{UPDATED: 7/03/03 - ADDED FULL PLAYER NAMES AND A COUPLE OF ADDITIONAL LINKS}
ENTERING THE BRAVE NEW WORLD OF THE LUXURY TAX
The NBA is entering the Brave New World of the Luxury Tax. Never before in the history of professional sports leagues has the profit structure changed so dramatically in one year as it has with the onset of the luxury tax this year in the NBA.
If we compare the 15 highest-spending teams in 2002-03 to the 14 lowest-spending teams, their profits in 2001-02 (before the luxury tax) were about equal ($125 million versus $122 million). But in 2002-03 the world changed. Those 15 highest-spending teams now are losing about $60 million, whereas the lowest-spending teams are seeing their profits rise to about $290 million.
The mechanism by which teams earn profits has changed. Avoid paying the luxury tax and your team will be profitable, no matter how bad you are. Pay the luxury tax, and you likely will be losing a lot of money, regardless of whether you are successful on the court. In fact, the luxury tax has become so dominant that an argument could be made that a luxury tax expert, such as Irwin Mandel of the Chicago Bulls, is worth more to a team than all but a handful of players.
Thus, in the new NBA, the place to begin to understand the free agent market is to analyze each of the 29 teams, paying close attention to their profits. Once we get a firm grasp of how the luxury tax is affecting these teams, then we can consider what kind of money will be available for various players.
So I start with the team analyses. At the bottom I list the assumptions made in these analyses.
- KEY
- In brackets is the projected team salary for 2003-04 prior to adding free agents, including all players signed for 2003-04 including first round picks at 120 percent of their rookie scale and team or player options that I am fairly certain will be picked up.
- I have subtracted players who will come off of team salary during the season.
- MLE stands for mid-level exception, which should be worth about $4.9 million. The million dollar exception is worth $1.5 million.
- In parentheses are profits for 2000-01, 2001-02, and an estimate for 2002-03.
- In the list of potential free agents for each team, player options are denoted as (p), team options as (t), restricted free agents as (r), and non-guaranteed contracts as (ng).
DEFINITELY OVER THE CLIFF PROVISION
Teams in this group pay a 100% tax on every additional dollar that they spend. Several of these big-spenders lost a lot of money in 2002-03; even teams like Portland and New York have started to talk about controlling their spending. As a group, these five teams totaled a $30 million annual profit in 00-01 and 01-02, but stand to lose about $105 million in 02-03. Including their own free agents, I expect only two to four MLE-size contracts for this group.
1. Portland Trailblazers - [Committed in 03-04: $79.8M] (Profits: -$19M in 00-01, -$22M in 01-02 and -$88M to -$98M in 02-03)
Free Agents: Scottie Pippen, Arvydas Sabonis(ng), Antonio Daniels, Chris Dudley, Charles Smith, Ruben Boumtje Boumtje(ng)
(I assume that Rasheed Wallace does not exercise his player option. He would be crazy to do so. I assume that the Blazers do not necessarily guarantee the non-guaranteed contracts of Arvydas Sabonis and Ruben Boumtje Boumtje.)
Paul Allen likely lost about $100 million in 2002-03, an order of magnitude bigger loss than the $20M losses he suffered the two previous years. A $100 million loss dents even Paul Allen’s wallet, so I think that the Blazers are thinking about cutting back.
I doubt that the Blazers pick up
Sabonis’s non-guaranteed $7 million contract or re-signs Daniels (unless he comes back cheap). I suspect that the Blazers either re-sign Scottie Pippen for about $5 million to start or they use their MLE. I doubt that they do both, and it is possible that they may do neither.
2. New York Knicks - [Committed in 03-04: $79.9M] (Profits: +$29M in 00-01, +$25M in 01-02, and -$3M to -$13M in 02-03)
Free Agents: Charlie Ward(ng), Lee Nailon, Lavor Postell, Mark Pope
(I assume that Al Harrington and Travis Knight exercise their player options. Al Harrington is a bit of a close call. I assume that New York does not pick up Charlie Ward’s non-guaranteed contract.
