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CBA Roundtable: Individual Maximum Salaries

Jun 15, 2014; San Antonio, TX, USA; Miami Heat forward LeBron James (6) and guard Dwyane Wade (3) speak during a press conference after game five of the 2014 NBA Finals at AT&T Center. Mandatory Credit: Bob Donnan-USA TODAY Sports

Hello and welcome to the first CBA Roundtable here at Mid-Level Exceptional! Every two weeks, members of the site will discuss a topic including their thoughts and any potential changes they would like to see the league adopt.

We settled on the subject of this first edition weeks ago and it has become even more relevant since then. The NBA has maximum salaries for individual players that affect the way General Managers build teams from top to bottom. Grantland’s Zach Lowe recently tackled the concept of removing individual max salaries entirely while Miami’s trio of LeBron James, Dwayne Wade, and Chris Bosh opting out this week has brought the topic even closer to the forefront.

Here is our discussion on this complicated and contentious subject:

Seth Partnow (https://twitter.com/WhrOffnsHppns):

The current debate over raising or even abolishing the NBA individual maximum salary is a solution in search of a problem. In fact, raising or removing this cap would have major unintended consequences deleterious to the league. What is the problem with the current system this change would solve?

Is the notion of players exercising not just free agency but *actual* agency in picking where and with whom they play offensive? Even that last bastion of serfdom and vassalage in the Western world, the NCAA, allows players some freedom to choose their co-workers and location. If it is acceptable for the Fab Five to team up, why not LeBron, Dwyane and Chris?

Possibly some believe the truly top players are being underpaid. James made around $57 million last year. While he’s an outlier in terms of marketability, no player is starved by making “only $24 million.” Further, the terms of the collective bargaining agreement mean money not paid to James or other stars doesn’t simply line the pockets of ownership; rather, it’s paid in salary to other players.

The focus of what these superstar players would be worth on the “open market” misunderstands the relationship between NBA teams. Though competition on the court is fierce, in business terms, they are far more colleagues than rivals. The rising NBA tide lifts all boats, as demonstrated by the sharp recent rise in franchise values.

This is where the argument against the individual max falls apart. By seeking to give every team a chance at superstars simply by offering them a larger and larger percentage of the salary cap (removing the overall cap is a non-starter), superstars necessarily would be saddled with mediocre teammates on minuscule contracts. Either that or the power of players to essentially pick teams themselves will only increase as stars become shadow general managers, hoping to entice the best partners to take the least money. To the extent LeBron is “worth” more than the max, it’s only because he is competing for championships against credible opposition. Either too much or too little parity makes a league no longer compelling. A single player earning too much would ensure this outcome as surely as an uncapped system where raw financial might equated to victory.

Further, the issue this increased bargaining ability for superstars is meant to solve simply doesn’t exist. While certain markets undoubtedly have advantages, the level of skill exercised by the wisest franchises is a much greater factor in team success than market size.  The Lakers have not produced several dynasties just because of the lure of Los Angeles. Compare their success to that of the Knicks or Clippers. Jerry Buss was simply better at running a franchise than James Dolan or Donald Sterling has proven to be, as results have shown.

Meanwhile, San Antonio, Oklahoma City and Indiana have had few problems being competitive in smaller markets with perceptive front office moves, much like Sacramento or Detroit in earlier years. Until moribund franchises in Minnesota, Milwaukee or Charlotte show a track record of failure not of their own making, complaints of an unfair system smell of sour grapes.

No system can save a team from its own poor decisions, but the best system balances the punishment for these errors with the need for all the teams in the league to remain viable both competitively and from a fan interest perspective. Allowing teams to dig a deeper hole by making bigger mistakes than are already possible or alternatively to maroon marquee players on average teams makes the competitive problems faced by the league worse.

 

Jared Dubin (https://twitter.com/JADubin5):

I am in agreement with Seth that this is somewhat a solution in search of a problem. What the removal of the cap on individual salaries is ostensibly looking to accomplish is eliminate the idea and practice of superstar team-ups. In other words, it would – might, really, which I’m sure we’ll get to – serve to facilitate the “player sharing” that Adam Silver, and David Stern before him, so often talk about.

