New cap, tax and lockout projections

The NBA issued new projections for the 2014-15 and 2015-16 salary cap and luxury tax thresholds. The 2014-15 salary cap is now projected to be $63.2 million and the tax level is projected to be $77.0 million. The numbers for 2015-16 are now projected to be $66.5 million and $81.0 million, respectively.

Note that these are only updated projections. The official numbers won’t come out until July, when the league conducts its audit. The cap and tax thresholds are based on revenues for the current season. When they count all the beans in July (that’s what the July Moratorium is for) they also project the revenues for the upcoming year. They then take 44.74% of that projected amount, subtract projected benefits (a little over $200 million) and divide by 30 (the number of teams in the league) to get the cap. The luxury tax uses a similar formula, but is based on 53.51% of projected revenues.

Both the cap and tax values can be adjusted from the above amounts. See Question 13 of my FAQ for full details on how the salary cap is set, and Question 21 for the luxury tax.

The salary cap and luxury tax values for the current season are $58.679 million and $71.748 million, respectively, which means the new cap projection for next season represents a 7.7% increase over this season. This is a pretty big jump — the league’s baseline assumption for year-to-year increases is 4.5%. It would indicate a projected BRI (Basketball Related Income, i.e., revenues) of about $4.75 billion for next season.

Remember that the players are guaranteed a percentage of the money that comes in. The guarantee is 50% of forecasted revenues (the forecasts were made in 2011), plus or minus 60.5% of the amount by which the actual revenues exceed (or fall short of) their original forecast, with hard limits of 49% and 51% of the actual revenues.

The original revenue forecast for 2014-15 was $4.66 billion, so with an actual revenue of $4.75 billion, the players would get 60.5% of the difference, or $54.45 million, on top of their 50% guarantee ($2,33 billion), for a total of about $2.384 billion. The hard limits (49% and 51% of actual revenues) would be $2.327 billion and $2.422 billion, so we’re fine — the players collectively would be guaranteed about $2.384 billion, which is about $79.4 million per team in salaries and benefits, or about $72 million per team in salaries alone.

Also noteworthy is that the projections themselves have increased over the course of this season. Last July the cap projection for 2014-15 was $62.5 million, which itself would have represented a 6.5% increase over this season. At the All-Star break the league revised its projection to $62.9 million, which would have represented a 7.19% increase over this season. And now they’re projecting a 7.7% increase, which indicates that not only is the league making a lot of money, it’s coming in even faster than they anticipated.

What’s the source of all this new money? I don’t have a firm answer on that one yet, but new local TV deals have kicked-in in several markets, and the Nets’ move to Brooklyn and the Barclays Center also have a lot to do with it.

What does all this have to do with another lockout? The current CBA extends through the 2020-21 season, but both sides have an opt-out in 2016-17 — which means either side can unilaterally decide at that time to end the agreement and re-open negotiations for a new one. The timing of the opt-out is not an accident — it’s set for right after the new national TV deals will be negotiated.

Let’s go back to the previous negotiation — the league opted-out of the last agreement because they felt the system was unsustainable. They said that most teams were losing money, and they couldn’t let things continue as they were. They sought a big give-back from the players, a more restrictive system, harsher penalties for high-spending teams (further keeping salaries down), and much greater revenue sharing. This led to a lockout and canceled games. In the end, the owners received most of the concessions they sought, because, frankly, the owners always win in situations like these. The owners were willing (or at least bluffing that they were willing) to cancel the season entirely rather than play another year under the existing system, and the players couldn’t afford for that to happen.

So what’s going to happen in 2017? The circumstances are entirely different now. Most or all teams are now profitable, thanks to the changes they negotiated in the new agreement, Franchise values have skyrocketed (the Milwaukee Bucks, the least valuable team in the league, is about to sell for around $550 million, which Mark Cuban calls “a bargain”). And on top of that, the league is about to receive a windfall of new cash in the next TV deal.

So it’s no longer a matter of ceasing operations because they can’t afford to play another season under the existing system — now it’s a matter of figuring out how to split the pie equitably so they can all keep the money rolling in.

My prediction is that the players will opt-out of the agreement in 2017 because they will feel they gave back in 2011, the system is now fixed, there’s a lot of new money rolling in, the teams are now making money hand over fist, and they will want to regain some of their previous concessions as well as receive their fair share of the new money. Further, the league will be more obliged to give it to them.

So I expect the players to opt-out in 2017, and for the league to impose a lockout on July 1, 2017 (because they can’t do business without an agreement in place), However, negotiations will be quick and smooth (similar to 2005), and there will be a new CBA in place in time for the 2017-18 season to begin on time.

 

A quick update on Kobe’s extension and the Lakers’ cap space

Today the Lakers announced that they have extended Kobe Bryant for two seasons. Terms were not announced, but Ramona Shelburne reported that he will make $23.5 million and $25 million, respectively.

