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The NBA has a Spending Problem

An NBA player you've never heard of is about to make a boatload of money. Maybe it's Ian Clarke of the Warriors who has a career average of only 10 minutes per game, or Otto Porter who finally had a half decent season for my Wizards, or Jonathon Simmons who the Spurs won't be apt to pay a large sum of money just based on potential. If you're just a casual fan then you have no idea who any of those players are. The NBA has a money problem, but not in the traditional sense of the meaning. They have too much money than they know what to do with.

Over the past 3 years, 13 of the 21 largest contracts in NBA history have been signed to the tune of some absurd numbers. You probably don’t know the player with the largest contract in NBA history. LeBron James? Nope. Kobe Bryant? Guess again. It was Mike Conley of the Memphis Grizzlies (you probably didn't know Memphis had a team either). He signed a five-year $153 million contract through the 2020 season that will most likely be eclipsed this offseason.

What's even more ridiculous to me is the types of players that sign for slightly less, but still huge, sums of money. Take a look at last offseason role players (players who are typically average but have one elite skill) that signed contracts that were traditionally only given to elite players:

Timofey Mozgov= 4 years $64 million

Bismack Biyambo= 4 years $72 million

Chandler Parsons= 4 years $94 million

Luol Deng= 4 years $72 million

Alan Crabbe= 4 years $74 million

Evan Turner= 4 years $70 million

No offense to any of those players, but no one has ever gone to an NBA game to specifically see them play. And if the NBA is a business that needs to earn a profit, then why are teams forking over these huge sums of money when there is a solid chance they don't work out (none of those players was considered a potential all-star upon signing).

So why is this happening? The new collective bargaining agreement sought a rise in the salary cap a team is allowed to spend on a player. Starting in that 2016 offseason, the salary cap (the maximum amount of money that teams are allowed to spend on their 14-man roster) increased by a record amount, from $70 million to $94 million, a 34% increase.

If you couple that increase with the fact that teams are required to spend 90% on their player's salaries or penalty is incurred, then you have some teams that are willing to blow these huge contracts on generally weaker players. The penalty incurred would only be the difference from the 90%, which last year would have been almost $85 million, and the money not spent, which would then be divided amongst the players on that roster. So, with that, teams are further incentivized to spend it on players because it would go to the players regardless.

Of course, salary cap increases don't just pop up out of thin air. The NBA signed a 9 year $24 billion TV deal in 2014, which meant the 50% of league revenue the players were entitled to in that deal was in for some massive increases. The 50% from that deal is dealt to the teams who in turn have to spend it on player salaries.

That Collective Bargaining Agreement, originally designed in 2011, saw a 7% decrease in revenue for the players who were just desperate to end the lockout that greatly shortened their season. This CBA was renegotiated last December, and to no surprise, the players are about to get an even bigger cut.

In an effort to keep players away from free agency, they came to an agreement that players over the age of 36 can now be paid a "max contract" (the maximum amount of salary a player can earn per season). What does this mean? That veterans like Chris Paul who are 32 and meet the criteria of being on an All-NBA team will now be able to sign deals in excess of $210 million over 5 years this offseason as long as he re-signs with his team. Oh, and Chris Paul is the head of the players association and thus was at the forefront of the negotiations with the league. Corleone-esque.

It would only seem right that a league with revenue totaling over $8 billion to pay its employees handsomely, but could the league be getting out of control with these paychecks? For example, it's generally explained that a role player gets 8% of the salary cap, a starter 12%, an above average player 19% and a star player 25%. But if the waters keep getting muddied with role and starter level players frequently getting deals in the star level range then what will the stars eventually want?

Now it may sound like I'm player hating. I'm not! I think it's really freaking cool that someone who plays a sport in our society can make so much money that their grandkids are set for life. That's awesome.

I speak on this strictly as someone who is fascinated to see where this whole thing goes. It's rumored that baseball's brightest star, Bryce Harper, may get a $400 million when his deal is up in two years, so why not an NBA player? With the increasing popularity of the game and the money involved in TV deals, it could appear that the sky could be the limit for player salaries as well.


Sources:

Alsher, Jason, More Articles, and 2017 May 11. 2017. “The 22 Biggest Contracts in NBA History.” May 11. http://www.cheatsheet.com/sports/the-biggest-contracts-in-nba-history.html/?a=viewall.

Cato, Tim. 2016a. “Why a Bunch of NBA Role Players Will Get PAID.” June 30. http://www.sbnation.com/nba/2016/6/30/12056030/nba-salary-cap-2016-details-free-agents-ridiculous.

Cato, Tim. Gomez, Jesus. 2016. “What You Need to Know about the New NBA CBA.” December 14. http://www.sbnation.com/nba/2016/12/14/13198978/nba-cba-new-details-changes-differences-lockout.

Lombardo, John. “NBA Begins New Season Flush with Cash as Revenue Expected to Hit $8B.” 2017. Accessed June 13. http://www.sportsbusinessdaily.com/Journal/Issues/2016/10/24/In-Depth/Lead.aspx.

Moore, Matt. “2017 NBA Free-Agency Class: Blake Griffin, Gordon Hayward among Top 30 Free Agents.” 2017. Accessed June 13. http://www.cbssports.com/nba/news/2017-nba-free-agency-class-blake-griffin-gordon-hayward-among-top-30-free-agents/.

Moore, Matt. “LeBron James, Chris Paul, Kevin Durant Can Earn $210 Million Deals under New CBA.” 2017. Accessed June 13. http://www.cbssports.com/nba/news/lebron-james-chris-paul-kevin-durant-can-earn-210-million-deals-under-new-cba/

Designed Obsolescence and How it is Affecting our Economy

Adios, Maduro.