New York has to pay Ward $2 million if they do not quarantee his contract. I have included this $2 million in the committed number above.)
Luc Longley and Larry Johnson coming off the luxury tax books in 2002-03 helps the Knicks out a lot; they do still have to pay them, although insurance probably takes care of much of their salary. The key question is whether these savings tempt the Knicks to use their MLE.
I suspect that they will use their MLE, and I suspect that they re-sign Charlie Ward to a bit over the minimum if they do not land a good point guard.
3. Dallas Mavericks - [Committed in 03-04: $72.5M] (Profits: -$23M in 00-01, +$3M in 01-02, and -$9M to -$19M in 02-03)
Free Agents: Adrian Griffin, Popeye Jones, Walt Williams, Raja Bell
Despite tremendous growth in revenues, Dallas still loses money due to the luxury tax, but I think Cuban still uses his MLE.
I know that there is talk of Karl Malone coming to the Mavericks, but I think Cuban makes a run at Alonzo Mourning or Michael Olowokandi with the MLE. I think there is a reasonable chance that he gets one of these two, especially if the sign-and-trade for Jason Kidd is successful. I suspect that Cuban also re-signs a couple of his own free agents to fairly inexpensive contracts.
4. Sacramento Kings – [Committed in 03-04: $75.8M] (Profits: +$10M in 00-01, +$14M in 01-02, -$5M to -$15M in 02-03)
Free Agents: Brent Price, Mateen Cleaves, Damon Jones, Jim Jackson
(I assume that Vlade Divac does not exercise his player option.)
The luxury tax comes up and bites the Maloof brothers, and I think they are less aggressive in the free agent market. For evidence, see this
article.
I suspect that the Kings re-sign Jim Jackson to something less than an MLE contract and try to trade Hidayet Turkoglu for a lottery pick, which they would use on a future center. I don’t think the Kings use their full MLE (just part of it on Jim Jackson).
5. Phoenix Suns - [Committed in 03-04: $62.9M] (Profits: +$25M in 00-01, +$19M in 01-02, and +$23M to +$33M in 02-03)
Free Agents: Randy Brown, Scott Williams, Dan Langhi, Jake Voskuhl, Alton Ford
(I assume that Tom Gugliotta does not exercise his player option.)
With Shawn Marion’s extension kicking in, the Sun’s profits practically disappear in 03-04. However, Colangelo is happy with his young team and stays put,
not using his MLE. He is waiting for the day when the contracts for Tom Gugliotta and Anferdee Hardaway come off the books. He does try to re-sign Scott Williams and Jake Voskuhl.
OVER THE CLIFF PROVISION WITHOUT CREATIVE SALARY DUMPING
Teams in this group are over the cliff provision and without creative salary dumping are likely to pay a 100% tax on every additional dollar that they spend. Both the Celtics and Raptors are very cost conscious with even Danny Ainge talking about how unlikely it would be that he would use his MLE. The Lakers have a much bigger revenue base, so I expect them to bite the bullet and use their MLE. Thus, including their own free agents, I expect only one to two MLE-size contracts for this group.
6. Toronto Raptors - [Committed in 03-04: $59.5M] (Profits: +$5M in 00-01, +$5M in 01-02, and -$5M to +$5M in 02-03)
Free Agents: Mamadou N’diaye, Voshon Lenard, Jelani McCoy, Rafer Alston, Maceo Baston(r)
The Raptors don’t have enough money to go after a top-of-the-line coach, so it is very unlikely that they use their MLE. I don’t see the Raptors being very active in free agency, although I expect them to be aggressive in trying to shed salary.
7. Boston Celtics - [Committed in 03-04: $56.6M] (Profits: +$10M in 00-01, +$17M in 01-02, and +$26M to +$36M in 02-03)
Free Agents: Mark Bryant, Mark Blount, Walter McCarty, Grant Long, Bimbo Coles
(I assume that the Celtics pick up JR Bremer’s non-guaranteed contract, and Bruno Sundov exercises his player option.)