[UPDATE: I have since confirmed that the salary figures are exactly $23.5 million and $25 million. He continues to have an accelerated pay schedule, no incentives, and his contract is fully guaranteed for lack of skill, injury or illness, death, or mental disability.]

Two years is the longest extension he could have signed due to the Over-36 rule. This rule takes effect when a contract is for more than three seasons and ends after the player’s 36th birthday, effectively mooting the salary in the later seasons. For extensions they always count the remaining seasons on the current contract — so Kobe now effectively has a three-year contract, which is the maximum allowed before running into the Over-36 rule. See Question number 56 of my FAQ for more information on this rule.

So where does this leave the team with respect to the 2014 free agent market? The players on the team’s books next summer are as follows:

Player Salary Note
Kobe Bryant $23,500,000
Elias Harris $816,482 Non-guaranteed
Steve Nash $9,701,000
Robert Sacre $915,243
Nick Young $1,227,985 Player option

The salary cap next summer is projected to be $62.9 million. The Lakers will also have their own first round draft pick. Based on their current record, this pick would fall around #15, and would therefore count around $1.5 million against their cap.This would give them a total of about $37.66 million for six players. We need to add another six cap holds totaling $3,04 million, which brings the total to about $40,70 million.

With this team salary, the Lakers would have about $22.2 million in cap room next summer. This will be enough for one maximum-salary player — for example, Carmelo Anthony is eligible to receive up to $22,458,401. While this is slightly above the Lakers’ maximum, there are other things the team can do to create more cap room if Anthony doesn’t want to take slightly less than the amount for which he ls eligible.

The team can save a small amount if it waives Elias Harris’ non-guaranteed salary. A larger savings will come if they waive Steve Nash and utilize the Stretch provision on him. If this happens, only $3.23 million of Nash’s full $9.7 million salary will remain on their books.

If they remove both Harris and Nash, their team salary will drop to about $34.44 million, which would give them about $28.46 million in cap room. This would give them the opportunity to sign one maximum-salary player, and a second player at around the mid-level amount. They would also be eligible to utilize the Room Mid-Level exception for around $2.7 million.

However, this assumes they let all of their free agents walk, including Pau Gasol, Steve Blake, Jordan Farmar, Xavier Henry, Jordan Hill, Chris Kaman, and Jodie Meeks. If the wish to retain any of these players, they will remain on the team’s cap — in fact, Gasol’s cap hold alone will eat up most of the team’s cap room. To free up the potential cap room, these players will have to either:

a) Re-sign with the Lakers, in which case their new salary will count against the team’s cap, which will reduce their cap room for signing free agents.

b) Sign elsewhere, in which case they will be lost.

c) Be renounced by the Lakers, in which case the team loses the ability to sign them using Bird rights.

Let’s say the Lakers really wanted to keep Gasol.While he’s an unrenounced free agent he would count about $20.25 million against the team’s cap, reducing their cap room to about $8.75 million. If he re-signs and takes a one-third discount (similar to what Kobe took) he’d receive about $13 million, which would drop the team’s cap room to about $16 million. If they renounce him they can reclaim the entire $28+ million, but then he’d have to be willing to sign for whatever cap space remains after the team signs other free agents.

So if the Lakers are going to follow-through with their 2014 plan, keeping Gasol would likely require him to take a steep discount.

 

Interactive NBArank vs. Salary

The following is the NBArank score vs. player salary visualization I used when writing this article for ESPN Insider. This is an interactive version of the visualization. Each circle in the graph represents one player — you can hover over one to see the player’s name, salary, NBArank score, and contract type. You can change the filter criteria with the controls on the bottom — for example, in the Team control you can un-check “(All)” and check individual (or multiple) teams to see only those teams. You can filter on any combination of team, contract type, and age. Enjoy!

Predicting the Finals

What percentage chance do you give Miami to win the Finals? 60 percent? 70? 80?

What about each individual game? Do you give Miami an 80 percent shot to win every game of the series? Do you give the home team a 75 percent chance to win each game?

If we have odds for the individual games, we can calculate odds for the entire series. Here are some sample results:

Odds for each game: Miami wins series San Antonio wins series
Each game 50-50 50% 50%
Miami 60% to win every game 71.02% 28.98%
Home team 60% to win every game 53.2% 46.8%
Miami 70% at home, 60% on the road 81.31% 18.69%

The series odds may not be quite what you’d expect based on the individual game odds. But that’s the point of doing the math. If we’re right that Miami has a 60 percent chance to win each game, then their chances of winning the series are a little over 70 percent, not 60 percent. Likewise, if you think Miami has a 60 percent chance to win each game, then it doesn’t make sense to say they have an 80 percent chance to win the series.

