What the Doomsday 2010 Salary Cap means to the Class of 2003
After some consultation of Storyteller’s salaries, Larry Coon’s FAQ, and Mark Stein’s ESPN story about the 2010 Salary Cap, I came to the conclusion that my initial thoughts were probably a) right, which is mildly shocking, and b) relatively unique, as far as I can tell. I haven’t seen anyone bring it up, so you, my faithful readers (who am I kidding? My mom doesn’t even read this) get the scoop, as it were.
What were “my initial thoughts”, you ask? Glad you did.
Bottom Line Up Front: I actually think that this cap drop as a result of basketball-related income (BRI) is worse than many expect, and for different reasons. This post will focus on the marquee guys, but believe-you-me there’ll be a trickle-down effect. That’s for another post, though.
Every basketball mind around, it seems, is coming to the conclusion that this anticipated cap drop is going to be bad for teams who’ve been maneuvering for cap space in the “Summer of LBJ”–though it’s also the Summer of Wade, Bosh, Anthony, Joe Johnson, Pierce, Redd, Dirk, Nash. potentially K*be, and a host of others . My contention is that it’s going to end up putting a hurt-lock on the big-money players, …and that (gasp!) you might not see that many opt-outs. I’ll talk specifically about these Early Termination Option (ETO) guys–LBJ, Wade, Bosh.
From what I understand, these Class of 2003 alumni who signed their extensions in summer of 2006 will make $15,779,913 on a max deal this year, and if they don’t opt out will make $17,149,244 next year (since each re-signed with the team that drafted them, they are allowed 10% raises from their base year rather than the standard 8% max raise). Most assumed that they would opt out this summer, b/c at the 7-year point of their careers (which they’ll hit in July 2010) the max salary goes from 25% of the cap (for instance, what Brandon Roy is projected to be extended for this summer) to 30% of the cap. My guess is that, in July 2006 when they signed these extensions, most assumed that this increase of 5% in max salary would be a great incentive to test free agency and make more money while going exactly where they wanted. Remember that making assumptions make a….nevermind–Mom may actually read this one.
Here’s the math:
The 2003 alumni, in 2009-10, will make $15,779,913, and are guaranteed $17,149,244 next year if they do not exercise their ETO. But let’s say the cap is at 50.4M, the low end of today’s projections. Max salary in the league will only be 15,120,000 (30% of the $50.4 salary cap). Of course, there’s a provision in the CBA that says a player can always make 105% of his last year’s salary as a max, so LBJ, if he opts out, can only sign a contract starting at $16,568,909–about $600k less than he was guaranteed if he just would’ve not opted out. And let’s say he does leave CLE for NYK or wherever…since he’s not resigning with the team that owns his Bird rights, he’s only able to get a max contract of 5yr/93.2M through the summer of 2015. A grip of money, to be sure, but if he just finished his CLE contract, and then started his next one in the summer of 2011 at 105% of his previous year’s salary, he’d make 97.8M over that same period on a base salary of $18,006,704 (assuming he left CLE and was only getting 8% raises–if he goes in a Sign-and-Trade deal, or stays with Cleveland, it goes up to a hair below $100MM). So by opting out in the summer of 2010 instead of letting his contract run out in summer 2011, he loses 4M–guaranteed. Ditto for Wade and Bosh.
K*be actually stands to lose more, since instead of opting out of a $17M salary he’d be opting out of a $24.8M salary. Do all those same calculations and add 45%.
I think this is going to be a bigger deal than people think, and it’s going to cause agents and players at some point to step back and say “whoa”. First, teams like NYK are going to have about $10M in cap space less than they thought a couple of years ago when they started this “Cap Space 2010 or Bust!” plan, and everyone else will have the luxury tax floor drop to about 10-15M lower than they were hoping it’d be. Second, players who thought they’d be getting a big jump in pay are actually going to lose money if they exercise their ETO and opt out. I don’t know if leaving CLE one year early for NYK is worth 4-6M to LBJ, or if it’s a small price for Wade or Bosh or Anthony or K*be to pay to play wherever they want to…but if they’re trying to max out their pay it’s best not to opt out next year and wait until 2011 or 2012. The longer they can build up salaries at 10% before taking the hit of starting a new “max salary contract” the better.
Perhaps in the next post we’ll explore the idea/fallacy that there are teams who will be able to sign two (or three!?!) of the superstars.
One thing to keep in mind is that the CBA expires at the end of the 2010 season (unless the NBA uses an option to extend it into 2011), so it’s up in the air as to what structure salaries will take under a new CBA. The reason that LeBron, Wade, and Bosh structured their extentions the way they did was so that they could get one last big payday under the old CBA.
But you’re correct that with the lowering salary cap, they will be taking a pay cut to opt out in 2010 as opposed to just playing out their contract.