At the NBA Board of Governors meeting
last week, teams were advised of projections for cap increases over the next three seasons that figure to greatly change the financial dynamics of the NBA.
The imminent influx of cash from the new TV deal that's set to kick in by 2016 greatly inflates the basketball-related income (BRI) off which the salary cap is calculated, with the cap over the next three seasons expected to be $67.1 million, $89 million and $108 million, respectively.
What are the projected salary thresholds? And what does this mean for the league, teams and numerous players expected to become free agents over the next few seasons?
Projected salary thresholds
The most obvious question is "how much will maximum allowable salaries be?" Max salary thresholds are expressed as percentages of the cap based off years of service:
• Players with less than six years of service: 25 percent of cap (the one exception being players coming off rookie-scale contracts who are eligible for the "
Derrick Rose Rule," which bumps them up to next threshold)
• Players with 7-9 years of service: 30 percent of cap
• Players with 10 or more years of service: 35 percent of cap
For the purposes of calculating these max salary thresholds, the NBA doesn't use the actual cap but rather one that's about 94 percent of the cap number we use to calculate team salaries.
Based off the current projections, we can expect first-year max salaries across the different thresholds to look something like this over the next few years:
Max Salary Projections, 2014-2018
CATEGORY 2014-15 2015-16 2016-17 2017-18
Actual Cap $63,065,000 $67,100,000 $89,000,000 $108,000,000
Calc. Cap for Max $58,984,000 $63,074,000 $83,660,000 $101,520,000
(0-6 years exp.) 25% $14,746,000 $15,768,500 $20,915,000 $25,380,000
(7-9 years exp.) 30% $17,695,200 $18,922,200 $25,098,000 $30,456,000
(10+ years exp.) 35% $20,644,400 $22,075,900 $29,281,000 $35,532,000
LeBron James, who is eligible to opt out of his deal in 2015, can sign a new deal starting at roughly $22.1 million this summer. Were he to wait until 2016, his new deal would be $7 million-plus more lucrative, starting at $29.3 million. Teammate
Kevin Love, a seven-year vet, would be eligible to start at $18.9 million if he were to opt out this summer, and $25.1 million if he were to wait until 2016. Teammate
Kyrie Irving, who signed his extension last summer, can expect his new deal to start at about $15.8 million next year.
Impact upon teams
Put bluntly, it is in teams' vested interest to lock up players into longer deals this summer, generally speaking. We are looking at a 32 percent jump from summer 2015 to summer 2016 for the price of a player at any given threshold, and an even bigger jump when comparing two summers down the line. We know that the
max contract in and of itself is a discount in many cases, keeping star-caliber salary well below what their market price would be in a free-market free agency; signing a max player to 2015 max prices would represent a
double discount. All the players who signed long-term deals last summer -- like Irving's extension with the Cavs,
Klay Thompson's with the Warriors and
Eric Bledsoe's five-year deal with the Suns -- got financial security but postponed getting in on the real action, and as such, those respective teams got heavily subsidized cost certainty.
This year -- 2015 -- represents the last time teams can experience how a deal signed today will represent massive savings 12 months from now. It's not just for max salary players either; because there is a salary floor in the NBA (the minimum total salary threshold every team must meet), teams will have to spend $60.4 million in 2015-16, $80.1 million in 2016-17 and $97.2 million in 2017-18. In other words,
someone is going to have to get some of that money just to get to the floor. It's why players like
Draymond Green and
Khris Middleton -- terrific role players for their respective teams but not foundation superstars -- are absolute no-brainers at the max in 2015 for their clubs: The teams know exactly what they're getting and the cost certainty is there. Even a team facing an imminent luxury-tax payment in 2015-16 like Golden State is still better off biting the bullet for one year, as the tax threshold is expected to jump from $81.6 million in 2015-16 to $108 million in 2016-17 to $127 million in 2017-18.
