How A Falling NBA Salary Cap Could Impact The Indiana Pacers

Nobody knows what is coming next for the NBA.

Multiple players around the league tested positive for the coronavirus, and the 2019-20 season has been suspended as a result. League commissioner Adam Silver said the league hiatus would last “at least 30 days,” but given the way things are trending with regard to the pandemic, it is likely that NBA basketball will be gone much longer than that.

Even if the league does resume, there is a chance that games are played in empty stadiums. The potential lost revenue, between games possibly being played in front of crowds of zero or cancelled altogether, could cause the NBA’s salary cap to drop.

The league’s salary cap is tied to “Basketball Related Income”, or BRI. If BRI drops, then the salary cap falls by an approximately equivalent percentage. Given that BRI could decrease due to the NBA suspension, it is certainly possible that the salary cap for the 2020-21 season tumbles.

That would impact each team in the association; each organization operates under the same salary cap rules. But the affect it would have on each team would vary based on a squads contract situation. The Indiana Pacers, for example, would be minimally impacted due the salary cap situation that they are in.

This past summer, Indiana went through a massive roster overhaul. Three different starters from the 2018-19 squad departed, and a handful of bench players left with them. At the same time, more than a half-dozen new faces arrived in the circle city and Domantas Sabonis received a contract extension.

The Pacers salary cap sheet was massively impacted by this combination of transactions. When the offseason started, the front office had upwards of $40 million in cap space to play with. Going forward, the organization will be over the salary cap, barring significant trades.

The Pacers already have just shy of $123 million dollars in guaranteed contracts on the books for the 2020-21 season. Of all the players on the current roster, only T.J. McConnell (partial guarantee), Justin Holiday, JaKarr Sampson, and Alize Johnson do not have a fully-guaranteed contract next season.

The most recent projection from the NBA for the salary cap next year was released in late January. That estimate came in at $115 million. The Pacers already exceed that amount by $8 million; which isn’t a problem. Teams are allowed to go over the salary cap. But the front office would have been limited to just salary cap exceptions to sign players in the summer of 2020 even if the cap stayed at that $115 million level.

Fortunately for Indiana, the projected luxury tax line for next season was forecasted at $139 million; the Pacers guaranteed salaries for next season are well below that figure. Being above the cap and below the tax is no problem, so long as a team’s governor is willing to pay the player salaries.

But those projections are old, and they came out prior to the ongoing coronavirus pandemic. Now, with BRI likely to fall, those salary cap and luxury tax numbers could drop.

Fortunately for Indiana, assuming they keep McConnell next season, they will already have 12 players on the roster, and those dozen guys can easily make up an entire rotation. If the cap and tax are lowered, Indiana can still roll out a high-quality roster even if they don’t sign anybody in the offseason. They are incredibly well set up to handle a situation like this.

However, there could be issues for Kevin Pritchard and the rest of the Pacers front office should the salary cap fall. For example, if the salary cap dips below the level it is at now to let’s say $107 million, the luxury tax line would end up near $130 million. That would prevent the Pacers from using the full non-taxpayer mid-level exception (~$9 million in this scenario) without becoming a tax paying team.

While the luxury tax does not explicitly prohibit the Pacers from using the full MLE, it is unlikely the blue and gold would like to pay the tax unless the roster has a great shot at a championship. If they make the right moves, maybe they will spend that amount and go for a title, but a lower tax line would almost certainly bar the Pacers from spending as much money this summer as they would have in a pandemic-free scenario.

One way that a possible decrease in available funds could hurt the Pacers is that it would cripple the organizations ability to keep Justin Holiday. Holiday has been critical for Indy this season, he’s hit over 40% of his three-pointers and has been excellent on defense. He is a free agent in the coming offseason, and given the way he has played, he is due for a raise from his current $4.8 million salary.

Holiday will be coveted in the coming free agency period thanks to his ability to shoot accurately and defend wings. He could fetch the full mid-level exception from a handful of contenders. If the Pacers want to retain him, the front office will hope that they have as much room under the tax as possible so they can offer him a competitive contract without running over the luxury tax.

If the cap really falls, the Pacers worries will go far beyond Justin Holiday. Say the new salary cap lands somewhere around $100 million, that would put the Pacers right up against the luxury tax line before they even make a signing this summer. That could cause the front office to have to dump contracts in trades in order to slash payroll and sign any new players in the summer, a catastrophic situation. But that seems incredibly unlikely.

On the flip side of a drop, the salary cap could not fall at all. As laid out in this Twitter thread by Albert Nahmad of HeatHoops.com, the NBA and the NBPA (National Basketball Players Association) could decide to base the salary cap for the 2020-21 season on the true projected revenue for the league next year instead of simply adding a standard percent increase in revenue from the season prior; which is what is typically done, according to Nahmad. If agreed to by both parties, that would keep the salary cap closer to the number it is currently projected at; and that would allow the Pacers to continue on the team building path they are presently on.

It’s unclear where the NBA salary cap will land next season, but the Indiana Pacers are set up well to manage any drop that isn’t substantial (though most teams would be massively impacted by a severe drop). Things will become more clear when the league’s direction is determined, but as of right now, it appears the Pacers are well set for the next steps thanks to the brilliant work done by the front office in the summer of 2019.