Here’s the thing, though: I don’t think super-teams can possibly be considered bad for the league; the skyrocketing interest in the NBA since Miami’s formation of the Big Three is proof positive of that. More superstar team-ups might lead to less parity (as if there can be less parity in a league where four franchises have won all but three of the championships since 1991), but it will also lead to more discussion and more interest. What should also be considered is the fact that the only stars to actually take less than max money in free agency in order to leave more space to simultaneously sign additional stars are Miami’s Big Three. Nobody else has done this yet. Why attempt to eliminate something that doesn’t really exist?

Of course, this is all prelude to the side issues that would occur with the removal of the maximum individual salary, and those side issues are why the union would never agree to it. While the issue would be framed as “more money for everyone!” the reality is closer to “more money for guys like LeBron, and way less money for almost everyone.” LeBron (and players like him) being “underpaid” by $15-25 million per year relative to their market value is what allows for contracts like Udonis Haslem at five years, $20 million. Pay stars what they are worth and all of a sudden Haslem (and guys like him) are looking at a bunch of minimum salary offers. Those mid-tier guys are going to get squeezed, and there are way more mid-tier guys than there are LeBrons.

 

Bryan Toporek (https://twitter.com/btoporek):

As much as I sympathize with the argument to abolish maximum salaries, I see it doing more harm than good in the long run. As Jared noted, mid-rung free agents could get squeezed out of decent long-term deals if stars like LeBron James and Kevin Durant are free to sign contracts worth $30- or 40-plus million annually. Teams would also endure years of pain and suffering if a superstar’s deal goes south. How screwed would the Chicago Bulls be if they had doubled what they are currently paying Derrick Rose?

As much as I enjoy thinking about how egregiously the New York Knicks and Los Angeles Lakers would overpay a second-tier star—here’s $30 million for you, Lance Stephenson!—that’s just another example of how badly one mistake could devastate a franchise for years. While you can argue removing limits on salaries places more of a premium on savvy management, one unlucky break could change a smart move into a Star Wars: Episode I­-esque disaster.

Apr 11, 2014; Toronto, Ontario, CAN; New York Knicks forward Carmelo Anthony (7) shoots a free throw against the Toronto Raptors at Air Canada Centre. The Knicks beat the Raptors 108-100. Mandatory Credit: Tom Szczerbowski-USA TODAY Sports

Daniel Leroux (https://twitter.com/DannyLeroux):

Fundamentally, the individual maximum salary aims to address a problem that is not really a problem. If we take some sort of salary cap as a given (fair when discussing the NBA), having an individual max forces teams to spread the money they spend more broadly. Some may also argue that it fosters competitive balance because no single player can price themselves out of any market at the current rates.

The current system has finally gotten closer to its breaking point because players like LeBron James realized that sacrificing a comparatively small amount of money could yield a substantially better situation. When players understand these circumstances and act accordingly, a low individual maximum salary actually weakens competitive balance because it takes out one of the largest reasons someone would choose to go to a less desirable location, whatever that may mean for that person. In addition, having a low individual maximum salary has also created the possibility of multiple players actually being paid their maximum having the ability to play together. Those facts in concert have yielded a circumstance where max players who have the freedom to choose their destination more often than not end up in the glamour markets like Miami, New York, and LA should an offer be on the table from one or more of those teams.

We should also remember that a full repeal of just the individual maximum contract would have gigantic repercussions around the league. A post-max NBA that retains the salary cap would have substantially more parity since elite talents would have to sacrifice far more money to play together. LeBron, Wade, and Bosh each gave up a few million dollars to join up but escalating that difference by $10 million plus per season in some circumstances would present a very different choice. I agree with Jared that increased parity in the NBA does not yield the best results since more casual fans respond to super teams and collections of talent. After all, the Heat draw eyeballs because they are great team with a constellation of stars including the most discussed player in the sport. Basketball is a collaborative game and elite talents playing together produces the most enjoyable games and moments like the last two NBA Finals. Spreading out the product would also lead to a lower quality of basketball in the playoffs, a time that the league can and should try to woo more casual sports fans.

The NFL’s system works for them because they are securing football fans as NFL fans and have so few games that being a season ticket holder means something very different. An NBA with the best players more spread out would lead to more worst to first seasons but fewer squads that truly galvanize sports fans. While the concept of the best players being the most underpaid (other than rookie scale contracts, of course) is abhorrent to me, the alternative would produce a less sustainable and enjoyable league.

