Here’s the actual numbers: How new NBA deal compares to last one
Here’s one writer’s analysis: NBA - How new CBA affects the 'Big 3' star system
by Larry Coon, ESPN.com
The NBA emerged from its 161-day lockout with the promise of a new system in which all 30 teams, if managed well, could turn profits and compete for championships. The league’s new collective bargaining agreement and accompanying revenue-sharing system signaled a fundamental shift in the league’s economy.
Under the new rules, revenue sharing pulls money from big-market teams and gives it to small-market ones, and teams with big payrolls will get onerous luxury tax bills, the money from which is redistributed to teams that keep their payrolls in check. Taxpaying teams also will have less freedom to operate, with restricted access to many salary-cap mechanisms.
With these changes comes a fundamental re-thinking of the best way to build a franchise. The three-star system, long considered a template for building a winning team, has come under new scrutiny. As teams evaluate the way they do business, their decisions will determine how the balance of power is distributed in the NBA during the next decade.
This shift in thinking is already apparent with the Dallas Mavericks. Fresh off winning the 2010-11 title, the team faced a difficult decision with the impending free agency of Tyson Chandler. The Mavs ultimately decided to let Chandler sign with the New York Knicks for four years and $55.4 million, rather than tie up a similar amount of their own cap dollars. Mavs owner Mark Cuban explained the difficulty of the decision to a packed room at this year’s Sloan Sports Analytics conference in Boston.
“Tyson was critical,” he said. “I’d say his value was just as strong in the locker room as it was on the court. There was no question his importance to us last year, and that was a key component.”
And while Chandler’s absence was not the only reason for it, the team went from NBA champion in 2011 to being swept by the Oklahoma City Thunder in the first round of the playoffs in 2012.
But Cuban also understood the long-term consequences.
“You’ve got to understand that with the new CBA, there’s a whole new set of rules,” he continued. “Because of the new set of rules, there’s going to be a different market for pricing players. And when there’s a different market for pricing players, you’ve got to introduce a different methodology for building a team.”
The old methodology, featuring teams with multiple star players surrounded by a lower-paid but effective supporting cast, has been the standard template for decades. In 2010-11, seven of the 30 teams had three players making $12 million or more each, and those teams won an average of 43.4 games in the lockout-shortened 66-game season. By comparison, teams with two players earning at least $12 million won an average of 28.7 games; those with one won an average of 33.2 games; and those without any players making $12 million or more won an average of 26.6 games.
The outliers here are the Thunder, who made the Finals with just one player (Kevin Durant) earning more than $12 million. However, as the rookie contracts of Russell Westbrook, Serge Ibaka and James Harden are replaced with expensive extensions, the Thunder soon will join the ranks of their higher-spending brethren.
A new era?
Though the NBA announced late Tuesday night that the salary cap will remain the same as it was in 2011-12, the luxury tax will become much more punitive beginning in 2012-13. Under previous collective bargaining agreements, teams paid $1 for each dollar they went over the tax line.
Those salad days are just about over. Starting next season, the rate goes up to $1.50 for each dollar, and that’s just for the first $5 million. The rate goes up to $1.75 per dollar for the $5 million after that, and increases again with each $5 million – to $2.50, $3.25, and beyond. For repeat taxpayers – teams paying the tax in at least three of the four previous seasons – the tax rate will double beginning in 2015.
The potential effects are staggering. For example, the Orlando Magic were $20.1 million over the tax line in 2010-11, consequently paying $20.1 million in tax. But in 2013-14, being $20.1 million over the tax line will lead to a tax bill of more than $65 million, on top of a potential revenue-sharing payment if the team is in a big market. If such a team is a repeat taxpayer, then the tax bill doubles to $130 million. That’s enough to give even the richest teams pause.
Several new restrictions will make it even harder for taxpaying teams to maneuver. In addition to the financial penalties from the luxury tax, taxpaying teams (technically teams more than $4 million over the tax line) get a smaller mid-level exception (about $3 million this season, instead of the $5 million that goes to non-taxpaying teams), no access to the bi-annual exception, greater restrictions on the salaries they can receive in trades, and starting in 2013-14, no ability to receive a player in a sign-and-trade transaction. Teams with three stars, such as the Miami Heat, will find it difficult to add complementary players (even though Ray Allen just agreed to sign with the Heat for the team’s $3 million mid-level exception).
In summary, there will be less money available for the teams that were used to spending it, and less flexibility for the teams that continue to spend.
Death of the big three?
So moving forward, will the three-star system continue to be the best way to build a winning team? Cuban doesn’t think so.
“You can’t just use the same approach that you used in the past,” he said. “In the past I could fix any mistake just by spending more money. Now, it’s not just spending more money – it’s spending a lot more money. But not only that, there are also restrictions on how you can add players.”
In 2011-12, the seven teams with three players making $12 million or more spent an average of 80.4 percent of the salary cap on their three stars, an average of 66.4 percent of their room under the luxury-tax threshold. When the new rules take full effect in two years, the likely result will be a re-pricing of complementary players.
“A player who might have been a $12 million or $14 million player this year or [the year] before, might be a $6 million or $7 million player,” Cuban said. “So you can have one star, and three really good players, and you can package all those guys together to build a winning team. You still maybe leave yourself some flexibility knowing that if someone gets hurt, you still have your full mid-level [with which] to add.”
The teams that will be poised to take advantage of the coming market shift are leaving their options open now. Teams like the Mavericks, Magic and Atlanta Hawks are shedding salary, looking to rebuild while staying nimble. On the opposite end of the spectrum, teams like the Brooklyn Nets and Houston Rockets appear poised to add multiple expensive players, perhaps locking themselves into a salary structure that no longer makes sense.
Teams like the Heat, Chicago Bulls and Memphis Grizzlies are already locked in to expensive players for several years, and the Thunder might be joining them soon. They could eventually find themselves in a crisis – hit with an enormous luxury tax bill and unable to make significant changes because they are committed to players they can no longer afford and who are too expensive to trade.
The Knicks, on the other hand, are the most enigmatic team in the league. They are committed to Chandler, Amare Stoudemire and Carmelo Anthony through 2014-15, and may be the one team in the NBA that doesn’t care about the amount it is paying in luxury tax. The Knicks already have shown their willingness to add additional expensive players to surround their big three when given the opportunity, and they may be poised to take advantage of the coming economic shift by snatching up expensive cast-offs from other teams.
In the end, the league may look fundamentally different three years from now. “Basically, there’s only been one system,” Cuban said, referring to the new agreement. "There’s been little nuances and changes [in previous agreements], but this is night-and-day different.
“It still didn’t fix all our problems, but it changed the game.”