Cap & Trade: Next Year’s Salary Cap May Not Drop As Far as Originally Expected
The best news for Pacers fans this weekend was not even Pacers-related. It was about money. Specifically, it looks like the NBA’s wallet is not being quite as hard hit as expected so far this season.
This season’s NBA ticket revenues have not dropped as much as the league office projected over the summer. The league expected a 6% to 7% drop in ticket sales but there has been only a 1.7% drop to date.
Attendance is flat or ahead of last season’s pace in the majority of NBA arenas. The Nets and Pistons account for most of the small overall decline.
“The fact that we’re only down roughly 1.7% going into tonight’s games, I’m pleased about,” said NBA executive Chris Granger.
This doesn’t mean that the NBA is out of the woods yet, but if tickets keep selling ahead of the league’s preseason projected pace then next year’s salary cap, which was expected to drop significantly, will likely not fall to such a degree that the Pacers will forced to make salary dumping moves that they wouldn’t otherwise make.
The background here is that, given the ongoing economic downturn, the NBA expected its revenue to plummet across the league this year. Not only was attendance expected to dwindle, but this in addition to other sluggish returns had league execs projecting a significant drop in the all-important “basketball-related income” figure, which is what defines what the following year’s salary cap (and, thus, the luxury tax threshold) will be.
The 2009-10 salary cap had already gone backwards (from $58.7 million per team in 2008-09 to $57.7 per team this year), but that drop was not nearly as large as what the NBA was projecting for 2010-11. (See chart on right, courtesy of ESPN, for recent cap history.)
The official league memorandum, obtained by ESPN.com, forecasts a dip in basketball-related income in the 2009-10 season of 2.5 percent to 5 percent, which threatens to take the 2010-11 cap down some $5 million to $8 million from last season’s $58.7 million salary cap.
A significant drop for the luxury-tax threshold is also projected going into the summer of 2010. If basketball-related income drops by 2.5 percent in 2009-10, league officials are projecting a 2010-11 salary cap of $53.6 million and a luxury-tax line of $65 million.
If BRI, as it is referred to in the NBA, decreases by 5 percent, teams would be looking at a $50.4 million salary cap and a luxury-tax line of $61.2 million in 2010-11.
“Teams should be aware of this projected BRI decrease,” reads the memo, “and plan accordingly.”
That “plan accordingly” aspect is what many small-market fans have been fearing. If the 2010-11 luxury tax was set at $61.2 million, the Pacers would already be over that line by around $4 million. Being over by that much would require owner Herb Simon to not only hand over $8 million to the league but would hit him with the proverbial “double-whammy,” as he would also be forfeiting the end-of-the-year payout that all the teams below the luxury tax receive — a check that equaled nearly $3 million last year.
So if next year’s luxury tax was set as low as the worst-case league projection of $61.2 million, Herb and Larry Bird would either (a) have to find a way to shave more than $4 million off of next year’s payroll (something easier said than done), or (b) bite the bullet and lose roughly $11 million (the $8 million in tax Herb would have to pay in tax plus an estimated $3 million he would not get back from the league.) For a guy who has been hemorrhaging untold tens of millions over the past decade on this team, asking him to lose another #11 million — on top of the $65 million for next year’s projected salary and whatever other enormous costs it takes to run an NBA team — would be asking quite a bit.
Fortunately, however, that mini-doomsday scenario looks a little less likely in lieu of recent news.
And that’s a good thing
A very, very good thing.
In related news, the Pacers are one of the teams whose attendance has dropped — so things aren’t all peaches and cream in Conseco. Last year, Indy averaged a lowly 14,182 fans per home game, which was worse than every other franchise except for Memphis (12,745) and Sacramento (12,571) . This year, reported attendance is down to 13,578 (which is, again, “worsted” by only Memphis and Sacto). The difference of 600 people per night isn’t going to make or break the team’s bank account, but any drop is obviously a negative and if the team gets worse — a definite possibility — than so might the attendance numbers.
So while today’s leaguewide ticket sale numbers are good — and the more important — news, let’s also be sure to keep an eye on the team’s ticket sales.
She’s still here at least. (Photo: Sam Riche)