Now that the NBA Players union has rejected the league’s “smoothing” proposal to gradually increase the salary cap, we are going to see extraordinary financial changes over the next several years.
When the NBA’s new television money kicks in for the 2016-17 season, the salary cap — currently at $64 million — will jump to an estimated $90 million. That means a player like Kevin Durant, who will be eligible for a starting salary worth slightly less than 35 percent of the cap, can get a max contract with a starting salary of roughly $30 million. If he re-signs with the Oklahoma City Thunder for five years with 7 1/2 percent annual raises, we’re talking about a $170 million contract.
Big money, eh? But get this: The Thunder already have about $34 million in salary commitments for ’16-17 to Russell Westbrook ($17.77M), Serge Ibaka ($12.35M) and Nick Collison ($3.75 M). If they keep Durant at a salary of $30 million, that brings them to $64 million — which would still be $17 million below the minimum team salary, which is set at 90 percent of the cap.
That means every NBA team will be obligated to spend at least $81 million on player salaries in the 2016-17 season, and that is going to be troublesome given that only about 50 percent of the NBA’s salaries are negotiated. (The rest are based on scales — the rookie scale, the mid-level exception, the veteran minimum, etc.)
The end effect will be that players who become free agents are going to have tons and tons of money thrown at them. Heck, Alexsey Shved could be a max player. Nazr Mohammed could find a reason to keep playing into his 40s. The money is going to be sick — but some of the NBA’s players are going to be sick about the imbalance.
For example, the unfortunate soul who gets picked 30th in the 2016 NBA draft will earn a salary of $943,000, plus or minus 20 percent. So he will account for a mere 1/90th of his team’s payroll. Even the first overall pick of the 2016 draft is going to get a smaller slice of the pie than his predecessors. The rookie scale for 2016-17 calls for the No. 1 overall pick to earn $4.919 million in his first season (plus or minus 20 percent — and guys drafted No. 1 overall always get the extra 20 percent. So that player will have a salary of $5.9 million, leaving his team with $84 million to spend on the rest of the roster.) How this all plays out in free agency two summers from now will make folks’ heads spin, but how it impacts this summer’s free agent class will be interesting, too.
Take a player like restricted free agent Tobias Harris of the Orlando Magic. You can bet your bottom dollar that the New York Knicks will make him a max contract offer on July 1, 2015, worth roughly 25 percent of the cap. Over four years, he could be looking at a $66 million deal. But if Harris instead chooses to take the Magic’s qualifying offer of $3.58 million, he will set himself up to be an unrestricted free agent in the summer of ’16 after the cap takes its giant leap. If he were to receive a four-year max offer from the Knicks in 2016, it would be worth roughly $22 million to start and $96 million over four years. Over the lifespan of Harris’ career, the salary differential would rise to the neighborhood of &70 million. Would that be worth the risk of accepting the qualifying offer?
(RELATED: SHERIDAN’S TOP 25 FREE AGENTS of 2015)
It’s a whole new world financially, as I explain further in this video with CineSport’s Noah Coslov.
Danny Schayes is a Director of Business Optimization at Intensity and a leader in the business of professional sports. Schayes frequently advises sports organizations in complex business matters that include contract negotiations, pricing strategy, marketing optimization, and executive leadership. Follow him on Twitter.
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