Posted by: Mike Cornelius | July 3, 2016

Fools And Their Money In NBA Front Offices

Oh to be a free agent in the NBA right now. The lucky players whose existing contracts ended with the recent season’s conclusion, or in a few cases the astute ones who purposely structured their deals to conclude this summer, have been reaping the benefits of the league’s leap into the financial stratosphere with its new television contracts. While for those players it’s Christmas in July, what’s also certain is that a season or three down the road many teams’ fans will be wishing they could return the presents their franchise’s general manager is unwrapping for them this summer.

The NBA operates with a salary cap that is a percentage of basketball-related income (BRI). While the owners managed to get the actual percentage of BRI that’s dedicated to player salaries decreased in the most recent collective bargaining agreement by arguing that the measure looks at only one side of their operating ledger by ignoring expenses, the amount of BRI has been increasing steadily as the league’s popularity continues to grow. BRI includes ticket sales, concessions, parking, some of the advertising in arenas and assorted other revenue streams. But its largest component is the mountain of cash that ESPN/ABC and TNT hand over to the league for the right to send games out over the airwaves. In February NBA Commissioner Adam Silver announced a lengthy extension with the league’s TV partners, one that turned that mountain into Everest, upping television revenue to more than $2.6 billion per year.

At the time analysts projected the new television contracts could push the salary cap for next season to as much as $90 million per team, a giant leap from the $70 million in place for the season that just finished. That cap level in turn was more than ten percent higher than the year before. Now the official cap numbers have been released, and it turns out that those analysts were too conservative. The 2016-17 cap is $94.143 million. In addition to a cap, the collective bargaining agreement also sets a floor, a minimum amount that every team must spend on player salaries, at ninety percent of the cap. That means that next season every team is required to dedicate more than $84 million to its roster, or twenty percent MORE than the ceiling that was in place just weeks ago.

In addition the cap is expected to take another huge leap one year from now, likely to $107 million or so. And because the NBA’s spending limit is a soft cap, teams are free to go over it, with a built-in cushion before luxury tax penalties set in. For 2016-17 franchises can spend as much as $113 million before being subject to the luxury tax. That number will also rise going forward. Add in complex rules around maximum contracts for individual players as well as a laundry list of allowable cap exceptions (mid-level, Larry Bird, minimum salary, etc.), and it’s no wonder that NBA front offices have entire departments dedicated to crunching the salary cap numbers.

The best at doing so are those wizards who take the long view, carefully considering not just the impact of a given contract on this year’s cap, but also the effect of the deal’s later years. But at a time when every general manager must surely feel like he is awash in money, it can be hard to maintain that perspective. So while much of the focus over the long holiday weekend has been on Al Horford’s decision to sign with the Celtics and on minute by minute updates of Kevin Durant’s status, around the league there are deals being announced that will surely prove great for the player involved but decidedly less so for the overly generous team and its fans.

One that stands out in that regard was announced Friday, when the Los Angeles Lakers confirmed a four-year contract with 7’ 1” center Timofey Mozgov, who has played with the Knicks, Nuggets, and most recently the champion Cavaliers. Mozgov made $4.65 million with Cleveland last season, a year in which he lost his job as a starter and his average minutes per game declined by one-third. For the season Mozgov averaged 6.3 points per game. He was largely an afterthought during the Cavaliers run through the playoffs, on the court for less than six minutes per game and scoring just 1.3 points per contest. Advanced metrics are no more kind to the 29-year old Russian. Among centers he ranked fifty-first in box plus-minus, a sabermetric sum of a player’s total contribution on the court.

But in the NBA’s new financial environment the Lakers front office saw in those numbers a center worthy of $16 million for each of the next four seasons. That’s a salary higher than the one earned by a certain point guard who was the unanimous choice as the league’s MVP last season. For that matter it’s also higher than the salaries of the Houston Texans’ J.J. Watt, the Washington Nationals’ Bryce Harper, or anyone in the NHL.

In the past few days there have been announcements of other deals that might well go bad. Joakim Noah may be a star at Madison Square Garden; or he may have been given $72 million to lose more time to injury in New York as he has of late in Chicago. But in that case the Knicks are taking a calculated risk.  In contrast the apparent mismatch between talent, track record, and a new contract’s terms has seldom looked as stark as does the Lakers’ deal with their new center, as evidenced by the reaction of analysts around the country. The only balm for L.A. fans is that as foolish as the Mozgov signing is, it won’t be the only mistake brought on by the wave of TV cash sweeping through the NBA. Given money to spend, far too many general managers find a way to do so badly.

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