Recently the NBA front office has sent out a memo to teams about a potential reduction in the salary cap for 2010. According to the league conservative estimates has the cap shrinking to just under $54M, but it’s also possible to go as low as $50M. Of course the player’s union was upset at this memo, because it could lower rookie and free agent signings this year. The New York Times duo of Abras and Beck look over the numbers with Larry Coon as how they pertain to potential 2010 free agents.
The announcement added new dimensions to the landscape of next summer’s potential galaxy of star free agents. While teams have been budget conscious this summer, LeBron James may reconsider his plans. He is due $15.78 million for the 2009-10 season and $17.15 million if he plays the final season of his contract.
If James decides to forgo the final year, he will earn $16.59 million in the first season of a new contract with the Cleveland Cavaliers or another franchise. The number is a slight decrease from his current contract with the Cavaliers, under which he is set to make $17.15 million, and is based on his earning a 5 percent increase from his 2009-10 contract.
Under the collective bargaining agreement, there is a seniority system involving how much teams can pay in maximum salaries, broken into three categories.
James, Chris Bosh and Dwyane Wade signed extensions after the 2006 season so that when their contracts expired, they would fall into the second tier of players who have tenure between 7 and 10 years. Their maximum salaries would be 30 percent of the salary cap or a 5 percent increase from their previous season’s salary.
The players could opt out and earn slightly less at the front end of the contract and make it back, based on annual raises, along with the security blanket of having a long-term contract, should they be injured.
Another option is that the star players could sign extensions to their current contracts, but that could put their earnings at the whim of the future collective bargaining agreement after the current lame duck system expires in 2011. At most, James could tack on three years to his current contract via an extension.
A player’s best interest, Coon said, may still be to test free agency. That would allow James and his peers to collect as many years as they can under the current collective bargaining agreement.
“Signing an extension is a mistake because you’re putting yourself in the mercy of an agreement that hasn’t been negotiated,” Coon said.
$6.5 Million in Cash for Every Team on July 29
Remember the NBA’s escrow system? Basically, reported amounts for player salaries are not precisely the amounts they get. Instead, a percentage of every player salary is held aside, in escrow. At the end of the year, the league tallies up how much players made as a percentage of the league’s “basketball-related income.”
The result, is a pretty good recession buster for the owners. At the moment there’s nearly $205 million in the escrow account. $194 million of that, according to the memo, will be distributed equally to the 30 teams on July 29 — meaning each team gets $6,467,847 in cash. The rest goes towards benefits (a long story), meaning teams will also each be spared $363,087 they would have been expected to contribute for next year.
Lower Salaries for the Same Players
The news in the memo, undeniably, has the potential to simply reduce the price of top basketball talent (Andre Miller or Shawn Marion for the mid-level exception, anyone?). Any team hoping to sign LeBron James or any other 2010 free agent now has more impetus than ever to shed salary.
Luxury Tax Disbursements to 23 Teams
You probably know about the NBA’s luxury tax. A refresher: Teams pay one dollar to the NBA for every dollar they spend in salary in excess of a certain amount, which we now know was $71.15 million this past season. That means seven teams will pay, and they are, as Stein reports:
New York ($23,736,207), Dallas ($23,611,661), Cleveland ($13,707,010), Boston ($8,294,664), Los Angeles Lakers ($7,185,631), Portland ($5,899,356) and Phoenix ($4,918,136).
The other 23 teams, however, each get 1/30th of that money back, in cash. That means the 23 teams not listed above are each about to get $2,911,756, which is not a bad little shot in the arm.
Help for Low Revenue Teams
If you’re doing the math at home, you’ll realize that the luxury tax arrangement means the league is sending out 23 luxury tax payments, and each one of those is a 30th of what they took in.
The current contracts on the payroll for 2010-11:
Eddy Curry $11.2M
Jared Jeffries $6.8M
Danilo Gallinari $3.3M
Wilson Chandler $2.1M
Jordan Hill $2.2M
Toney Douglas $892,500K
With only six players under contract, and no first round pick (Utah has the rights to it) that leaves five “cap hold” slots (one left empty for the player you’re trying to sign) at $473,604 each and brings the total to $28.7M. Now, keep in mind, that is just in the current condition as we blog today. If the Knicks add any players — such as Grant Hill, or sign David Lee to an extension — the numbers obviously change. But we’re working off the current state of the payroll right now. We’ll use this as our base as the situation changes.
Now, if the early prognostications are accurate, the NBA salary cap could be as low as $50M in 2010-11. Let’s use that as our doomsday formula here. Keep in mind the projections could be wrong and the cap number could be higher, which would change everything. But if we believe the doomsday prophecies, that would leave — not counting Lee, Robinson or any other UFA’s holds and Bird Rights — just $21.3M in cap space for the Knicks to spend in free agency in the big summer of 2010. If you add just Lee, we’re talking significantly less money to spend in free agency under the cap. Perhaps not even enough to offer a max contract to LeBron James.
The CBA gives power to the “home” team for free agents. They have the ability to sign their own player to a maximum of six years with 10.5 percent raises each year. All other teams can only go five years at length and 8 percent.
In LeBron’s case — and that of Dwyane Wade, Chris Bosh, Joe Johson, Amare Stoudemire, et al — the plummeting NBA salary cap could actually result in taking a loss in the first season. Consider that LeBron’s option year of 2010-11 pays him $17.1M. If he opts out and the cap drops to $50M, the max LeBron would make in 2010-11, the first year of any new deal with any team, including Cleveland, is $15M.
The Cavs can go six years at 10.5 percent raises, which would make their maximum deal total about $116.5M, with an average of roughly $19.4M per.
A team such as the Knicks can only do five years, with 8 percent raises, which would make their maximum offer total about $88M, and an average of $17.6M per. Now the Knicks could be creative and perhaps give LeBron an opt-out after the third year (2013), when he will be 28 years old and still very much in his prime. The NBA has to certainly hope they have, by then, to have a new CBA in place and, God willing, the economy could be in a recovery, which would send the salary cap limits upward. The Knicks would have James’ Bird Rights and then could open the Cablevision vault.
Those are big ifs, of course.
If LeBron signs an extension this summer (July 18th is the date he can) with the Cavs, with the salary cap set at $57.7M, by the max contract formula (30 percent) he would get $17.3M in the first year (slightly more than the option year on the current deal) and the total package to stay in Cleveland would bring him a six-year deal worth about $134.9M, with $22.4M per annum.