Column: The NBA is playing with funny money
When Kevin Durant waved goodbye to the Oklahoma City Thunder last month and signed a two-year $54.3 million contract with the Golden State Warriors, most NBA observers predicted multiple championships in the Warriors’ future.
That may prove to be true. After all, last year the Warriors finished the regular season with the best record in NBA history and fell one game short of winning the championship. They lost to LeBron James and the Cleveland Cavaliers who stormed back from a three-games-to-one deficit and unceremoniously knocked the Warriors from their anointed throne. That collapse proved, once again, that games are won on the field of play, not in the blogosphere. So it would be wise to hold the champagne and parades for the time being.
But here’s one prediction that no one disagrees with: The NBA salary structure will never be the same. The tsunami that allowed the Warriors to fit Durant under the league’s salary cap was conceived two years ago when the NBA extended television contracts with ESPN and Turner Sports. The $24 billion deal that kicks in this year triples the league’s rights fees. As a result, the salary cap jumps from $70 million last year to $94.1 million this year and is projected to rise to $107 million next year.
The embarrassment of riches has had a profound effect on the salary scale and this year’s free agents have been the beneficiaries. The league’s Collective Bargaining Agreement (CBA) essentially splits “basketball related income” (BRI) between the owners and players. Under the old CBA the players received 57% of BRI, a technical term that includes, among other forms of revenue, media rights. However, dissatisfied owners engineered a lockout in 2011 and when a new agreement was reached, owners thought they had “reclaimed” $3 billion over a period of ten years. But apparently neither side foresaw the huge upside in the market value of media rights that would occur a mere three years later.
While the talented Durant is arguably worth the $27 million per year he will receive, assuming anyone is worth that amount of money to play a game, a number of teams showed little restraint in unloading their new found wealth. Some signings look like owners were playing Monopoly, but instead of purchasing Boardwalk and Park Place, the two most expensive properties on the board, they settled for Mediterranean and Baltic, the two least expensive. In the first four days of free agency, NBA teams committed a total of $3 billion to new contracts. Players who averaged a mere 4-5 points per game and spent more time on the bench than in the lineup last season were rewarded with 4-year contracts at $15-18 million per year. Why? The CBA requires teams to spend 90% of the salary cap which means they have to lavish that money on somebody.
Owners wanted to slow down the increase in the salary cap but the Players’ Association, under the leadership of new executive director Michele Roberts, has resisted. In the short term, that stance benefits the rank and file, at least those who were lucky enough to be free agents this summer. Whether the explosive salary levels are sustainable remains to be seen. Although the owners and players signed a 10-year CBA to settle the 2011 lockout, either party can opt out of the deal by giving notice to the other by December 31 of this year.
Both Roberts and her counterpart, NBA Commissioner Adam Silver, claim that talks are ongoing and the parties are hopeful that a work stoppage can be avoided. Common sense suggests that the sides can reach détente. The biggest issue in labor-management negotiations is usually money and there is no lack of that in today’s NBA. But that’s the problem. Although the owners are flush with cash, and have seen franchise values jump to an average of more than $1 billion, rather than celebrate their new-found wealth they prefer to focus on the fact that the players are benefitting from their windfall.
So the lament about Durant fleeing Oklahoma for Golden State is a tempest in a teapot. The real tempest is the tidal wave of cash that is flooding the NBA and what it portends for the future of the league.
The author is a former attorney, CPA, Minor League Baseball team owner and current investor in MiLB teams. He is a Professor in and Chair of the Sport Management Department at SUNY Cortland and maintains the blog: http://sportsbeyondthelines.com The opinions contained in this column are the author’s. Jordan can be reached at email@example.com.