 |
| RealGM Hoop Net |
|
| Search |
|
|
|
|
| Trade Checker ID |
| Draft Sim ID |
| Newsletter |
|
|
|
|
Authored by Matthew Gordon - 16th July, 2007 - 1:21 pm
|
|
|
| Current Featured Columns |
|
Merry Christmas, Raptors Fans
The Raptors might not be playing good basketball right now, but there are plenty of things for Toronto fans to be thankful for this holiday season.
A Melo Behind The Superstars
Carmelo Anthony has never been one of the league's most efficient offensive players.
A Melo Behind The Superstars
Carmelo Anthony has never been one of the league's most efficient offensive players.
|
Free agency season means that all sorts of contracts are being handed out to players of all shapes, sizes and skill sets. They range from bloated deals that look like something Ray Romano would get (Rashard Lewis, I’m looking at you – time to make with the jokes) to something more along the lines of, say, normal-looking NBA salaries (Maceo Baston says hello). No matter which free agent class you find, although some guys will be overpaid, there’s a sort of market value that gets dictated from the first few signings and then adapts itself to the rest of them.
There’s another angle to NBA contracts though and it has very little to do with dollar amounts. Whether a player deserves $5 million, $10 million, $15 million or $20,000 and a stack of McDonald’s coupons is only one way that a player’s value can be assessed; while it seems logical to dole out cash based on a player’s projected worth, there are often other considerations that go into a contract as well. Giving a player an increasing contract when he’s young and a decreasing contract when he’s old seem like sensible maneuvers but in many cases, they’re no better than going all-in every time you get pocket aces and checking on all your seven-two off-suits. It is, as one ageless poker manual terms it, “a kindergarten tactic”.
The format of the contract is directly dependent upon the situation of the team.
Under the NBA’s collective bargaining agreement, there are four types of contracts a player can be given: one increases year by year, often by the maximum allowable increase amount; one decreases instead, often by that same amount; one stays the same every year; and one takes a temporary rise or dip only to subsequently move in the other direction. Each of these deals can be awarded to pretty much any type of player, young or old, based on the salary framework of the signing team.
The total contract given in each situation will be equal to $30 million over five years, with similar dollar amounts being used in all situations to make the math easier. The sample contract is admittedly one that would have been far more common under the old (1999-2005) collective bargaining agreement but for demonstration purposes, it suffices.
A Logical Use of Increases
Most NBA contracts start smaller and then get bigger. Examples include rookie scale contracts as well as contracts recently handed to players like Jason Kapono. They typically work well considering a salary increase can usually be afforded with an appropriate season-by-season cap increase, and players also have to adapt to things like cost of living increases and inflation. Let’s take a look at what a player given a contract with the maximum increases could make given the above parameters:
Year 1: $5,000,000
Year 2: $5,500,000
Year 3: $6,000,000
Year 4: $6,500,000
Year 5: $7,000,000
When to use them: If you’re under the cap but don’t expect to be in future years, a contract like this can be used to squeeze more players into a single cap figure. Only a player’s base year counts against your cap space in this case so instead of giving the player $6 million every year, why not effectively create an extra $1 million in cap space? Also, if the signed player is no longer of use near the end of his contract, the expiring contract available for trade can be significant. In this case, the player is only taking up $5 million of cap space yet will someday be a $7 million expiring deal that can be parlayed into another asset four years down the road.
Another situation where this contract is of especial use is when the signing team is close to the luxury tax but has significant short-term (preferably expiring) contracts already on the payroll. Giving the new player less at first eases the immediate tax burden and by the time the new player is making the full per-year value of his contract, the crisis of dollar-for-dollar financial torture can (hopefully) be averted.
A Logical Use of Decreases
While increasing contracts are very tempting, something that is reflected in that they’re by far the most common in the NBA, decreasing contracts have their merit as well. Ben Wallace is the most recent example of a player who was given a big contract that’s going down over time instead of up. Let’s see how a decreasing contract given the parameters looks:
Year 1: $7,000,000
Year 2: $6,500,000
Year 3: $6,000,000
Year 4: $5,500,000
Year 5: $5,000,000
A quick glance reveals that while this contract is merely the increasing contract but inverted, it is quite different. In a situation involving squeezing players into cap space or managing immediate tax concerns, this switch in salary is foolhardy; however, it can prove quite useful.
When to use them: This type of contract is good to have when the signing team is close to the tax threshold and is potentially looking at exceeding it within the next few years. When you have a team laden with rookie contracts that are about to expire, it makes little sense to add a veteran player whose salary will increase just as a rising star is raking in a huge extension. Decreasing contracts allow for the lessening of later financial burdens while still awarding the player the same amount of total money.
Another incentive to this type of contract is that up-front money is a great tool for luring free agents, especially ones whose agents’ futures are uncertain. Players and agents both like to see as much up-front money as they can get (a phenomenon exacerbated to its conclusive extent in the way of NFL signing bonuses) and seeing all that money on the table in the first year can sell a player much faster than the promise of millions down the road.
When Keeping Everything the Same Works to Your Benefit
Unlike increasing or decreasing contracts (or the yet-to-be-mentioned reversing contracts), contracts where every year holds the same financial commitment are easy to compute. Grab a calculator and the contract can be written up in five seconds or less. After seeing the benefits of making the numbers move, though, why would a team not want to take advantage of that portion of the CBA? The Hornets didn’t in 2003 when they gave PJ Brown his recently-expired four-year pact.
Under the given parameters, the signed player would make $6,000,000 in every year of his contract.
When to use them: This type of contract is surprisingly uncommon and much of this can be attributed to the fact that general managers usually like to think years ahead instead of merely deeming that a player is worth a given amount per year and then paying that. Where this type of contract is useful, though, is when a veteran team (as opposed to one with a host of young players ready to explode) is facing potential tax consequences based on having awarded so many increasing contracts in the past. Having a contract that doesn’t increase allows for the signing team to save significant money two to three years away without having to pony up a high amount in the first year.
Contracts that neither increase nor decrease can also be useful when a team wants to pencil in stable dollar amounts for future payroll calculations. As before, having a gaggle of increasing deals can put a team over the cap or even the tax regardless of any other signings or draft picks it has. Conversely, having at least one or two key players making the same every year means that if you aren’t in the tax in year one, you probably aren’t in year four as well unless you make another salary-adding move.
Utilizing the Dip to Gain Additional Flexibility
Every so often, a player receives a contract that is in none of the above three moulds. These contracts either rise or fall in their second year and then go the other way, such as the ones Andre Miller and Lamar Odom received in the summer of 2003. Second-year raises are rarely if ever given but second-year dips are sometimes offered when a team is looking to fulfill a specific salary need. Let’s look at how a contract with a second-year dip looks on paper:
Year 1: $5,800,000
Year 2: $5,400,000
Year 3: $5,800,000
Year 4: $6,200,000
Year 5: $6,600,000
When to use them: These contracts are tough to find but when they’re issued, they’re effective. If the signing team has cap room that it expects to keep the next season, it makes sense to give the new player a little extra boost at the start and then basically begin his new deal as though he signed with the team the following year. Breaking the contract up into two components (the first year and then the rest), it becomes apparent that the team can give the player as much as it can afford (first year) and then hand out a more reasonable increasing salary contract starting the next year. As with the decreasing salary contract, the player gets more money up front, so both sides win.
Comments, questions or suggestions? Interested in seeing how these principles apply to your team? E-mail me at gord9690@wlu.ca |
