Coronavirus hit could cost NBA $1 billion

After his All-Star Weekend address in Chicago last month, Adam Silver was asked whether fallout stemming from Rockets GM Daryl Morey’s tweet in support of Hong Kong, and the subsequent strained business ties with the Chinese government and sponsors, might cost the NBA $1 billion in revenue. The commissioner quickly objected.

“(Billion-dollar estimates) were never numbers that were coming from league sources,” Silver said. “I think that the magnitude of the loss will be in the hundreds of millions of dollars, certainly. Probably less than $400 million, maybe even less than that.”

But the spread of the novel coronavirus, which forced the NBA to suspend its season this month, now presents an even greater financial challenge. It could push the NBA’s revenue hit past the $1 billion threshold, according to team executives and media estimates, should the regular season and postseason be canceled. For a league that had enjoyed a decade of prosperity, the combination of the Hong Kong controversy and the coronavirus crisis represents an unprecedented and wholly unexpected financial challenge.

Over the last 35 years, the NBA’s salary cap, which is tied directly to the league’s revenue, has shown annual declines just twice, and never by more than $2.3 million. Silver’s tenure, meanwhile, has been defined by remarkable growth. When he stepped in as commissioner in February 2014, the salary cap was $58 million. That number has nearly doubled to $109 million this season. The league’s annual revenue now tops $8 billion, more than double the number from a decade ago.

Gauging the precise economic hit of the NBA’s suspended season is impossible, but one high-ranking team executive said the total damage could reach $40 million per team, or more than $1.2 billion, if the playoffs are lost. Similarly, a FiveThirtyEight.com analysis estimated lost revenue could exceed $1 billion if the NBA can’t resume play.

The money adds up quickly. Gate receipts and ticket prices vary widely based on market factors, but NBA teams average roughly $2 million of revenue per regular-season home game. There have been 259 regular-season games postponed, and last year’s playoffs saw an additional 82 games. Conservatively, that’s nearly $700 million in lost game-day revenue alone.

John Hollinger, a writer for The Athletic and a former Memphis Grizzlies executive, estimated those losses could translate to a salary cap decline of $8 million next year, easily the largest ever, even if Silver can salvage the playoffs. A Bleacher Report estimate said the salary cap hit could reach $15 million if the season is lost.

Such a drop would have numerous wide-ranging repercussions. Young stars like Toronto Raptors forward Pascal Siakam and Philadelphia 76ers guard Ben Simmons signed maximum contract extensions before the season that were worth 25% of next year’s salary cap figure. Those contracts would drop proportionally with the salary cap, potentially costing both players millions in anticipated earnings.

Free agents set to hit the market this summer would also be hit hard, with potential suitors having less spending power. A lack of superstar talent was going to make this summer’s free agency period relatively quiet regardless, but the changing market dynamics could encourage some players to exercise their contract options and delay free agency until 2021.

Teams, meanwhile, could feel the squeeze in multiple ways. If the cap declines, the luxury tax line would also decrease. Teams already projected to be in the luxury tax would face steeper bills. Teams hovering underneath the line could now wind up as taxpayers, forcing them to trim salary to avoid an unexpected bill next year.