While there was much rejoicing Thursday night as it was reported that the National Basketball Players Association representatives had agreed to the NBA’s proposed terms for the 2020-21 season, and that games will commence Dec. 22, there was actually something of an asterisk attached to the situation.
Namely, the part of the NBPA’s statement that noted the players had “tentatively agreed.”
Yeah, that leaves some wiggle room, for sure.
“Additional details remain to be negotiated and the NBPA is confident that the parties will reach agreement on these remaining issues relevant to the upcoming season,” the statement added.
So, you may be asking yourself, what’s the story there? Why is this still not a fully done deal?
Well, there’s some of the oft-mentioned stuff — such as negotiating the salary cap and luxury tax lines, and establishing safety protocols for both players and, potentially, fans — yet to settle. Mostly, though, it appears at this point that the largest remaining hurdle centers around an issue that fans may have heard a lot about lately but probably aren’t terribly familiar with.
Escrow.
You’ve heard the term bandied about recently, right? But what does it mean? Glad you asked. Let’s sort it out. (Warning: Some alphabet soup to follow.)
So, you know that the players and owners have a Collective Bargaining Agreement (CBA) between them. Well, every time the CBA comes up for renewal, one of the big points of contention is its “basketball related income” (BRI) component. At is simplest, BRI is basically the collective revenue the league and its teams generate from ticket sales, broadcast rights, concessions and merch sales, gambling revenue, even a portion of arena and practice facility naming rights.
So, in each CBA, the league and the players negotiate how this basketball related income will be divided between them — in this current CBA, it’s basically a 50/50 split. What happens next is that, throughout the season, a portion of player salaries (typically 10%) is put into an escrow account for future balancing purposes.
Essentially, because the BRI isn’t completely calculated until the end of the season, the escrow provides a failsafe of sorts. If the collective salaries the players have been paid up to that point wind up being less than their 50% share of the BRI, the league returns the money held in escrow to the players to make up the difference. Conversely, if players' salaries have gone past that 50% mark, then the money in escrow goes to the league to balance things out.
So, why is this an issue now, you’re asking?
Another good question. The simple answer is, that usual 10% escrow isn’t really sufficient in these seasons where COVID-19 is wreaking havoc on league revenues.
Remember how we talked about BRI being impacted by ticket sales, merch sales, concession sales, et cetera? Now, recall that the Utah Jazz wound up not playing 10 games scheduled to take place at Vivint Smart Home Arena in the 2019-20 season, on account of the coronavirus pandemic. That’s a lot of lost income. ESPN previously reported that, if not for some agreed-upon compromises, the loss of revenue just experienced would have caused the salary cap to drop from $109 million last season to $90 million this coming season.
That’s a ton.
And now, with this season set to start before arenas can be filled anywhere close to capacity, we’re looking at a similar problem. Remember — a few months back, commissioner Adam Silver said that about 40% of BRI came from having fans in the stands at games.
So one of the proposed solutions is significantly bump up the percentage of players' salaries put into escrow. Shams Charania of The Athletic noted Thursday night that the current discussion has revolved around a 17-18% escrow for the next two seasons, before reverting back to the usual 10% for the 2022-23 season. We’ll see if that does the trick.
In the meantime, multiple reports have stated that, in the interim, the coming salary cap is expected to remain around $109M, and Charania has added that the two sides are discussing a 2% increase in the cap and luxury tax lines for the duration of this existing CBA (currently slated to extend through the 2023-24 season, though there’s a mutual opt-out available after 2022-23).
Hopefully, like the players said in their statement, this can all be resolved amicably and we can get on with basketball. Still, it’ll be something to keep an eye on.
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