The NBA and National Basketball Players Association are discussing scenarios for withholding up to 25% of players’ remaining salaries in a league escrow should regular-season games eventually be canceled, sources told ESPN.
The NBA continues to hope that there will be a resumption of some part of the regular season and playoffs in the wake of the coronavirus pandemic, but the uncertainty surrounding the league’s ability to fulfill its full 82-game regular season will ultimately be a financial cost shared among owners and players.
The collective bargaining agreement maintains that players lose approximately 1% of salary per canceled game, based on a force majeure provision, which covers several catastrophic circumstances, including epidemics and pandemics.
Once there is a cancellation of games, the force majeure is automatically triggered under the language of the CBA.
Commissioner Adam Silver, NBPA executive director Michele Roberts and a group of league and union lawyers have been discussing a number of ways to prepare financially for how the likely canceling of scheduled games will impact some percentage of lost salary for players, sources said.
If there is no forthcoming NBA and NBPA agreement on beginning to withhold a percentage of players’ salaries with the April 15 paychecks, players would continue to be paid in full on a normal timetable. Under the guidelines in the CBA, players would be required to pay back the salary later, based on a formula of canceled games for a player’s individual team and salary.
The NBA has no plans to announce the cancellation of games in the immediate future, sources said. The league’s plan is to continue working on a number of contingencies for return from a hiatus that started March 11, based on how many days the league has to work with to salvage a season, sources said.
The NBA has committed to paying full salaries on April 1, but the league and union are discussing options for an orderly redistribution of money based on the number of regular-season games that could be lost in the 2019-20 season.
The force majeure becomes one more mechanism for the NBA to make the financial formula work on delivering the players to the agreed-upon 51% share of the revenues with owners.
Already, 10% of players’ salaries are held in escrow by the league. The significant decline in Basketball Related Income (BRI) would result in the projected $380 million of escrow returning to the 30 NBA teams after the season. The amount of projected revenue loss without the application of the force majeure would exceed the current amount of escrow available to teams. As a result, the NBA would need other means to offset the loss. In the case of salaries decreasing (as a result of games missed) to a point that there is a shortage in the escrow system, the 10% currently withheld would likely be returned to the players.
The use of the force majeure further protects against a dramatic drop in the salary cap and luxury tax for next season.
If the NBPA doesn’t agree to withholding possible force majeure payments in a similar escrow fashion, players would have to pay back the difference in the money owed to the team at season’s end. If a player is traded or signs a free-agent deal with a new team without having fulfilled the payment, the new team would be required to withhold the difference in salary payment to the player and send the money owed to the previous team, according to the CBA.
Among the 434 players under contract, fewer than 10% — including Los Angeles Lakers star LeBron James — are paid on a shortened pay period that runs Nov. 15 to May 1. For example, James is owed two more paychecks (April 15 and May 1), but according to the collective bargaining agreement, the NBA could recoup future salary because he is under contract for 2020-21.
A more challenging scenario could come with a player such as the Toronto Raptors’ Marc Gasol, who will become a free agent this summer. After receiving his April 1 check, Gasol has two installments left of $2.15 million each. Because of his shortened pay schedule and pending free agency, the NBA would need to withhold a greater percentage as compared to that of a player paid over 24 installments.
The remaining 90% of players are paid over the course of the year, starting Nov. 15 and ending Nov. 1. After April 1, players have 14 paychecks remaining that would allow the NBA to put a percentage of salary in a separate escrow account. Players would still receive a paycheck on April 15, with an amount eventually returned to the players or kept by the NBA, based on the number of games played in the remainder of the season.
The NBA doesn’t want a scenario in which it has to pursue players for payment on canceled games, which is part of why the league is working with the NBPA on ways for players to budget the loss of income on this season’s salary over an extended period.
If the NBA eventually enacts the force majeure provision, it would provide the league the option within 60 days of reopening and renegotiating the collective bargaining agreement with the union, which is currently set through 2025.
The NBA has expressed no interest in triggering this option under the current circumstances, sources said.
Essentially, that is meant for a doomsday scenario in which the league would have to function differently over a period of years — not months — and the entire financial structure of the partnership needs to be rebooted. There has been no conversation within the NBA or with the NBPA about exercising that option, sources said.
Silver and approximately 100 of the NBA’s top-earning league office executives took 20% reductions in base pay last week, sources told ESPN. Those are expected to continue through the balance of the coronavirus pandemic.
ESPN Front Office Insider Bobby Marks contributed to this report.
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