Sources: NBA cap, luxury tax levels likely to drop

The NBA has alerted teams to the impending release of adjusted 2020-2021 salary and luxury tax projections, signaling the likelihood that a decline in revenue will cause a drop in the figures, league sources tell ESPN.

The league office is expected to deliver revised projections as soon as Thursday, an accommodation that allows for teams to make more informed financial and roster decisions ahead of the February 6 trade deadline.

The advanced notice and pre-trade deadline timing of these looming projections, communicated in a recent league memo, is a departure from past protocol.

The loss of the league’s China-driven revenue has caused many front office executives to tell ESPN that they’ve been preparing for the possibility that the original 2020-2021 cap projection of $116 million could drop down as far as $113 million.

Teams inquiring with the league office on acquiring some sense of the projections to come were told that they would have to wait until the NBA shared those figures in a formal release.

These projections have impact on such items as free agency cap space, luxury tax payouts and player contracts based on percentages of the salary cap — including as maximum deals and mid-level exceptions.

China’s decision to pull sponsorships and television coverage because Rockets GM Daryl Morey tweeted support for Hong Kong sovereignty in October is believed to have cost the NBA anywhere between $150 million and $200 million, league sources said.

Based on ESPN’s conversations with team executives, the potential drop in revenue isn’t expected to significantly impact the deadline behavior of teams. Salary cap space is less important this summer than in past years, because only seven teams are currently poised to have salary cap space above the projected $9.8 million mid-level exception. Also, the talent pool of players available in free agent isn’t considered strong.

The projected luxury tax figure had been $141M, which largely impacts teams like Boston, Brooklyn, Golden State, Houston and Philadelphia who are expected to be luxury tax teams in 2020-21. Three more teams – Denver, Milwaukee and the Los Angeles Clippers – could be in the tax pending the retaining of their own free agents.

For example, the Warriors — considered a repeater tax team — would lose $14 million if the tax projection dropped $3 million. With an extension for Draymond Green starting next season, the salary slot for a potential Top 5 draft pick in the 2020 draft and full use of the $5.9 million exception on a free agent this summer, the Warriors could face a nearly $80 million penalty if the tax drops to $138 million. Golden State was projected to pay $65 million in tax with a $141 million salary cap.

Other contending teams — including the Utah Jazz, Miami Heat and Los Angeles Lakers — could be impacted over a decrease in projected luxury tax. For instance, the Lakers would become hard-capped if they use the full $9.8 million except this summer, which would limit their flexibility to make a trade next season.

A salary cap decrease of $3 million impacts the class of rookie contract extensions signed over the past year, including Philadelphia’s Ben Simmons and Denver’s Jamal Murray ($4.3 million) and Toronto’s Pascal Siakam ($3.3 million). Maximum contracts are based upon percentages of the salary cap.

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