NBA fans love to play armchair GM. They have the ESPN Trade Checker bookmarked. They know the general workings of the Collective Bargaining Agreement. And they have ideas of fixed price points for players based on ideas of “value” and “worth”. This all fine and good. I think a more informed fan-base is a better fan-base. It makes for better, more nuanced conversation.
This summer, though, it’s better to forget some of what you think you know about player value. This summer, it simply doesn’t apply. I may have changed majors from Economics to History when I was in college, but I took enough of former to understand supply and demand and how market forces help determine pricing. And, this summer, with the NBA cap about to go up by $22 million, the concept of what a player is “worth” is going to change.
You will see numbers that, initially, will cause an immediate recoil and reaction of “he’s not worth that!”. $17 million for Bismack Biyombo? Maybe the same for Joakim Noah? For Festus Ezeli? The max for Nicolas Batum? For Harrison Barnes? For DeMar DeRozan? Ten figure plus salaries for Kent Bazemore? For Alan Crabbe? For Mo Harkless? Even more for Evan Fournier? These contracts aren’t just possible, they may be inevitable.
The economics of the league — specifically, this summer — make this so. The league simply has to pay out this money in contracts to try to meet their financial obligation to the players. And if they don’t reach the amount they need to meet via the contracts on the books, they’ll end up paying it anyway:
By the rules of the Collective Bargaining Agreement (CBA), teams are obligated to collectively pay players in the range of 49-51 percent of the NBA’s basketball related income (BRI).
Throughout the season, 10 percent of player salaries are held back in escrow, in case the players are overpaid based on their designated ratio of BRI…
…Looking ahead to the 2016-17 season, the NBA now projects the salary cap will climb to $92 million, with a luxury tax threshold of $111 million.
Individual teams will be obligated to pay out 90 percent of the cap, known as the salary floor, which would be $82.8 million of a $92 million cap.
The NBA estimates that teams will fall short of that number by $375 million, or an average of $12.5 million per franchise. If so, the league will once again pay out wages held in escrow, along with a massive balloon payment of $375 million.
This is really important to remember and will play a major role in what players are paid not just this summer, but in the summer of 2017 as well (when the cap is expected to jump again to roughly $108 million). The fact that the league is already predicting a shortfall essentially means the league will be handing out free money in one way or another.
For player contracts, then, it might make sense to go short in length and high in dollars to try and convince players to sign on. This might not be a viable strategy for all players, but it may be appealing to a subset of guys who are looking for a way to showcase their games and/or “audition” for a longterm contract with either the incumbent team who signs them or with the rest of the league who will monitor their progress.
What does this mean for the Lakers? As always, it remains to be seen. At some point, the Lakers are going to need to find long term solutions to roster holes. Their preference, I would imagine, would be to secure viable players who can be slotted in for the next 3-4 years to play alongside and grow with the team’s young core. For the right player(s), I would also imagine the Lakers are willing to spend big.
That said, if the right fits aren’t available or choose other options, the Lakers could also explore players who might agree to short term deals, even if it means overpaying.
This would not be unfamiliar territory for the Lakers, either. In the summer of 2014 the Lakers signed Jordan Hill to a 2-year contract with a team option in year 2. The team paid him $9 million that first season and would have paid him the same amount in the 2nd season had they not declined their team option. At the time, I thought this was a lot of money. However, the Lakers really just overpaid in the 1st year of the deal in order to give them flexibility in the 2nd season where they could go back into free agency and look to add impact players.
So, keep Hill’s deal in the back of your mind when free agency starts in a month. The Lakers are could very well shell out major dollars for a 2 or 3 year contract with the last year of the deal being a team option. The team benefits by getting a look at a player who they presumably like, but on a short term deal with the type of flexibility which can lead to a more permanent signing in a season or two. The player gets a large payday, gets the exposure of playing for the Lakers, and gets to go back into the free agent market when the cap is close to $110 million.
The landscape for NBA contracts has changed. Coupled with the Lakers’ desire to improve, the spending — even if not on superstar players, but on role players — is going to happen. This does not mean value contracts are gone forever, but even those deals are likely to have some sticker shock attached to them. Better prepare yourself now.