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NBA Teams and Players Hit the Jackpot!

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When LeBron James consecrated his decision to come home and return to the Cavaliers back in July, the entire league felt shockwaves of jubilation and questions. When the terms of his contract were released, the fact that it was only for two years undoubtedly raised some eyebrows among NBA fans. It was then that ideas started to spread about the possibility of an impending increase in the NBA salary cap. LeBron’s move was subsequently realized as a financial move, and not one that meant he might actually leave Cleveland again in the very near future. Other players like Dwayne Wade and Kevin Love soon followed in his footsteps by signing to two-year deals when they were fully capable of signing longer, thus making more profitable deals. The news announced last monday truly speaks to the vision and savviness of the 4-time MVP.

In what is being heralded as a landmark event in the sport, the NBA agreed today on a new nine-year deal with ESPN and TNT for the right to keep broadcasting NBA games. According to Richard Sandomir of The New York Times, the deal will pay the NBA approximately $24 billion dollars, yes, that’s right $24 with a “b.” The new average annual payment of nearly $2.7 billion to the NBA by broadcasters nearly triples the current annual payment of $930,000 million. This means that starting in the 2016-17 NBA, revenues will skyrocket and cause the projected salary cap to increase in a dramatic fashion. NBA commissioner Adam Silver has already gone on record in advising a “smoothing” approach in which the huge revenue influx be split evenly into 2015 and 2016. In theory, this would make the financial boom more manageable for the league and its franchises.

{adinserter 2}The salary cap is the total amount of money a team can spend on its roster during a season. The salary cap amount for a given season is directly based on league wide revenues, something that will dramatically increase at the onset of this new, lucrative broadcast deal. Currently the salary cap for the coming season is $63.065 million, but could potentially swell towards the $90 million range once the new deal comes into effect. Since the number of players allowed on an NBA roster isn’t changing any time soon, a higher salary cap means players at all levels of experience and value will profit from this change starting in 2016. The league-minimum salaries will also subsequently rise with an increase in the salary cap, ending annual salaries under $1 million for players under such contracts today. Although a larger salary cap affects everyone (including franchises themselves, which will be benefiting immensely from the increase in league revenues), the most interesting impact lies with max-contract players.

A player like LeBron, who has played over 10 years in the NBA, is eligible to receive a max-contract where they can receive up to 35% of the team’s annual salary cap. Since this year the cap is at around $63 million, James will get about $22 million in salary. If the cap goes up to say $90 million, he stands to get about $31.5 million a year in salary, or nearly $10 million more simply due to the increased cap. Regardless of the actual increase in income he can receive the outcome is still the same, LeBron brilliantly negotiated his current deal and will deservedly be compensated like the once-in-a-generation player he is. Many top free agents will certainly use his logic in 2016, especially Kevin Durant, who currently plays for a franchise that isn’t known for spending the big bucks.

Another potentially enormous effect that this lucrative new deal will have will be the one it has on the Collective Bargaining Agreement. The current CBA was agreed to in December 2011 and includes the agreed-upon intricacies of the max-contract; however, the Players Union can opt out of the deal at the end of 2017 season. James has already expressed his desire to end max-contracts, opening the door to other elite players like himself and Chris Paul (who currently serves as NBA Players Union President) to make historically gigantic leaps in NBA salary. The end of max-contracts has the potential to dramatically change the way teams are built in the future since it will directly impact the spending power of franchises in the market for one or more superstar players. Come 2017, the NBA’s elite players might gain leverage their greatest predecessors could only dream of.

Things are changing in the NBA, and fast. The economics behind the highest level of the game will be soon forever changed, something that for once benefits both the owners and the players.

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