Dwight Howard two summers ago) is eligible for a maximum yearly raise of 4.5 percent of the first year of his contract. Well, the salary cap jumped 7 percent from 2013 to 2014 and is projected to jump another 6-plus percent in 2015. Basically, standard cap inflation (remember, this doesn't count the massive cap explosion) has outpaced the maximum raises on non-Bird free agents.
When you factor in the expectation that the cap will jump 32 percent from this summer to next summer, and then another 21 percent in 2017, it makes no sense for star players to lock into a heavily discounted 2015 rate. Instead, signing a short-term deal with the flexibility to shred the deal and jump back in would be much more advisable. A player such as Love (who holds a player option) would be better served signing a two-year deal, with a player option on the second year (there's no incentive for him to opt-in to his 2015-16 salary of $16.7 million when the first year of a new deal this summer would get him $18.9 million). Even a three-year deal with an option after two would be more advisable than locking in long-term.
Impact upon the NBA
The rising cap will have an effect on the complexion of the league as well, beyond skyrocketing payrolls and salaries. Let's take a look at some of those impacts:
Churn
The added incentive of flexibility on the player side will lead to shorter deals, which will lead to higher attrition (in management, they call this "employee churn"). Players on shorter deals, testing free agency more often, are more likely to switch teams more frequently, especially as the increase in the cap continues to outpace the maximum allowable salary raises. If you're always better off signing a new deal than sticking to a 4.5 percent (or even 7.5 percent) raise, what's the incentive of Bird rights? The answer is there is no incentive, and so not only will players continue to seek bigger paydays to maximize their earnings but they'll also hold teams accountable in their roster construction: If real, immediate progress isn't sensed, it's in a player's interest to pack his bags and seek a better situation. Teams won't have four or five years to prove they can build a winner.
Rookie-scale deals, draft picks and Euro-stash deals
We already know that max deals represent huge discounts over market value; the same applies for rookie-scale deals. The rigid structure (two guaranteed years, followed by two team options) and benefits of restricted free agency (right of first refusal) make rookie deals incredibly subsidized contracts in general. When you add in the fact that rookie salaries for every first-round pick are predetermined throughout the life of the CBA, it's easy to see how they'll be far outpaced by the cap explosion. For example, the No. 1 overall pick this summer will make roughly $4.8 million in a $67.1 million cap year (or 7.1 percent of the cap). The following season, he makes about $5.0 million in an $89 million cap year (5.6 percent of the cap)! The No. 1 overall pick in 2016 will make $4.9 million in an $89 million cap year (5.5 percent of cap). And the No. 1 overall pick in 2017 will make $5.1 million in ... you get the picture.
What does this mean? First-round picks become incredibly more important. It also means being on a rookie-scale deal really stinks for a player! Drafted and stashed international players (most prominently from European leagues) will have a greater incentive to delay coming over, as waiting three years allows them to circumvent the rookie scale (this is how Chicago signed 2011 first-round pick
Nikola Mirotic to a three-year, $16.6 million deal this past summer).
For example, 2014 Philadelphia draftee Dario Saric has an NBA out in his European deal in 2016, but he's much better off coming over in 2017 to avoid getting locked into the discounted rookie rate, and instead be eligible for a lucrative deal.
Cap exceptions
Like the rookie-scale contracts, many of the salary-cap exceptions are predetermined through the life of the CBA, including the minimum salary, full mid-level, taxpayer mid-level, and biannual exceptions. Once seen as tools for teams to add veteran talent beyond the cap level, these exceptions will become less and less lucrative for players to accept.
Lockout/strike
Of course, there's one huge caveat to all of this: impending labor strife. Both the league and the players' association have the ability to "opt out" of the CBA following the 2016-17 season (they have to notify each another of that intent by December 2016). It's hard to imagine the owners wanting out of a deal that is virtually guaranteeing them year-over-year profits, but the side effects of the system might cause them to want to come back to the negotiating table.
On the other hand, the players should have multiple grievances, but with many of the constituents in line to make a lot more money, would they have enough votes to rock the status quo?
Only time will tell, but we do know one thing: The NBA is about to change drastically.