Even with the new owners and even though the Celtics are earning a healthy profit,
all the talk out of Boston suggests that Ainge won’t be spending much money this free agent season. Getting under the luxury tax threshold seems to be a priority with the Celtics, so I don’t see them using their MLE. Most of the action in Boston seems to be centered around trading Antoine Walker.
8. Los Angeles Lakers - [Committed in 03-04: $55.8M] (Profits: +$31M in 00-01, +$44M in 01-02, and +$24M to +$34M in 02-03)
Free Agents: Robert Horry(t), Tracy Murray, Samaki Walker, Mark Madsen, Brian Shaw, Jannero Pargo(ng)
(I assume that the Lakers do not pick up their team option on Robert Horry and that the may or may not pick up Jannero Pargo’s non-guaranteed contract.)
The Lakers have one of the highest revenue streams in the NBA, so they certainly can afford to pay luxury taxes. In order to keep Kobe Bryant happy and keep Shaquille O’Neal from retiring, I think they do make an attempt to add quality players through both trades and through their MLE and Million Dollar exceptions.
9. Houston Rockets - [Committed in 03-04: $54.6M] (Profits: +$4M in 00-01, +$7M in 01-02, and +$22M to +$32M in 02-03)
Free Agents: James Posey(r), Jason Collier, Juaquin Hawkins, Terrence Morris, Tito Maddox
After tasting the sweet honey of staying under the luxury tax threshold in 01-02, the Rockets will likely see their profits fall even if they don’t spend much in free agency. I do not see the Rockets adding anyone in free agency unless a deal was made to get Van Gundy. I also am not sure they will offer enough to keep James Posey, even though they have extended him a qualifying offer.
SLIGHTLY ABOVE OR BELOW THE LUXURY TAX THRESHOLD
It is this group and the next group that are most affected by the luxury/escrow tax system. It is these middle spenders that determine how well this system constrains costs.
Why does the luxury/escrow tax system affect the middle spenders most severely?
Well, in addition to paying the salaries for any players they add and dollar-for-dollar luxury taxes, they also lose a part their luxury/escrow tax rebates. This part of the rebates is worth $8 to $10 million and is lost on a prorated basis with about the first $3.5 million spent above the luxury tax threshold (the point where the
cliff provision ends) spent above the luxury tax threshold.
Thus, for a team right at the luxury tax threshold, it costs them $15 to $17 million to add a player for $3.5 million ($3.5 in salary, $3.5 in luxury taxes, and $8 to $10 million in lost rebates). For a team above the cliff provision, it only costs $7 million to add a $3.5 million player.
Because of this extremely high cost of adding salary for teams in this group, it would not be crazy to assume that none of these teams sign (or re-sign) a player to a MLE-sized contracts. But teams care about more than profits and with a couple new owners in this group, I expect one to three MLE-sized contracts from this group. Remember this includes teams re-signing their own players.
10. Minnesota Timberwolves - [Committed in 03-04: $53.0M] (Profits: +$5M in 00-01, +$9M in 01-02, and -$3M to +$7M in 02-03)
Free Agents: Rasho Nesterovic, Loren Woods, Kendall Gill, Felipe Lopez, Rod Strickland, Gary Trent, Mike Wilks
Even with Terrell Brandon not counting towards team salary, adding just $6.4 million in salary costs the Timberwolves about $22 million in profits, dropping them from about a $13 million profit to a about $9 million loss. If they trade Terrell Brandon for a full-fledged salary, they risk posting huge losses. There are not many teams (if any) who could use luxury tax relief more than the Timberwolves, so it is unclear whether they will trade Terrell Brandon. So what do they do, especially with Kevin Garnett (who desperately wants a better team) up for an extension next year? Every dollar they spend this year may save them money with Kevin Garnett next year.
The Anthony Peeler/Joe Smith for Sam Cassell/Ervin Johnson trade may add enough scoring punch for the Timberwolves, so that they do not have to trade Terrell Brandon for additional firepower. With this trade, they may simply re-sign Rasho Nesterovic and a few of their own free agents, but there is a lot of talk about Terrell Brandon being traded to teams like the Bulls, Pacers, Trailblazers, and Mavericks.
