The NBA and its media partners ESPN/ABC and Turner Sports announced new agreements today that will extend the relationships through the 2024-25 season.
There are a lot of questions the new deals have created; here is an attempt to answer some of the more pressing ones.
#1 – How Much?
The new ESPN/ABC deal is said to be worth $1.4 billion per year, up from an estimated $485 million under the current deal. Turner Sports will pay $1.2 billion per year, up from $445 million per year under the current deal. The total package is said to be worth $24.4 billion over the life of the deal.
The new nine-year pact will kick in for the 2016-17 season and gives both partners access to more games, more content and several new distribution options, namely a new online service powered by ESPN that will allow streaming of NBA games without a cable subscription in a more Netflix-type experience for users.
#2 – How Will This Impact The Salary Cap?
This season, it will not.
It is unlikely that the new deal impacts next season’s cap, although there has been some talk of “smoothing” the transition from the current value to what’s expected to be a massively bigger value in July of 2016.
The NBA’s Board of Governors is expected to meet on this new agreement and discuss how it impacts not only the salary system, but revenue sharing agreements that were reached as part of the 2011 Collective Bargaining Agreement settlement.
There is a chance, although a remote one, that the NBA as part of this deal gets more money from its TV partners next year, which would allow for a larger than expected July 2015 cap number.
Current projections for 2015 have the cap hitting somewhere in the $66 million range, which would be an increase from this season’s $63.065 million level.
Initial projections for July of 2016 could have the salary cap starting north of $80 million, depending how the new TV money is paid out. It’s possible that the deal could go even higher if the deal is paid out in somewhat equal installments.
#3 – What Will Happen To Older Contracts?
There has been some speculation that older contracts could see some benefit from this new deal, however unless a deal is tied to a percentage of the cap, older “legacy” contracts will not be affected by this deal.
The lone deal without a locked in value belongs to Kyrie Irving, who will receive a maximum percentage of the salary cap based on next year’s cap. It’s possible that players who are negotiating extensions now could get max extensions – such as Klay Thompson and Kawhi Leonard.
A max extension’s value gets locked in during its first year, so it is possible if the 2015 salary cap is increased more than expected, players could see a bump, but that is still a big unknown and considered unlikely.
The players drafted in 2012 negotiating rookie scale contract extensions next year could see a massive increase due to what’s expected to be a massively bigger salary cap in 2016.
#4 – Does This Mean There Will be A Lockout In 2017?
These deals combined with improvements all around the business of basketball make it more likely than not that the Players exercise their option to exit the current labor deal.
That, in and of itself, doesn’t mean there will be a lockout, it does however mean the Players and the Owner are likely headed towards a new labor fight in July of 2017.
Given how radical the financial swing has been under the current deal, there may be “room” for compromise.
With all labor talks, it’s hard to say where each side will really be in 2017, but given the enormity of the dollar figures it’s unlikely that operation under the current agreement continues. Whether both sides can reach a new deal before games are lost remains to be seen.
#5 – How Will This Change Free Agency?
In the short term, not significantly. In the long term, we are looking at a world where the NBA salary cap could get to $90 million quickly and a maximum contract value of $30 million per season, under the current system.
As a percentage of total salary cap some of the older contracts will become far more economical.
What we currently consider normal will change. Take Suns guard Eric Bledsoe, who signed for roughly $14 million a season. Today that number represents 22 percent of the salary cap. In 2016, that same $14 million equals 17.5 percent of an $80 million cap.
Said another way, if Bledsoe is worth 22 percent of the cap, his 2016 value against an $80 million salary cap is $17.6 million per year.
The most significant change will be that unless unchecked, almost every team in the NBA will have ample cap space in July of 2016. Some teams could have as much as $60 million in cap flexibility and even teams with currently ugly cap situations could not only see cap space, but they could see ample cap space.
Another key factor to this is the luxury tax, and that too could increase massively to a level well over $100 million against an $80 million salary cap, meaning we could see numerous NBA teams carrying payrolls near what could be a new $100-plus million tax line.
#6 – Does This Mean Kevin Durant Is Leaving Oklahoma City?
No. What it does mean is that the free agent class of 2016 is highly unlikely to even consider a contract extension and they could all be part of the biggest free agent spending spree the sport has ever seen.
For Durant specifically, it means as many as 15 teams could have the kind of cap space it would take to sign him, with Oklahoma City still having the ability to offer him the most guaranteed money.
A huge jump in the cap means there will be more suitors possible, and those suitors could have room to add more than just one maximum level player.
A rise in the cap doesn’t mean anything specific to Durant, except that more money available means more possibilities to tempt him away.
#7 – How Will This Impact The Sale Of Teams?
The value of this new rights package has been factored into the last few transactions. So this was a key reason the Los Angeles Clippers commanded the valuation they commanded last summer when they fetched $2 billion from Steve Ballmer. It’s also the reason the Milwaukee Bucks sold for $550 million.
The Atlanta Hawks are currently on the market and industry insiders say they could command north of $750 million with a potential $1 billion sale valuation possible if the entire franchise is ultimately sold.
The fact that this deal is done, and the NBA is said to be weighing increasing how much debt it will allow its teams to carry, means valuations of future franchise sales could see a bump not just because of the new rights package, but because of the things this guaranteed revenue will allow in other areas of the business.
#8 – Can Anyone Else Enter The Deal?
The NBA did have conversations with other media companies. There was talk that FoxSports1 was a possible partner, however there were reports that ESPN upped their offer to keep other partners out of equations.
There was also talk that one of the major digital companies like Google were interested in digital streaming rights, but those were accounted in the ESPN deal and those should be part of a new Netflix-type non-cable sports offering powered by ESPN.
The current agreements between ESPN/ABC and Turner Sports accounts for all of the rights currently available or part of future expansion plans, so these deal effectively shut out anyone else other than local TV and radio partners.
#9 – Could The NBA Have Gotten More Hitting The Open Market?
Potentially. There was some discussion about the timing of all of this. The NBA’s feeling was that the market environment was right for a new deal and struck one while ratings were still very strong and the game was at an all-time high in terms of popularity among its 30 member teams.
There are some who believe if the NBA’s rights had hit the open bidding stage, they could have commanded more. But the NBA and, more importantly, its owners wanted to capitalize on the surge in rights fees networks have been shelling out and they understood that as quickly as things change, networks might shift away from these kind of deals down the road so this really was a case of seeing a very good financial deal and taking it.
#10 – Where Does This Deal Put The NBA Among Major US Sports?
According to ESPN’s Darren Rovell, the average annual payments to the NFL for its national TV deals are $6.45 billion per year. The NBA’s new TV package puts it in second place with a combined average annual payout of $2.6 billion per year. Major League Baseball is bringing in $1.5 billion per year in its national TV rights package, while the NHL comes in significantly lower at $200 million per year for its national US TV rights.
There will obviously be more details on this new agreement over the coming weeks, and we will try to update this information or post follow-ups as it’s materially necessary.
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