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How the NBA Estimates Annual Salary Cap Space

By Curtis Rafter

NEW YORK - APRIL 7: NBA Commissioner Adam Silver speaks to the media after the Board of Governors meetings on April 7, 2017 at the St. Regis Hotel in New York City. NOTE TO USER: User expressly acknowledges and agrees that, by downloading and/or using this photograph, user is consenting to the terms and conditions of the Getty Images License Agreement. Mandatory Copyright Notice: Copyright 2017 NBAE (Photo by David Dow/NBAE via Getty Images)
NEW YORK - APRIL 7: NBA Commissioner Adam Silver speaks to the media after the Board of Governors meetings on April 7, 2017 at the St. Regis Hotel in New York City. NOTE TO USER: User expressly acknowledges and agrees that, by downloading and/or using this photograph, user is consenting to the terms and conditions of the Getty Images License Agreement. Mandatory Copyright Notice: Copyright 2017 NBAE (Photo by David Dow/NBAE via Getty Images) /
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Little more than a week ago NBA insider’s Tim MacMahon and Bobby Marks warned of a looming salary cap situation that could be detrimental to NBA teams and free agents.

It all started last summer following a massive salary cap spike, wherein the cap increased from $70 million to $94 million overnight.

"More than a decade’s worth of normal inflation occured instantly."

This led to a subsequent increase in spending.

The market has since corrected itself, yet the absurd spending is still trending upward. What’s more is that the market corrections seem likely to continue into and through next summer, and as the cap continues to depreciate, signing free agents to agreeable deals will just get harder and harder.

All players want big contracts, but general managers are now in a position where they can only award big contracts to the most elite players. This, combined with the fact that next summer’s free agency class is loaded, means that Isaiah Thomas may not warrant a max contract.

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As Tom Westerholm notes, the aforementioned points could very well limit the market for Thomas.

"While the [Boston] Celtics would like to keep Thomas happy, they won’t negotiate a max deal when they are the only team driving up the market."

In trying to grasp the situation, one idea kept repeating itself. The impending contract dilemmas would be a non-issue if the league could accurately and effectively set its salary cap. This is something easier said than done.

According to the 2017 NBA-NBPA Collective Bargaining Agreement, the NBA sets its salary cap every summer as a percentage of its projected total revenue for the upcoming season.

Projected total revenue breaks down roughly into annual television revenue, and the previous season’s basketball related income (an elaborately defined term that essentially refers to the money which all teams earn from basketball operations) increased by about four and one-half percent. The cap is 44.74 percent of the project total revenue, minus projected player benefits, and divided by the league’s 30 teams.

So what does all this mean? In the context of this offseason, salary cap projections likely exceeded the salary cap because of miscalculations regarding annual basketball related income.

For some reason, it’s hard to say why, the NBA appears to earned less revenue this year than their model for basketball related income would suggest, in turn lowering the cap.

Next: NBA Confirming Danny Ainge Broke the System

If things don’t improve for the league, continued market corrections and exceedingly lower cap space could really put the crunch on NBA teams and free agents next summer, including Thomas.

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