The NBA recently completed its financial audit of the 2022-23 season and found that business has bounced back strongly from its COVID-19 shortfalls. For players, it means the return of nearly the entire escrow fund withheld during the season—an amount totaling nearly $700 million.
The collective bargaining agreement between players and the league calls for players to receive 51% of basketball related income. The NBA withheld 15% of player salaries last season to ensure that revenue split was achieved. Revenue gains during that season mean players will ultimately retain 97.35% of their 2022-23 playing salaries, according to two people familiar with the accounting who were not authorized to speak publicly. The league will keep 2.65% of the $4.5 billion in player contracts from the 2022-23 season.
Stephen Curry was the highest-paid NBA player last season and had $7.2 million of his $48.1 million salary originally withheld.
The escrow system was implemented during the 1999 CBA and had traditionally been set at somewhere between 8% and 10% of player compensation. Players and the league split the escrow for many seasons, but for three straight seasons beginning with 2014-15, 100% of the escrow was returned to players along with a supplemental check as revenues surged and produced an uneven split.
When COVID-19 hit in March 2020, the league raised the escrow percentage late in the season to 25% to account for the shortfalls in arena revenue. The following season, a “ten-and-spread” system was implemented to supplement the standard 10% withholding amortized over a three-year period. There was still a carryover of around $130 million going into the 2022-23 season. The entire 2022-23 escrow fund would have been returned to players if not for that holdover shortfall.
The NBA escrow system has rarely been a major issue with players, because most funds have been returned to them as revenue grew in lockstep with player contracts. Players even received additional compensation under the system between 2014 and 2017. The NHL has a similar system, albeit with less support from players and agents, as the scales typically tip towards the owners side when final accounting is completed. The escrow system cost NHL players at least 10% of their paychecks for six straight seasons leading into COVID, when the withholdings soared even higher.
The NBA system appears to be working for both sides. The average team is now worth $4 billion, up 70% during the past three years, while 75 players are expected to make at least $20 million this season before incentives, led by Curry at $51.9 million.