Four of the Timberwolve’s own free agents were important parts of the rotation, so unless they strike out with their own free agents, I do not see the Timberwolves using their MLE. Unless Taylor has a little bit of Cuban in him (which it appears he might), I think holding on to Rasho Nesterovic is at best a 50/50 proposition, but I think they have a good chance of retaining Kendall Gill, Rod Strickland, and Gary Trent.
11. Golden State Warriors - [Committed in 03-04: $52.5M] (Profits: +$3M in 00-01, -$1M in 01-02, and +$10M to +$20M in 02-03)
Free Agents: Gilbert Arenas, Earl Boykins
Re-signing Gilbert Arenas and Earl Boykins to $6 million combined with no other free agent activity would likely result in the Warrior’s profits dropping by $21 million, again from about a $11 million profit to a $10 million loss. Gilbert Arenas and Earl Boykins are nice players, but they simply are not that worth that much. I think there is a good chance that the Warriors are this year’s Raptors, and they don’t even offer Gilbert Arenas a full MLE.
However, Golden State may offer Arenas the MLE to save face, but behind the scenes not ensure Arenas that the money will be there once the (perhaps one year) MLE deal is up. Also, they could be aggressive in re-signing Earl Boykins to further alienate Gilbert Arenas.
On the other hand, the near-max demands may result in Gilbert Arenas coming back to the Warriors hat in hand late in the free agent season, signing a one-year deal for the full MLE.
12. Atlanta Hawks - [Committed in 03-04: $51.9M] (Profits: +$6M in 00-01, +$4M in 01-02, and -$3M to +$7M in 02-03)
Free Agents: Demarr Johnson, Jason Terry(r), Dion Glover, Emanual Davis, Ira Newble, Davin Ham, Jermaine Jackson, Mikki Moore
(I assume that Alan Henderson exercises his player option.)
With new ownership coming in sometime during the summer, I think there is a good chance that Jason Terry and Dion Glover are not re-signed. (The Hawks did not extend a qualifying offer to Dion Glover.) Unless the Hawks make a trade to add some players, they are likely to be above the cliff provision even without re-signing Jason Terry, which would lower the cost to re-signing him (to a $5 million starting contract) from about $19 million to just $10 million. But even $10 million is pretty steep for Jason Terry, so maybe the Hawks sit still and wait for 2005-06, when a lot of their contracts end.
13. Memphis Grizzlies - [Committed in 03-04: $52.3M] (Profits: -$13M in 00-01, +$1M in 01-02, and -$2M to -$12M in 02-03)
Free Agents: Mike Batiste
With Reeves not counting towards team salary, West has a chance to keep his team under the luxury tax threshold, which would allow the Grizzlies to earn a small profit and save some money for later years. With two first rounders to integrate with a young team, I think West holds the line in free agency this year, not using his MLE. Using his MLE likely would cost the Grizzlies more than $15 million.
West, however says he will be very busy. We’ll see.
A FEW MILLION BELOW THE LUXURY TAX THRESHOLD
Like the group before them, this group faces huge penalties once they start paying the luxury tax. For the most part, I see these teams most interested in their own free agents, and not counting Jason Kidd (who I think re-signs with , I see only two to three MLE-sized contracts, including teams re-signing their own free agents.
14. Philadelphia Sixers - [Committed in 03-04: $48.9M] (Profits: +$11M in 00-01, +$18M in 01-02, and -$2M to +$8M in 02-03)
Free Agents: Derrick Coleman, Kenny Thomas(r), Brian Skinner, Tyrone Hill, Sam Clancy(ng)
(I assume that Monty Williams exercises his player option and that the Sixers do not necessarily guarantee Clancy’s non-guaranteed contract.)
With Derrick Coleman coming completely off the books and Matt Geiger not counting towards luxury taxes, the Sixers are positioned for a dramatic increase in profits. I see them making an attempt to re-sign Kenny Thomas for less than the full MLE, and maybe re-signing Brian Skinner or Tyrone Hill to something slightly above the minimum. If they lose Kenny Thomas, I suspect they might spend a bit of their MLE, but otherwise I see them basically treading water this summer.