Keeping all that in mind, what I would like to see are two changes that would get us closer to both equitable pay and a fair playing field:

  1. Increase the maximum salary- At present, the NBA has maxes of 25%, 30%, and 35% of the cap depending on experience. Increasing those to 35%, 40%, and 45% of the cap gets the top tier players closer to their fair market value. For example, a max player with 7-9 years of experience would have made approximately $5.48 million more with this change during the 2013-14 season. While not enough to provide full and fair value for the best of the best, that kind of share would make it possible but more challenging for the true super teams to form.
  2. A new tool to allow teams the ability to retain their own stars- There are some narrow circumstances in this CBA where a player’s salary and cap hit are different, including the contracts of Jeremy Lin / Ömer Aşık and minimum salaried players with three or more years of NBA experience. I would allow teams the option of having up to 50% of a player’s salary not count against the cap OR the individual max if that player had spent a specified number of years continually with that team. This would change the decision making for some stars without taking money off the table for any of them and allow owners willing to spend to keep franchise cornerstones even as they approached retirement. To avoid it becoming a loophole, the player’s full salary would count against the cap should they end up on another team under that contract and it would not be available in sign and trades as a work-around for the individual max.

 

What would everyone else like to see as the resolution here?

 

Bryan Toporek:

Due to the potential wide-reaching ramifications, the players’ union and the league likely won’t ever eliminate max salaries. Instead, there is a far simpler compromise that can accomplish the same goals—making the formation of super-teams more difficult—without requiring a complete overhaul of the NBA’s salary cap and luxury-tax system.

In this compromise, the salary cap and luxury tax can remain as is (keeping repeater-tax penalties in place), as will maximum salaries. However, I’d raise the limits on max salaries significantly. Currently, they can range from anywhere between 25 and 35 percent of the salary cap, depending on the number of years a player has spent in the league. Instead, max salaries should start at 40 percent of the cap, jump to 45 percent for players with 7-9 years of service, and top out at 50 percent for those who have been in the NBA for 10 or more years.

Theoretically, this accomplishes the same goal as removing max salaries – preventing the formation of super-teams – as it will be far more difficult to convince multiple stars to take a discount that steep. Look at the 2010 Miami Heat, for example. Over six years, LeBron James and Chris Bosh each signed for roughly $13.8 million less than their maximum, or $2.3 million annually, while Dwyane Wade settled for approximately $16.1 million less than his maximum, or $2.7 million annually. All things considered—especially after factoring in endorsements – that was not an earth-shattering sacrifice to ask of the Big Three.

With a higher maximum-salary limit in place, however, luring the Big Three would have been damn near impossible for Pat Riley and Co. Using Joe Johnson’s $16.3 million maximum salary in 2010-11 as the baseline (30 percent of the cap), the Heat stars would have been eligible for a salary just under $25 million ($24,486,750, to be exact) in Year 1 of their contracts. All three actually received either $14.2 million (Wade) or $14.5 million (Bosh and James) in that first year, meaning they each would have been forgoing roughly $10 million of salary that season alone. Under this system, the prospect of a Big Four in Miami would be dead on arrival as all four players would be passing up too much money to reasonably consider joining forces.

Signing a player to a 50% of the cap maximum salary would still carry considerable risk for a franchise, but, well, shouldn’t it? The current max salary is low enough that it cheapens the concept of a max player. It should be reserved for the crème de la crème rather than guys like Eric Gordon and Greg Monroe. Raising the limit on max salaries allows superstars to earn closer to their true value, but keeping it capped prevents teams from eviscerating too much of their cap space on one player.

With the prospect of another lockout looming in 2017, both sides should pursue a solution to the max salary issue that doesn’t require wholesale changes to the NBA’s salary cap and luxury tax system. Raising maximum salaries without eliminating them outright might be best compromise out there.

Daniel Leroux

Daniel Leroux has covered the Golden State Warriors for five seasons for RealGM, starting during his final year of law school. He was born and raised in the Bay Area and has a bachelor's in Economics from UCLA (Go Bruins!) and a law degree from UC Hastings college of the law. He also hosts the RealGM Radio podcast.