Did the 2016 salary cap spike have unintended consequences?
A year ago, Christmas came to NBA players in July. The unprecedented one-year rise in the salary cap, from $70 million in 2015-16 to $94 million the following year — the result of the start of the NBA’s new national TV rights deal in 2016, an eight-year, $24 billion contract — meant almost every team in the league was suddenly flush with copious salary cap space, something that had never occurred before.
With $900 million in the system, just about every free agent’s beak got wet: $153 million for Memphis guard Mike Conley; $145 million for Toronto’s DeMar DeRozan; $130 million for Detroit’s Andre Drummond; $128 million for Washington’s Bradley Beal; $120 million for Charlotte’s Nicolas Batum; $113 million for Al Horford (Boston); $98 million for Miami’s Hassan Whiteside; $94 million apiece for Chandler Parsons (Memphis) and Harrison Barnes (Dallas); $80 million for Ryan Anderson (Houston); $75 million for Allen Crabbe (Portland, matching an offer sheet given to Crabbe by Brooklyn); $72 million each for Joakim Noah (New York), Bismack Biyombo (Orlando) and Luol Deng (Lakers); $70 million for Dwight Howard (Atlanta) and Evan Turner (Portland); $64 million apiece for Timofey Mozgov (Lakers) and Ian Mahinmi (Wizards), and on and on.
And the belief was that this summer would see a similar largesse flowing to players. Early projections from the league were for a $107 million cap for 2017-18, another huge increase that would have benefited this year’s free agents.
But that projection was shaved back significantly, and the 2016 offseason windfall was a big reason why.
The Collective Bargaining Agreement ensures players will receive 51 percent of all Basketball Related Income, no matter whether BRI is higher or lower than the previous season. If total player salaries for a given year fall below 51 percent of that year’s BRI, the owners write the players a check to make up the difference.
Because 2016-17 salaries became so high across the league, the check the owners had to write the players to get them to 51 percent was much lower than initially expected. And that meant the initial cap projection for 2017-18 had to be lowered, because more money was spent last summer than anticipated. So the initial $107 million projection for 2017-18 was reduced to $102 million last summer.
Then came a second unexpected shock to the system.
The 2017 playoffs produced what almost everyone predicted before the season, and what many fans wanted: a Warriors-Cavaliers Finals for a third straight season. But the playoffs weren’t what the league and union needed to make more money: long. This year’s postseason produced only 79 out of a potential 105 games, with eight of the 15 playoff series going five games or less, and only two series going a full seven games.
The resulting drop in revenues from all those series ending early further lowered the 2017-18 cap. Instead of $102 million, the cap for ’17-’18 was reduced to $99 million. That shortfall of $8 million from what was originally anticipated has squeezed a lot of this summer’s free agents.
“The sweeps killed us,” said an official involved in negotiations between the league and the union.
The shortfall has raised the question of whether last year’s spike, in retrospect, was good for the players.
When the new TV deal was announced in 2014, the NBA proposed a so-called “smoothing” of the projected increase in the salary cap. The idea was that instead of allowing a cap spike in 2016 because of the huge increase in TV money (the new TV deal kicked in with the 2016-17 season), the league and union would agree to artificially adjust the cap by introducing the revenue increase in smaller chunks, rather than all at once.
The league’s argument was that smoothing would allow teams to distribute the increased revenues more equally to more players, rather than having the largesse disproportionately enjoyed by free agents in one year — 2016. A smoothing plan would have resulted in the league writing a bigger check to the players than anticipated to make up for any potential shortfalls to the 51 percent guaranteed to players; that bigger check would be distributed by the union to all of its players, not just those who were going to be free agents in 2016.
But the union categorically rejected the smoothing idea, saying that it would be a change from the revenue sharing concept that the league and union have agreed upon for the last three decades.
"The Salary Cap has been directly tied to revenues since its inception 35 years ago,” NBPA Executive Director Michele Roberts said last week. “To disconnect them from each other, to ignore the growth in revenues, and to artificially depress our salary cap and, in turn, player salaries, didn't make sense to us then, and still doesn't today."
But not smoothing has had ramifications, as noted above. The 2016 spike meant just about every team in the league was flush with cap space, with not enough quality players to spend it on.
With all teams legally obligated under the CBA to spend at least 90 percent of their caps on player salaries, that meant everyone had to have at least a payroll of at least $84.69 million — a huge leap from the 2015-16 cap figure of $70 million.
And, most dire for everyone else: Golden State, which had been in consecutive Finals the previous two seasons, now also had cap room in 2016 to go after elite free agents — something that never would have been possible otherwise — to add to its already signed and impressive core of players: Stephen Curry, Klay Thompson, Draymond Green and Andre Iguodala. And that led to the Warriors being able to add Kevin Durant to their roster in 2016 for $54 million over two years.
And, in 2017, instead of $900 million in the system as there was last year, there was just $300 million available for free agents. So, as of this morning, a lot of very good veteran players — Derrick Rose, Tony Allen, Ramon Sessions, Ty Lawson, Nikola Mirotic, Andrew Bogut, Shabazz Muhammad, and others — are faced with a choice of holding out longer in a league where almost all the money has dried up, or taking deals for far less than their expected market value.
A premium shooter like J.J. Redick got comparable money to last year’s free agent group, with Redick getting $23 million from Philly. But Redick had to take a one-year deal from the 76ers to get, it rather than the four-year contracts that shooters like Anderson got in 2016.