Update: Philadelphia reportedly is offering Thomas a six-year $50 million deal.
15. Seattle Sonics - [Committed in 03-04: $48.4M] (Profits: +$2M in 00-01, +$6M in 01-02, and +$7M to +$17M in 02-03)
Free Agents: Elden Campbell, Kevin Ollie, Ansu Sesay(ng), Predrag Drobnjak(t), Reggie Evans, Ronald Murray(ng)
(I assume that Seattle does not necessarily guarantee Ansu Sesay’s or Ronald Murray’s non-guaranteed contracts or pick up Predrag Drobnjak’s option. Half of Ronald Murray’s contract is guaranteed, and is added in the committed total.)
If the Sonics just re-sign or pick up the options for its own free agents (not counting Elden Campbell), then they will be edging close to the luxury tax threshold. I do not see them doing much else, and I see very little chance that they use their MLE. As we saw in last year’s Rashard Lewis negotiations, the Sonics are one of the most luxury tax wary teams in the league.
16. Milwaukee Bucks - [Committed in 03-04: $47.9M] (Profits: -$16M in 00-01, -$9M in 01-02, and -12$M to -$22M in 02-03)
Free Agents: Gary Payton, Jamal Sampson(ng), Anthony Peeler(ng)
(I assume that Jason Caffey exercises his player option and that Jamal Sampson and Anthony Peeler do not necessarily get the non-guaranteed contracts guaranteed.)
If the Bucks do not guarantee Anthony Peeler’s contract, then they may have enough room to offer Gary Payton a bit more than the MLE, without going to deep into luxury tax territory. The Bucks, as much as any team, will be eagerly anticipating the announcement of the 2002-03 luxury tax threshold and the 2003-04 salary cap, so that it can figure out just how expensive adding Gary Payton might be.
After three luxury tax trades getting rid of Glenn Robinson, Ray Allen, and Sam Cassell, the Bucks finally have its financial house in some order. But in the meantime their team has gotten much weaker.
17. Chicago Bulls - [Committed in 03-04: $46.2M] (Profits: +$52M in 00-01, +$39M in 01-02, and +$48M to +$58M in 02-03)
Free Agents: Corie Blount, Fred Hoiberg, Rick Brunson
(I assume that the Bulls pick up Trenton Hassell’s option.)
The first thing to notice about the Bulls is that they are fabulously profitable. They are one of the few teams in the league that could afford to go deep into luxury tax territory and still be profitable. Reinsdorf has stated that he would be willing to pay the luxury tax for a championship team (still need to find reference to this quote), but it is unclear whether he will pay it for a team still a long ways away from a championship.
To analyze the Bulls’ situation, it is probably more important to think about how any free agent signings this year affect their bottom line in future years. For 04-05, Jalen Rose, Eddy Curry, Tyson Chandler, Jay Williams, Donyell Marshall, Eddie Robinson, their 2003 first rounder, and their 2004 first rounder (late lottery or early non-lottery) add up to $42.5 million. Re-signing Jamal Crawford and Marcus Fizer to MLE-sized contracts would put the Bulls on the verge of the luxury tax,
even if they sign no other significant free agents this year or next. The same is true if any of these players are traded for a player with equal or greater salary.
If Jamal Crawford and Marcus Fizer sign MLE-sized contracts, in 05-06 the Bulls would be at $44.1 million counting just Jalen Rose, Jay Williams, Eddie Robinson, Marcus Fizer, Jamal Crawford, and three first round picks. If one of Tyson Chandler and Eddy Curry gets the maximum, and the other gets a bit more than the MLE, then the Bulls would likely be looking at a payroll well into luxury tax territory.
And again this is losing Donyell Marshall and not adding another significant free agent.
