If you miss the days of irrational exuberance, that halcyon era of the late ’90s when otherwise sensible people spent thousands of dollars on stock in companies they knew nothing about except that their names contained the suffix “.com,” then follow the NBA for the next couple of weeks. The spending of some teams is so loose and unjustified that it may take you back to that time.
The first two weeks of July are an annual hoops ritual of utter insanity. Teams go on spending sprees that resemble teenagers in a mall with a credit card of unlimited balance. So far, Baron Davis has agreed to leave the Golden State Warriors and join the Los Angeles Clippers for five years and $65 million. The Warriors then turned their pursuit to Gilbert Arenas, who opted to stay with the Washington Wizards for six years and $127 million. Meanwhile, Sacramento guard Beno Udrih re-signed with the Kings for $33 million for six years.
In the interest of accuracy, I must say that these are all rumored reports, since the NBA salary cap won’t be announced until July 9. Until then, no paperwork can be signed but these verbal agreements have all been officially announced and acknowledged. By the time the cap is set, expect insane amounts of money to go to swingman Corey Maggette, power forward Elton Brand and forward Josh Smith.
Let me stop here and point out that I’m not one of those people who decries the amount of money in sports. I don’t have a problem with the fact that sports in general is a multi-billion dollar business and that basketball in particular is a big piece of that pie. I’m also deeply in favor of the players getting a big share of that money.
I watch well more than 100 NBA games each season, and never once am I attracted by the owners or even the coaches. But that said, in the NBA, there is a salary cap and 50 weeks a year it’s heeded carefully. These are the other two weeks.
The NBA salary cap is one of the most capricious in all of sports because it’s flexible, or in the parlance of sports economics, it’s a soft cap. The NFL has a hard cap; every team has to stay under it. They can sign a player that puts their payroll over the cap, but they have something on the order of 24 hours to cut someone to bring their payroll back in line. NBA teams can exceed the cap, as long as it’s done to re-sign their own player.
The league doesn’t expect fiscal prudence from their teams, so they apply another restraint, a luxury tax for all payrolls over a certain amount. Current estimates for the NBA fiscal year beginning July 9 is that the salary cap will be $58.5 million, and the luxury tax threshold, above which teams pay a dollar for dollar penalty, will be $71 million.
Now do you see why I find big money deals so ludicrous? The NBA isn’t a three-on-three league. You need to have 12 players available each night, and most of them are going to make more than $4 million per season. With each eight-figure annual contract a team takes on, the more it will have to face the rock-and-a-hard-place choice of either filling out its roster with players from the deep margins of the sport or pay the luxury tax.
Davis’ contract isn’t without merit, though; it is guaranteeing $13 million per season to a player with a history of back trouble.