a historic season, and an incredible medical breakthrough with the Orlando bubble, even if television ratings were subpar. But that resilience also resulted in $1.5 billion in recouped revenue, a boon after the aforementioned $800 million lost in gate receipts, another $400 million in lost sponsorships and merchandise, and $200 million in “negative net impact” due to the controversy with China to start the season. 

 

Like all other businesses and industries in the ever-changing, unique set of circumstances the COVID-19 pandemic has placed the world in, the NBA is scrambling, adjusting and hoping to find answers where none appear to be readily available. Thus far, all things considered, they’ve seen some semblance of success, even as losses are incurred. There are plans to mitigate some of those losses, but the current plan is eying a long-term return to what could be considered normal. Yes, some teams, especially the Lakers, Heat, Nuggets and Celtics may be returning to basketball sooner than they anticipated, but others have been waiting for close to 8 months to get back on the court. Yes, some players will cherry pick their time on the court after such a quick turnaround, but other stars are returning from massive layoffs and will have fresh legs and broad shoulders to carry the league on those off nights. The NBA hasn’t figured out all of the answers, and there will be more complications as the season goes on, as evidenced by the NFL’s current state of affairs as the possibility of a COVID outbreak has them looking towards an unprecedented playoff setup, but they are actively searching for those answers. Basketball is officially back, even if it is a constant work in progress.