Adding another long-term free agent to this equation just makes it more complicated, so I do not see the Bulls adding another long-term free agent. Perhaps a player for this year and next, but unless they are able to trade Eddie Robinson and/or Jalen Rose, I do not see the Bulls making a long-term commitment to a player at the full MLE. Even with Jay Williams’ injury, I do not see Reinsdorf being willing to pay luxury tax (and lose luxury/escrow distributions) on this year’s team. I think it is highly unlikely that the Bulls will use both the full MLE and any injury exception they might get for Jay Williams.
18. New Jersey Nets - [Committed in 03-04: $45.4M] (Profits: -$11M in 00-01, +$5M in 01-02, and +$20M to +$30M in 02-03)
Free Agents: Jason Kidd, Lucious Harris, Anthony Johnson, Brian Scalabrine, Donny Marshall
I think that the Nets are in negotiation for a new stadium, so I think they spend every penny they can to keep Jason Kidd. In order to keep Jason Kidd, I think
they use their full MLE and million dollar exception. They might want to take their chances on a Jason Terry or Gilbert Arenas or a big man. I think in the end they keep Jason Kidd.
TEAMS IN ESSENCE OVER THE SALARY CAP
These teams technically could renounce all of their free agents and exceptions and be a few million under the salary cap. However, there would be no advantage to doing so, so these teams are in essence above the salary cap. Including their own free agents, I expect this group to sign (or re-sign) six to ten MLE-sized contracts – not counting the Clippers. This does not count Indiana re-signing Jermaine O’Neal.
19. Detroit Pistons - [Committed in 03-04: $40.6M] (Profits: +$18M in 00-01, +$13M in 01-02, and +$20M to +$30M in 02-03)
Free Agents: Jon Barry, Richard Hamilton(r), Pepe Sanchez(ng), Danny Manning, Don Reid
(I assume that the Pistons do not necessarily guarantee Pepe Sanchez’s non-guaranteed contract.)
With the Pistons re-signing Cliff Robinson, they are not really under the salary cap, but they are in an enviable position. I see them re-signing Richard Hamilton to a bit above the MLE and Jon Barry to $2-$3 million (if they don’t get Carlos Delfino to come over immediately).
Detroit is so deep, I am not sure what use they would have for another MLE player, but maybe instead of Jon Barry, they go after a player with a full MLE. With Michael Curry, Zelijko Rebracca, and Hubert Davis coming off the books next year, they have the room for another MLE player.
20. Cleveland Cavaliers - [Committed in 03-04: $40.4M] (Profits: +$7M in 00-01, +$6M in 01-02, and +$12M to +$17M in 02-03)
Free Agents: Jumaine Jones, Miit Palacio, Smush Parker, Tierre Brown
I suspect the Cavs let Jumaine Jones go, with the logjam at the wings (Ricky Davis, Darius Miles, LeBron James, and Dejuan Wagner). Through a trade or with their MLE, I expect the Cavs to get a point guard and a veteran power forward. The Cavs salary structure is favorable for years to come, so they certainly could afford using their full MLE, but do they? It is hard to tell with the Cavs – who are bound to pack the house next year with or without adding another MLE player.
21. Indiana Pacers - [Committed in 03-04: $39.2M] (Profits: +$1M in 00-01, +$3M in 01-02, and +$6M to +$16M in 02-03)
Free Agents: Reggie Miller, Jermaine O’Neal, Brad Miller, Erick Strickland, Tim Hardaway(t)
(I assume that Indiana does not necessarily pick up Tim Hardaway’s team option.)
If the Pacers offer Jermaine O’Neal a maximum contract (likely to be slightly above $12 million), the Pacers have only about $3 million left to offer all of its other free agents before it starts paying luxury taxes. If, in addition to re-signing Jermaine O’Neal, the Pacers re-sign Brad Miller and Reggie Miller to contracts slightly above and below the MLE, respectively, the Pacers are well above the luxury tax threshold for every year in the foreseeable future, even if they sign no one else to anything more than the minimum. In that scenario, the Pacers probably lose $20 to $40 million over the next five years.
On the other hand, if they let Jermaine O’Neal go, they probably can stay under the luxury tax threshold. In that scenario, the Pacers probably make at least $40 million over the next five years.
