How the NBA’s new media rights deal could impact the current CBA — and its teams

As the NBA waits for the next media rights deal to take effect, much thought has been given to its impact on the salary cap and player salaries. The next deal will more than double, on average, the annual compensation the league receives from its media partners. Teams are looking at a 10 percent salary cap increase in 2025 and beyond. Salaries are expected to go up. Luka Dončić, for example, could earn more than $70 million in a few seasons.

But the new agreement could also have consequences for the labor situation within the league and the status of the collective labor agreement.

On page 546 of the CBA — Article 39, Section 8 — there are several paragraphs of brief text outlining how the NBA’s booming business community could lead to this current governing body being dissolved a year or two early if all goes well.

It has something to do with cap smoothing and how much players can earn per season in contractual salaries. The NBA, if you remember, shares about half of its basketball-related revenue (BRI) with the players. The salary cap reflects that (there’s a complicated formula involved, but it’s not relevant here). No matter what, the players must receive between 49 and 51 percent of the BRI in total.

Normally, the salary cap grows in tandem with basketball revenue, but the league’s incoming media rights deal is expected to create a situation where they part ways. The NBA’s new media deal will pay the league an average of about two and a half times more per year in national media rights than the current deal — up from an average of $2.67 billion per year to $6.8 billion. These are averages; the 2024-25 season will be the most lucrative under the outgoing deal, and the 2025-26 season will be the least lucrative under the new deal. But the increases will be substantial.

If you remember back in 2016, when this current TV deal went into effect, there was a huge jump in the salary cap. It jumped 34.3 percent from one year to the next, which gave the then 73-win Golden State Warriors room to sign Kevin Durant. Many players got paid handsomely that summer. The problem is, it also caused a bit of chaos (and helped build a dynasty). The cap grew more slowly after that. This time around, the NBA and NBPA negotiated a smoothing of the salary cap in the CBA to smooth it out so that the jump wouldn’t happen all at once, limiting annual cap growth to 10 percent.

While the cap will be ironed out, the actual turnover will not be. That is where this clause of the CBA comes in.

Article XXXIX, Section 8 explains how the NBA or NBPA can opt out of the CBA early if BRI is significantly higher than the amount players can earn per season. The difference between the players’ share of BRI and the amount of contractual salaries (plus benefits) they earn per season is called a deficit in the CBA. In other words, if the amount players earn in salaries and benefits is less than approximately half of BRI, then there is a deficit.

This CBA clause addresses two types of shortfalls: if total contractual salaries (plus benefits) are more than 25 percent below the player’s BRI share in one year, or if that shortfall is more than 10 percent in two consecutive years.

(A quick explanation of how the math works on this. Suppose the player’s share of BRI is $1 billion. If the players’ contracted salaries are worth $750 million and the benefits are worth $250 million, then there is no shortfall. If the benefits are worth $50 million, then the shortfall is $200 million. The denominator to calculate the percentage shortfall is the amount of the contracted salaries. So in the second example, the shortfall is 26.7 percent.)

If either happens, both parties have a duty to talk in good faith about the problem and how it can possibly be resolved. One suggestion that is explicitly made in the CBA: a “more timely distribution of the designated share (of the BRI) in total salaries.”

If either of these scenarios occurs, and if the NBA and NBPA cannot agree on a way to resolve it, either party would have the option of opting out of the CBA, which would take effect on June 30 of next summer.

The current CBA runs until June 30, 2030, although there is a mutual opt-out date of October 15, 2028 (the CBA would then terminate on June 30, 2029). If there is a 25 percent shortfall in the first year of the new media rights deal, the earliest this CBA can end is June 30, 2027. If there are two consecutive years of shortfalls of more than 10 percent, either party can opt-out and force the end of this CBA on June 30, 2028.

The players’ association would be the party most likely to opt out if this were to happen. While the players would get about half of the BRI anyway, the players might decide that the smoothing has disconnected the players too much from the real economics of the NBA and that contracts are negotiated and grow enough under that reality. When the NBA and NBPA negotiated the CBA, they included clauses that allowed either party to opt out under certain conditions, depending on where the pending media deal landed. In one case, the NBA was given some protection in case the media deal didn’t go well; in this one, the NBPA was given room to maneuver if the media deal, and the league’s business in general, got too hot.

It’s an interesting consideration, given that the NBA is right touting its new media deal. The numbers are staggering and it provides the NBA with significant economic stability for the next 11 years. That the NBA’s revenues would skyrocket enough to force the two sides back to the negotiating table is a bigger problem for the league than the opposite.

But it seems unlikely at this point that the NBA will reach a point where any of these clauses will kick in. The 25 percent deficit seems unlikely, according to insiders. There’s a real chance the players could exceed a 10 percent deficit in the first year of the new media rights deal, sources say, but it’s not expected to happen two years in a row.

As lavish as the new media rights deal is, it’s not the entirety of the NBA’s basketball revenue. It’s not even half of it. There are other revenue streams that may not grow at the same rate. The league could also start with a surplus the year before the new deal takes effect, not a deficit. This year, players had to give back money. Next season, the cap will rise just 3.36 percent from 2023-24 after falling short of the league’s projection. Ten percent cap growth, the maximum allowed under the CBA, isn’t guaranteed for the rest of the decade.

The NBA and NBPA had been negotiating labor peace for that long. The main driver was the media situation and the revenue it brought to the league’s bank account. Now that the new media deal is finally in effect, it will be interesting to see what impact it will have.

On a semi-related note, players had 5.25 percent of their salaries withheld from their paychecks for escrow payments for the 2023-24 season after the league completed its annual financial audit, league sources told me. The AthleticsThe NBA typically takes 10 percent of players’ salaries during the season into escrow to account for the possibility that total salaries exceed the players’ share of BRI. The money then returns to players if an audit shows too much was withheld. Any money not returned is redistributed among teams.

(Photo: Nic Antaya/Getty Images)