Tuesday, July 22, 2014

"Capitalism" and The NBA

A major theme that has dominated sports media this summer has been a divisive debate about whether NBA players should take "pay cuts" for the greater good of their team. Proponents against this system argue that the owners have artificially limited players earnings through a salary cap that is seemingly based on arbitrary numbers. That isn't accurate at all, as the salary cap is based on splitting the amount of Basketball Related Income (BRI) 49-51, which is down from the previous Collective Bargaining Agreement (CBA) which insured a 57-43 split for the players. In short, that means that of however much money was generated the previous year in basketball related income, 49% of that number is guaranteed to the players for the next season. That is the soft cap number, and does not include the effect of teams over the cap and teams paying the luxury tax. While previous year numbers are generally expected to be lower, those are the most recent available numbers, and it would be dangerous for either side to make a salary cap off of projections. When you include over the cap and luxury tax teams, the BRI is pushed over the 50-50 threshold in favor of the players. Of course the owners seemingly benefit more because there are 30 of them vs about 450 players but you won't find a more generous split in any other industry period.

Now back to the debate on whether players should take "pay cuts" for the greater good of their team, and to me in depends on context, every situation isn't black or white. Dirk Nowitzki is able to take a pay cut because he has made over $200 Million for his career in a state with no state taxes. Other players, especially guys getting their first and only guaranteed big contract, should place more importance on the amount of money. A term in the NBA that is taken out of context is "pay cut". You've probably noticed by now that every time I've mentioned it, I've made sure to put the term in quotations. That is because there is a distinct difference between taking a real pay cut and taking a very substantial market level deal, which may not be to the highest bidder. It only takes one team to overbid and I don't blame the player for taking that offer ever, but you can't really say that that's the player's true value either.

What if I told you that the San Antonio Spurs have never emphasized "pay cuts". Instead, they do a great job of offering their players extensions early and offering them fair contracts for what they've done and what they might do. These contracts rarely ever take into account the player making a ridiculous jumps in play and production and if that happens (which is rare as well) they end up looking like bargain deals. A perfect example of this is Tony Parker's 4-year $50 million extension he signed in 2010-11. He was 28 years old and coming off a down year due to injury, and had been an all-star 3 times in 10 years. He probably would've ranked somewhere between 25-30 on top NBA Player's lists, with Rose, Nash, CP3, and Deron clearly considered better than him, and younger players such as Rondo, Westbrook and others challenging his superiority.  He had almost been traded, and was in a situation very similar to Kyle Lowry, who just signed a 4-year $48 million deal. Well no one would have guessed at the time that he would not only regain all-star status, but jump past superstar into legitimate MVP candidate (finished 5th and 6th in 2012 & 2013) and become arguably the best PG in what was the other players, excluding Steve Nash, prime. Well revisionist like to point out Parker taking a "pay cut" which simply wasn't the case. Has he outperformed his deal? Yes, he has but that wasn't a sure thing when it was signed. Look no further than the terms of the contract as proof. This year, which is the final year was only partially guaranteed for $3.5 million. No player with leverage accepts a "pay cut" and a partial guarantee in the final year.

The Spurs have done a good job of avoiding free agency in general, which is smart as it is a seller's market. Shorter contracts, and increasing caps have only added to that. Smart general managers in any sport, mostly avoid free agency because you are overpaying players for their actual value (for the most part). There's no surprise that the Spurs feature a deep team and none of their players were considered prized off-season free agent additions (Marco Belinelli, who finished 2nd on the team in regular season minutes, only received a portion of the Mid-level Exception).

Admittedly the Spurs example is a hard example to follow, and it should come as no surprise that majority of their players grew up outside the continental United States. This isn't a Black VS. White thing, but a culture aspect. America's culture of "Capitalism" tells its citizens that the best deal is the highest one and to maximize your revenue as much as possible, even if that is going from $3.5 Billion to $3.7 Billion. The flaw in that is that there is a finite amount of wealth being distributed, while capitalism assumes there is an infinite amount of wealth. Obviously money is important to every culture, but in other cultures receiving a fair deal is considered a good deal. The only good deal in America is the one-sided deal in your favor. You have to look no further than America's domestic and international policies.

Enough about politics, but it does affect the NBA. Owners and players alike are playing a tug of war for who can rip off the others more and obtain the most power. American players almost always avoid a fair extension and instead are determined to make it to free agency where they hold the leverage and command more money than their play is valued at. Look at Gordon Hayward, who declined a 4-year $48-$50 million extension and parlayed restricted free agency into a max contract offer at 4-years $63 million. At his current level and assuming reasonable increases, that original contract is more than fair and in no way could constitute a "pay cut". It's just that players know they can enter free agency and all it takes is one team with money and no hope of obtaining a true star (a topic for another day) to offer them a max contract. Once again, I don't think you can blame the players, but I also don't think it is absurd for management to try to offer them extensions before free agency closer to their  true values. This leads to two different and important cases this off-season, Carmelo Anthony and LeBron James.

I had more to write about Carmelo and LeBron than I originally thought. So I decided to break this post into 2-parts.