What is NBA escrow and how does it affect the players?

NBA escrow was a major talking point among the players during the recent collective bargaining agreement negotiations. Escrow in the NBA is the amount the league holds in player salaries.

The league currently holds 10% of salaries and distributes them to players after the season if salaries do not meet agreed upon numbers. At the end of each year, it is agreed that player salaries must reach a certain percentage of revenue.

Escrow as a general financial principle refers to an agreed upon amount of money that a third party holds to distribute to the participating parties if certain conditions are reached. In this case, the NBA is the third party. while the teams and players are the participating parties.

The escrow for the NBA is the 10% of the players' salaries that is held and given out at the end of the year if the collectively bargained amount is not reached. It is based on the league’s total revenue for the season.

Under the current collective bargaining agreement, the players are guaranteed to receive 49-51 percent of the league’s total basketball related income every year. The players then receive the amount that is missing if their salaries do not match that percentage at the end of the year.

The NBA made a brief change during the pandemic season when games were canceled. They bumped up their escrow to 25% from 10 to protect players from lost revenue as games were canceled and fans were banned from games due to COVID precautions.

How will the NBA salary cap change next season?

The players and the league agreed to a new CBA that will kick in next season. The salary cap is among one of the major changes.

Let’s take a look at some details from the new deal. Players are still entitled to 49-51 percent of the total basketball-related income in the new deal.

The salary cap is projected to be $134 million for the 2023-24 season. That is a $10.4 million increase from this season.

The luxury tax level will be around $162 million. This means teams that go over the cap will have to pay luxury tax.

The new CBA also introduced a second tax apron. This will punish high-spending teams extra if their payroll goes over this number. The second apron is projected to be $175 million.

If a team reaches the second apron, they will also have extra restrictions in roster construction. They will not be able to sign the same amount of free agents or use the usual roster and trade exemptions given to teams.