NBA salaries are decided by the salary cap, which is the maximum limit that teams can pay to the players on their roster in the form of salary. According to Spotrac, the overnight increase in NBA salaries occurred in 2016, when the salary cap of the 2016-17 NBA season was set at $94,134,000 compared to the $70,000,000 salary cap in the 2015-16 season. The $24,143,000 difference (34.49% increase) in the salary cap is the largest ever in NBA history. The salary cap in the 2022/23 NBA season is set at $123,655,000.
How are NBA salaries determined?
- Team salary is decided by salary cap
- Player salary decided by experience + other factors
Salaries are just one of the many expenses of an NBA franchise, but its best to focus on revenues before expenses are discussed. How do NBA franchises make money? There are a variety of revenue streams of NBA franchises; there is gameday revenue, where teams sell tickets to fans who wish to attend the game. Stadium goers also pay for merchandise and concessions, two minor but not insignificant sources of revenue for NBA franchises. Most fans watch games from home, so teams receive a lot of money from national, regional, and local broadcasters for the rights to air games; this is a major source of income. Other forms of revenue include sponsorship deals, such as jersey sponsors and stadium naming rights, and merchandise revenue.
The global reach of the NBA means that these numbers add up to a pretty high amount; in the 2021/22 season, the NBA eclipsed the $10 billion mark in revenue for the first time ever in league history. Naturally, an increase in revenue also tends to mean an increase in expenses. When it comes to player salaries, it is structured a little differently: the NBA and the NBA Players Association (NBAPA) come to a deal every few years (known as the collective bargaining agreement), in which it is highlighted how much of the league’s revenue (specifically the basketball-related income) should go to the players in the form of salary. This is a set percentage; for example, under the current CBA, players are to receive 44.7% of the basketball-related income.
Now, to provide further structure, the NBA splits the salary amount by 30 (for each NBA team) and designated the resulting number as the salary cap: this is basically the maximum amount that teams can spend on their players in the form of salary. There are a number of exceptions to this limit, and teams routinely go above the salary cap limit (however, go too far above the limit and teams will have to pay a luxury tax). For the 2022/23 NBA season, the salary cap is set at $123,655,000.
Teams now have this amount of money to pay their players. Salary negotiations are usually in the hands of the team and the player’s agents, but there are scenarios where salaries are pre-determined and/or limited by certain factors. For example, an NBA player newly drafted in the NBA has to sign a rookie contract; the salary of the rookie is determined by the rookie scale, meaning getting drafted in the lottery constitutes a higher salary, and the salary decreases if the rookie’s draft position was later on in the first round. Players have different maximum salary level thresholds based on their experience in the league: a player with less than 6 years of experience can have a salary worth up to 25% of the salary cap, while a player with 10+ years of experience can have a salary worth up to 35% of the salary cap.
Why did the 2016/17 NBA season see such an explosion in salaries?
As highlighted earlier, the salary cap is impacted by the revenue the league generates. Heading in to the 2016/17 season, the new broadcasting rights deal that the NBA had signed went into effect: the 9-year deal was worth an astounding $24 billion, significantly larger than the previous broadcasting deal, making the NBA and its team flush with unprecedented levels of cash. The 2016/17 offseason is notoriously remembered, since it lead to teams foolishly spending their money on long and expensive contracts on role players who traditionally were not worth that much money (names like Timofey Mozgov and Chandler Parsons will be forever immortalized in NBA history for having such lucrative contracts that most definitely did not pan out).
What is the largest contract in NBA history?
The spike in the salary cap, and the continuous rise in subsequent years, has meant that the record for largest NBA contracts has been broken a few times in the past few years. The current record holder for the largest NBA contract is Nikola Jokic of the Denver Nuggets, who has signed a 5-year contract extension worth $272 million, that will net him roughly $54.4 million every season. There are 11 other players in the NBA right now who have contracts worth $200 million or more.
The NBA right now is in some of the best financial shape it has ever been in throughout its history, with record breaking numbers across the board in league revenue, salary cap, and player salaries. It is impressive that the league has rebounded so successfully in a short period of time since the COVID-19 pandemic hampered the financial performances for some time. However, the NBA, teams, and players are really walking around with heavy pockets and look to continue to do so in the near future.