And Boston, which had hopes of adding Paul George via trade from Indiana and then signing unrestricted free agent Gordon Hayward from Utah, got caught in the wringer when the cap went down to $99 million. That additional $2 million squeeze made it impossible to fit George into the Celtics’ existing cap, and the Pacers wound up dealing George to Oklahoma City instead. Boston still got Hayward, but had to trade starting two guard Avery Bradley to Detroit to have enough room to take in Hayward on a max deal for $128 million.
“The lack of smoothing has made it quite a bit challenging this summer,” prominent agent Bill Duffy said last week. “This, in addition to the decline in revenue distributed into the marketplace this summer has resulted in a significant and unanticipated stagnant free agent market. There are also quite a few teams that have chosen to not aggressively participate in the free agent market.”
Indeed, teams like Atlanta and Indiana, while adding players, have done so very prudently, not looking to spend large amounts of money in rebuilding situations. Other teams like Detroit, Milwaukee and New Orleans, that were close to exceeding the tax threshold and paying luxury tax next year, have been very judicious in their moves to stay below the threshold. In Detroit’s case, that meant letting their starting two guard Kentavious Caldwell-Pope go, replacing him with Bradley. Portland spent freely and consistently in 2016; the Blazers are now locked into the contracts they gave out last year and have been nearly dormant in free agency this year.
And Brooklyn, for now at least, remains DOA as a destination for all but a handful of the league’s unrestricted free agents, leaving the Nets to go the offer sheet route for potential difference-makers — a ploy once again foiled when Washington, as everyone on earth expected, matched the Nets’ $106 million sheet for restricted free agent Otto Porter.
The 2016 spike also created what the official involved in negotiations between the league and union called “the Wall and Beal example” — in which a player who was lucky enough to be a free agent in 2016 would make more money than a player who’d signed a max deal in the proceeding year or two. In this case, the Wizards’ Beal got a $128 million max, far higher than John Wall, who’d signed a five-year max extension for $80 million in 2013.
That kind of difference in salaries could produce hard feelings among teammates, no matter that it wasn’t Beal’s fault he just happened to become a free agent in ’16. (One expects any remaining issues between Wall and Beal were exacerbated both by the Wizards’ strong season last year and by Wall agreeing last week to a new $170 million extension, which will kick in with the 2019-20 season, and which will pay him a six-year average of $34.5 million per year between 2017 and 2023.)
There is no way to empirically determine whether smoothing would have resulted in more player movement for higher salaries this year. At the least, though, there would have been no way for the Warriors to add Durant under a smoothed system last year without having had to move either Iguodala or Shaun Livingston to create enough cap room. But it’s a moot point now.
Despite the drop in expected revenues, the cap jump from $94 million this year to $99 million for 2017-18 is still the sixth-largest in history in terms of dollars, according to the union. And, in the new CBA, minimum team salaries will now be calculated based on actual salaries that are paid instead of just the contracts that teams acquire in trades. That will keep teams from making phantom trades at the trade deadline next February, a practice under the old CBA where a team would get a contract of a player it had no intention of playing or paying just to get to the minimum team salary threshold.
“I don’t think they should have smoothed it,” prominent agent Mark Bartelstein said Friday. “It’s easy in hindsight to say that. But I think anytime you’re doing something artificially, I don’t think that’s a good thing. You can open up a hornets’ nest. The idea was the cap should track the revenues, and that’s what the union did. Would it have made things a little more consistent? I wouldn’t have been a fan of smoothing because you’d be doing something artificial. And when you use that word you can have unintended consequences.”
Bartelstein believes the cap reduction was part of a natural ebb and flow of revenues from year to year. A more normal postseason with more playoff games would bump revenues back up $2-3 million above current projections, for example.
New revenues from sales of advertising patches on the front of team uniforms will come on line in 2017-18; nine teams — Boston, Brooklyn, Cleveland, Minnesota, Orlando, Philadelphia, Sacramento, Toronto and Utah — already have sponsorship patch deals. Detroit’s new downtown arena, Little Caesar’s Arena, will also open next season.
“The cap didn’t come in where it was projected,” Bartelstein said. “If the cap would have been at 108 this year, we would have been completely fine without the smoothing. The cap came in at 99. That’s a huge difference. Next year it may go the opposite way — the cap may be $4 or $5 million beyond what is expected. And we’ll get a bounce the other way.”
Teams also have to take some of the responsibility for last season’s spending orgy. No one made the Lakers commit to Mozgov for four years at the stroke of midnight on July 1 last year; ditto New York and Noah, Washington and Mahinmi, etc., later on. The market dictated the salaries, but it was the teams that agreed on the years. Teams have already corrected that for the most part this year, with much shorter deals, even at higher annual rates; witness Toronto giving Kyle Lowry a three-year deal for $100 million, a likely template for what Boston will offer Isaiah Thomas a year from now.
A year from now, there will be another trove of top-shelf free agents available: DeMarcus Cousins, Thomas, Bradley, Caldwell-Pope, Brook Lopez, Greg Monroe, Redick and Derrick Favors will head the list of unrestricted free agents, with James, George, Russell Westbrook, Carmelo Anthony, LaMarcus Aldridge, DeAndre Jordan and Rudy Gay all having player options or early termination options to become unrestricted free agents.
Teams will make room for all of those players, and offer top dollar for them. How much room there will be for their free agent brethren is not nearly as easy to predict than most thought not so long ago.
The views on this page do not necessarily reflect the views of the NBA, its clubs or Turner Broadcasting.