So how do you do the math? I’ve saved you the work and created a quick & dirty Excel spreadsheet you can download and play with:

LINK

Here’s a screenshot:

FinalsPredictorScreenshot2

 

 

 

 

 

 

Using the spreadsheet is pretty simple. Input values are in yellow — just enter the percentage chance you give Miami to win each game. The final results show up in red. For example, here it is with the home team given a 70 percent chance to win each game:

FinalsPredictorScreenshot1

 

 

 

 

 

 

 

If you want to see how the math is done, it’s all in hidden rows 17-34, which you’ll need to un-hide to see. There are more elegant ways to do the math, but as the title of the spreadsheet suggests, I used a quick & dirty method to put it together. Enjoy!

UPDATE: Since San Antonio won Game 1, I’ve updated the spreadsheet to reflect that in the input values. You can continue to use the tool to show the probabilities for the remainder of the series. I’ll try to keep the spreadsheet updated for the remainder of the Finals.

 

Responding to my critics

moransIf you haven’t read my earlier piece looking at the idea of the Lakers signing Chris Paul while re-signing Dwight Howard, go read it now, otherwise this post won’t make much sense. Be sure to look at the comments.

Now here’s the background for that piece. If you haven’t seen it already, Bill Simmons[1] recently wrote his annual “trade value” piece for Grantland, which is a wonderful look at player values, ranking them according to whether a team would be willing to trade Player X for another team’s Player Y. If the answer is “no,” then Player X should be ranked higher than Player Y. These articles tend to be massive — this year it was spread across three posts and I think added up to more words than the US tax code. Continue reading

Chris Paul on the Lakers?

Credit: LakersNation.com

Credit: LakersNation.com

Somewhere a rumor started about the Lakers potentially clearing enough cap space to sign Chris Paul. Let’s take a look at the plausibility of this idea.

First off, let’s get the obvious red flag out of the way — it would require the Lakers to use their amnesty on Kobe Bryant. While I’m one of the people who thinks the Lakers have to at least give it some serious thought if Kobe’s going to miss the entire season (or come back late in the season and be a shell of his old self, which is more likely), this doesn’t necessarily reflect the team’s thinking on the issue.

I know many Lakers fans would say, “The Lakers would never amnesty Kobe,” talking about loyalty, one of the greatest players ever, P.R. hit, etc. If this was an ordinary year, I might be more inclined to agree with you. However, this year the Lakers are under new management. We have some track record for what the Lakers might or might not do under Jerry Buss. We have a sample size of zero to guide us with Jim Buss in charge.

So just for the sake of argument, let’s assume the Lakers WOULD be willing to amnesty Kobe in order to make this all work. Otherwise, we can just stop here. Continue reading

Is Pau Gasol washed up?

As I look at the Lakers’ upcoming salary commitments, it seems pretty obvious that somebody has to go for financial reasons. Assuming the team is able to re-sign Dwight Howard, their 2013-14 payroll will once again push $100 million. But this time being that far over the luxury tax line will carry a much steeper penalty. Being $30 million over the tax line in 2012-13 will cost a paltry $30 million in luxury tax. In 2013-14 that bill will rise to $85 million.

But the Lakers still haven’t used their amnesty waiver — a one-time opportunity to waive a player with his salary exempted from the salary cap and luxury tax (although they still have to pay his salary). Only players who were on the team continuously since the CBA was signed in December 2011, and who are still playing on the same contract, are eligible to be amnestied. For the Lakers, only Kobe Bryant, Pau Gasol, Metta World Peace and Steve Blake meet these criteria.

You can forget about Bryant, for obvious reasons. Unless he loses a leg in an industrial accident between now & July, he’s safe from the amnesty axe. Continue reading

What will happen to the Lakers’ draft pick this summer?

There are still lots of questions floating around about the Lakers’ upcoming first round draft pick, so let’s review.

This story starts with Cleveland. They were involved in a number of trades which included 2013 first round picks. As a result, they have (or potentially have) the following picks — not including the Lakers trade: Continue reading

What about Houston and Dallas?

This week I wrote a piece for ESPN Insider (you need an Insider account to view it) looking at the cap situations for the entire league heading into this summer’s free agency. Teams naturally fell into categories:

  • The big spenders: Teams way over the luxury tax line.
  • The low-tax teams: Teams between the luxury tax threshold and the apron.
  • The teams just below the tax line: Teams that are capped-out, and which will likely want to stay out of the luxury tax.
  • The teams with big cap room: Teams able to offer at least $20.5 million to a free agent (i.e., enough for Dwight Howard).
  • The field: The remaining 15 teams that aren’t in one of the above categories.

Due to space constraints (yes, space constraints exist, even on a web site where a page is theoretically infinite in length) I had to gloss over the field, and only mentioned this category in passing.

Of course, this gave rise to many “what about _____?” questions, naming one of the 15 teams I had glossed over. The most frequently mentioned teams were the Rockets and Mavericks. These two teams will have a lot of cap room, to be sure — but not enough to make my “big cap room” category.

Let’s take a look at these two teams now, and assess their ability to sign Dwight Howard this summer. Continue reading