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

As the NBA waits for its next media rights deal to kick in, there has been plenty of consideration on how it will impact the salary cap and player salaries. The next deal will more than double, on average, the annual fees the league receives from its media partners. Teams are waiting for a 10-percent bump in the salary cap in 2025, and the seasons after it. Salaries are expected to jump. Luka Dončić, for example, could be making more than $70 million in a few seasons.

But the new deal could also have an effect on the league’s labor situation and the status of its collective bargaining agreement.

Nestled on page 546 of the CBA — Article 39, Section 8 — several densely worded paragraphs outline how the NBA’s booming business could actually lead to the dissolution of this current governing document a year or two early if things go well.

It has something to do with cap smoothing, and how much players can earn in contract salaries each season. The NBA, if you remember, shares roughly half of its basketball related income (BRI) with the players. The salary cap is a reflection of that (there’s a complicated formula involved, but it’s immaterial here). No matter what, the players, in aggregate, must receive between 49 and 51 percent of BRI.

Usually, the salary cap grows in lockstep with basketball revenue, but the league’s incoming media rights deal is expected to create a situation where they get divorced. The NBA’s new media deal will pay the league about two-and-a-half times more per year, on average, in national media rights than its current deal — going 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 of the outgoing deal, and the 2025-26 season will be the least lucrative of the new deal. But the increase will be substantial.

If you remember 2016, when this current TV deal kicked in, there was a huge leap in the salary cap. It went up 34.3 percent from one year to the next, which allotted room for the then-73-win Golden State Warriors to sign Kevin Durant. Lots of players got paid handsomely that summer. The issue is that it also caused some havoc (and helped build a dynasty). The cap grew slower after that. This time around, the NBA and the NBPA negotiated salary cap smoothing into the CBA to mitigate that so the jump won’t happen all at once, limiting year-over-year cap growth to 10 percent.

While the cap will be smoothed, the actual revenue won’t be. That’s where this clause of the CBA comes in.

Article XXXIX, Section 8 lays out how either the NBA or the NBPA could opt out of the CBA early if BRI significantly outpaces the amount of money players can earn each season. The difference between the players’ share of BRI and the amount in contract salaries (plus benefits) they earn in total each season is called a shortfall in the CBA. In other words, if the amount the players make in salaries and benefits is less than roughly half of BRI, then there is a shortfall.

This CBA clause focuses on two kinds of shortfalls: If total contracted salaries (plus benefits) fall short of the player’s share of BRI by more than 25 percent in one year, or if that shortfall exceeds 10 percent in two consecutive years.

(A quick explanation of how the math works on this. Let’s say that the player’s share of BRI is $1 billion. If the players’ contracted salaries are worth $750 million and 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 here to calculate the percentage shortfall is the amount of contracted salaries. So, in the second example, the shortfall is 26.7 percent)

If either happens, then the two sides have an obligation to have good-faith talks about the issue and how to potentially fix it. One suggestion explicitly made in the CBA: a “more timely distribution of the Designated Share (of the BRI) into Total Salaries.”

If either of these scenarios were to happen, and if the NBA and NBPA can’t agree on a way to fix it, then both sides have the choice of whether to opt out of the CBA. That would go into effect June 30 of the following summer.

The current CBA runs through June 30, 2030, though there is mutual opt-out date of Oct. 15, 2028 (the CBA would then be terminated June 30, 2029). If there is a 25-percent shortfall in the first year of the new media rights deal, then the earliest that this CBA could end is June 30, 2027. If there are two straight years of shortfalls of more than 10 percent, then either side could opt out and force the end of this CBA on June 30, 2028.

The players association would be the side most likely to opt out if this were to happen. While players would get roughly half of the BRI either way, the players could decide that smoothing has left the players too disconnected from the NBA’s actual economic situation and contracts are being negotiated and growing enough under that reality. When the NBA and NBPA negotiated the CBA, they put in clauses that allowed both sides to opt out under certain conditions depending on where the upcoming media deal landed. In one, the NBA got some protection in case the media deal was underwhelming; in this one, the NBPA got room to maneuver if the media deal, and the league’s business overall, came in too hot.

It’s an interesting consideration as the NBA, rightfully, touts its new media deal. The numbers are gigantic, and it affords the NBA significant economic stability for those 11 years to come. That the NBA’s revenue would shoot up so much that it forced the two sides back to the negotiating table is a better problem for the league to have than the opposite.

But, as of now, it seems unlikely that the NBA would get to the point where either of these clauses would be triggered. The 25-percent shortfall seems unlikely, according to those in the know. There is a realistic chance that the players exceed a 10-percent shortfall in the first year of the new media rights deal, sources say, but hitting it two years in a row is not expected.

As bountiful as the new media rights deal is, it is also not the totality of the NBA’s basketball revenue. It is not even half of it. There are other revenue sources that may not grow at the same rate. The league might also start from an overage in the year before the new deal kicks in, not a shortfall. This year, players had to give back money. Next season, the cap will be up just 3.36 percent from 2023-24 after it landed below the league’s projection. Ten percent cap growth, the maximum allowed under the CBA, is not guaranteed for the rest of the decade.

That’s how long the NBA and NBPA had negotiated labor peace as well. The main driver was the media situation and the revenue it brought to the league’s bank account. As the new media deal eventually sets in, it will be interesting to see what its impact will be.

On a semi-related note, players had 5.25 percent of their salaries taken out of their paychecks for escrow payments for the 2023-24 season after the league finished its annual financial audit, league sources told The Athletic. The NBA usually takes out 10 percent of player’s salaries throughout the season to put into escrow to allow for the possibility that aggregate salaries outpace the players’ share of BRI. It then returns money to players if its audit shows it had withheld too much. The money that did not return will get redistributed to teams.

(Photo: Nic Antaya / Getty Images)