Talkin’ Finances

Zephid —  June 22, 2010

I have to confess something: I’ve been on such a high since the Lakers won that epic Game 7 last Thursday that I’ve been scouring the net for any Lakers coverage I can find.  To this end, I even watched the parade on the Fox11 stream online.  After forcing myself to listen to statements like “Derek Fisher could be coming back for 7-8 million” from the broadcast crew, I decided I needed to get some thoughts out about the Lakers financial situation.

Update: I messed up on the calculation the first time.  Thanks to any_one_mouse for pointing it out.  I should proofread more…

First, some assumptions.  If we assume that Adam Morrison’s rights are renounced (as certain as certain gets), Jordan Farmar’s rights are renounced ($2.8 mil), and Shannon Brown opts out ($2.2 mil), both of which are highly probable, the Lakers will have $81,728,202 in salary under contract (not including bonuses).  The luxury tax should come in at around $68 million according to the NBA front office.  Doing the quick math, this implies that the Lakers will have $94 million in player costs this upcoming season.  This is a significantly less than last year’s $112 million, but it is also assuming that the Lakers don’t re-sign Derek Fisher, DJ Mbenga, or Josh Powell.  Needless to say, the Lakers are taking it up the wazoo from the luxury tax, and every dollar that we spend is doubled (refer to Larry Coon’s Salary Cap FAQ for more details).

This also includes the Mid-Level Exception, the only tool available to the Lakers to sign free agents due to being over the salary cap (way over in our case).  The value of the MLE is dependent on the average salary of all NBA players, and usually floats somewhere between $5-6 million.  In the case of the Lakers (and any team over the luxury tax), the use of the MLE is actually $10-12 million dollars due to the doubling effect of the luxury tax.  So if the Lakers actually want to use the MLE, they’ll have to keep in mind that doing so puts them at $104-106 million dollars in player costs next season (and even moreso beyond).

Of the 6 players listed above, the one’s that I think are “most likely” to return are Derek Fisher and Josh Powell.  As Kobe stated in his postgame interviews, Derek Fisher is the heart and soul of this team, and I find it difficult envisioning this Laker team without Fisher next year.  Rest assured, Fisher won’t be signing for $7-8 million like the Fox11 crew were trying to shove down my throat.  The minimum salary for a 10+ year veteran (Fisher is a 14 year veteran) will be $1.35 million, and the best part is that it doesn’t count against the luxury tax, so no doubling.  I have an inkling that Fisher will be fine with $1.35 million, especially considering that other teams are not likely to pay him any more than that.

The one thing supporting Josh Powell’s return is simply this: Kobe Bryant likes him.  As highlighted in an excellent article by Dave McMenamin, Powell is one of the few players that Kobe has genuinely liked as a person and not just as a player, and Phil Jackson also praised Powell’s work ethic during the playoffs.  However, Powell will be a 5-year veteran after this season, putting his minimum salary almost squarely at $1 million.  By comparison, a 2nd round draft pick will make $473,604 next season, less than half of what Powell will make.  This is also the main reason why I don’t expect DJ Mbenga to be back.  While DJ has been a fan favorite, his production can easily be re-produced by a big selected at either #43 or #58 (the Lakers 2 second round picks), and at half the cost.  Whether Powell sticks around will largely be dependent on Kobe’s endorsement.

Assuming the Lakers re-sign Derek Fisher and Josh Powell for their respective minimum salaries and they keep both 2nd round picks, that brings the Lakers total player costs to $97 million, exactly the same as last year’s player costs.  (Update: The veteran’s minimum exception is only the amount above the 2-yr veteran’s minimum amount, so the Lakers still have to pay the 2-yr veteran’s minimum to both Fisher and Powell if this were to happen.  Thus, the Lakers total player costs would actually be closer to $98-99 million.  Thanks to Exick for the correction). This precludes, however, the usage of the Mid-Level Exception.  The best thing about the Mid-Level Exception is that it can be broken up into pieces.  If the Lakers only want to use $3 mil of the MLE, they can use that much and renounce the rest.  Some names that have been brought up in the comments include Steve Blake, Dorell Wright, and Earl Watson in order to fill the void at PG that would result in Farmar and Brown’s simultaneous departure.  Fisher is also not getting any younger, and the need to groom a suitable replacement grows more pressing with every year (although Fisher really knows how to turn it on during the playoffs).  None of the three guys above deserves a full $5 million in my opinion, so I expect the Lakers to try and sign them or someone like them for a little less than that, say $3-4 million, and pocket the rest.

The one thing to keep in mind is that the Lakers are a business as well as a sports team.  While Dr. Buss has shown the willingness to spend on a winner, he also understands that over-spending can severely handicap a team going forward (the New York Knicks are a great example).  While some moves may make absolute basketball sense, it is often the financial side which wins the day.  It’s getting a deal to make both basketball and financial sense that is the goal.