Leverage in the NBA
$14.2 million in 2009-10 plus an eight percent raise the next year.
John Hollinger explains:
Allow me to explain. The entire guiding principle of most cap-related decisions in the past two decades is that the cap will almost always go up and sure as heck won’t go down. It’s embedded in the contracts, too, most of which contain either 8 percent or 10.5 percent annual raises. Thus teams feel safe gambling on a $5 million player. If they’re wrong, the cap will effectively erase the mistake in a season or two by continually rising.
In the current environment, however, some teams are going to be completely whipsawed by a cap that goes down just as their salaries go up. Clubs that have several players with long-term deals could be well under the tax threshold in 2009-10, and then be well over it in 2010-11 with more or less the same players. This is a real threat for the Philadelphia 76ers and Indiana in particular, and it could grab several other teams depending on what transpires in the coming months.
Since the salary cap and the luxury tax threshold in the NBA are both pegged to revenue, and since teams have a limited capacity (but there is some capacity) to reduce the number of players they field, average salaries need to go down. But because contracts are usually guaranteed, and most players have large raises written into their contracts, the decline in salaries is going to need to be borne by a relatively small number of players. Which means, basically, that any team with the financial resources to be hiring next offseason is going to be able to take advantage of incredibly employer-friendly labor market conditions.
Relatedly, right now the Miami Heat have only Dwayne Wade under contract for 2010-11. In other words, Pat Riley is in pretty good shape.
14 Responses to “Leverage in the NBA”
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August 6th, 2009 at 4:20 pm
I think the primary consequence of this will be than no all-stars will be moving around during that time period. But the 2nd consequence is that there will be a lot of quality veterans available for dirt cheap (ie, minimum salary)
August 6th, 2009 at 4:26 pm
Actually, only if Wade agrees to stay do the Heat have Wade under contract. Financial flexibility is good, but having no one on the team doesn’t seem like it will incent Wade to reup.
August 6th, 2009 at 4:41 pm
this is why the Cavs are in such a good position to keep Lebron James…and sign another big name free agent like Chris Bosh.
August 6th, 2009 at 4:43 pm
There is zero chance that Miami doesn’t pick up Beasley’s option (and almost zero chance they don’t pick up Chlamers at $800k for 2010-11). Still, Miami should be in a good position to pick up good players next off season, even if they are not able to pick up LBJ or Bosh to go with Wade (assuming, as Mo noted, that Wade doesn’t exercise his opt-out).
I note that there are a few teams that will have significant flexibility to play the market next year in hopes of obtaining a good veteran at a low, low price. Such as New Jersey. Yet you also have to remember that if league revenue is low, many teams will likely not be willing to spend much, even at bargain basement prices. You are already seeing that this year, with guys like Iverson not getting a contract.
August 6th, 2009 at 4:54 pm
I think baseball has already gone through the deflationary cycle. People don’t mention it often enough, but after a couple of decades in which every year brought a record-breaking contract, the biggest contract in baseball was signed in … 2001 (Alex Rodriguez). Mid-career guys wanting long-term contracts are every GM’s least favorite thing, and every team is looking to exploit the cheap first few years of a player’s career, like never before. That’s why MLB has seen such an incredible youth swing lately, most of the best players in baseball are younger than 26…. this is unusual.
August 6th, 2009 at 5:07 pm
5: Some people think baseball owner’s have been colluding some in order to accomplish this. Certainly, salaries should not be increasing in the next year or two, but there probably should have been some increase from 2001-2006 since revenues certainly were going up.
August 6th, 2009 at 6:17 pm
the biggest contract in baseball was signed in … 2001 (Alex Rodriguez).
Uh, no. A-Rod signed a new contract in December 2007 (after opting out of his 2001 contract) for a new record — 10 years, $275 mil — breaking his previous record from 2001.
August 6th, 2009 at 6:25 pm
Well, even if Wade opts out, Miami has the cap-space to resign him, sign another player to a max contract, and still sign yet another player to an above-mid-level contract. While still exercising their options on Mario Chalmers and Beasley. That puts them in pretty good shape to keep Wade and potentially add two very good players, especially since in a depressed market someone like Joe Johnson might be available for cheaper than usual. Wade + Bosh (?) + Joe Johnson (?) with Beasley and Chalmers as well? Or something comparable? There’s potentially Yao, Amare, Lebron, etc etc. That’s a pretty loaded team (potentially).
August 6th, 2009 at 8:06 pm
7. Thank you for the correction. My point remains unthreatened, which is that the steady march of record-breaking contracts has ceased (almost) completely. Baseball stars used to be able to depend on signing long-term contracts that increase in value every year, because by the end of those contracts, management would be getting a good deal compared to the rest of the market.
That’s no lnoger true, and it’s not collusion (IMO). It’s a rational reaction to the market. A 5-year contract for a 28-year-old player is a horrible deal for the team, so they’ve stopped doing it and focused their efforts on finding the next Evan Longoria or Tim Lincecum.
August 6th, 2009 at 11:25 pm
DWYANE Wade.
A ridiculously-spelled name, but that’s his name. And, again, I question the basketball-writing credibility of someone who gets it wrong.
August 7th, 2009 at 7:48 am
Re Jim #10
I’ve been writing “Dwyane” so much in basketball-related postings that the spelling “Dwayne” now looks inherently suspect to me. Ha.
August 7th, 2009 at 8:03 am
Re Ohio Guy #3
Barring a sign-and-trade, Cleveland may not be able to acquire another top free agent in July 2010. The salaries of Williams, West, Gibson, Varejao, Moon, Parker together sum to $31 MM in 2010-11. Assume the salary cap for 2010-11 will be $57 MM (in 2009-10 it was $57.7 MM) If they re-sign LeBron for the max of $17 MM, say**, that leaves only $9 MM to fill out the roster with other players, including benchwarmers. They could re-sign their own guys like JJ Hickson or Darnell Jackson at salaries that put the team over the cap, but I’m not sure if those guys are even worth it.
**Note that the maximum allowed salary for a player with 7 years of service, like LeBron, Bosh, or Wade, is 30% of the salary cap. See Article II, Section 7(a)(ii) of the Collective Bargaining Agreement.
August 7th, 2009 at 8:37 am
nbt, the League has quite famously project a decline in the salary cap to around $50-53 million next season. In the worst case scenario, not only could Cleveland not get Chris Bosh, but they also may have virtually zero cap space to begin with.
August 7th, 2009 at 10:23 am
Brent #14
Good point.
If I were LeBron and I wanted to win titles, I would sign with New Jersey, Miami, or Chicago in July 2010.