So if you owned the Pacers, what would you do?
Stern loves to brag about how the luxury/escrow tax system helps the small-market teams, but the Pacers are about to become one of the big victims of luxury/escrow tax system. Unless they are willing to lose lots of money, they are going to have to break up a nice team that Walsh has put together. Small market teams simply cannot afford to pay much luxury tax.
Perhaps Walsh can pull a magic rabbit out of his hat and trade Austin Croshere (maybe combined with Al Harrington, Ron Artest, or Jonathan Bender) for cap space, but about half the league is desperately looking for that same magic rabbit.
22. Orlando Magic - [Committed in 03-04: $37.6M] (Profits: +$13M in 00-01, +$8M in 01-02, and +$13M to +$23M in 02-03)
Free Agents: Darrell Armstrong, Andrew DeClerq, Jacque Vaughn, Shawn Kemp, Olumide Oyediji, Pat Burke, Chris Whitney
I suspect that the Magic tries to re-sign a couple of its own free agents, especially its point guards and Andrew DeClerq, to contracts less than $3 million to start and uses its full MLE for a big man.
23. New Orleans Hornets - [Committed in 03-04: $36.3M] (Profits: -$1M in 00-01, -$8M in 01-02, and +$7M to +$27M in 02-03)
Free Agents: Kenny Anderson, PJ Brown, Jerome Moiso, Robert Pack
PJ Brown will be a hot commodity this summer, and with him being from the New Orleans area, one would think the Hornets have a big advantage in retaining him. I think the Hornets should offer him a bit more than the MLE, just so he isn’t tempted. But this is the Hornets we are talking about here, so who knows what they will do?
The Hornets also are in a good position to use their MLE, but again this is the Hornets, so who knows if they will use it? The Hornets certainly are one of those teams that is going to get rich off of the luxury/escrow tax system.
24. Miami Heat - [Committed in 03-04: $34.2M] (Profits: +$1M in 00-01, +$8M in 01-02, and -$6M to +$4M in 02-03)
Free Agents: Alonzo Mourning, Laphonso Ellis, Travis Best, Vladimir Stepania, Eddie House, Malik Allen, Sean Marks, Ken Johnson(t)
(I assume that Anthony Carter exercises his player option. I assume that Heat does not exercise the team option of Ken Johnson. Also, note that to get this space under the salary cap, the Heat has to renounce all of its exceptions and free agents, including Alonzo Mourning and Malik Allen.)
Note that we have to add about another $1.5 million to Miami’s committed total because of the 11 player minimum. If the salary cap hits at $41 million, this would put the Heat just $5.3 million below it, less than the full value of the MLE and million dollar exceptions. I think the Heat will just use its MLE and million-dollar exceptions, since this would give them the option of signing some of their own free agents, as well. So unless the salary cap is much higher than $41 million, the Heat likely will not be below the salary cap.
With a productive #5 pick, a semi-healthy Alonzo Mourning (if they can re-sign him), solid MLE and million dollar additions, the Heat could be right in the hunt again for the Eastern Conference crown. I think that is the route they will go, especially with Riley at the helm.
25. Los Angeles Clippers - [Committed in 03-04: $12.1M] (Profits: +$11M in 00-01, +$16M in 01-02, and +$15M to +$25M in 02-03)
Free Agents: Michael Olowokandi, Elton Brand(r), Lamar Odom(r), Andre Miller(r), Corey Maggette(r), Eric Piatkowski, Sean Rooks, Wang Zhizhi(t), Cherokee Parks
(I assume that the Clippers guarantee Marko Jaric’s contract and do not necessarily pick up the team option on Wang Zhizhi.)
Simply not renouncing Elton Brand, Lamar Odom, Corey Maggette, and Andre Miller ties up about $34.5 million, so until most of the Clippers have found homes, the Clippers will not be under the salary cap,
despite what Peter May thinks. I think there is a very good chance that all four of these players eventually take the qualifying option from the Clippers. But that is a bit of a risky move, since I do not see many teams with a lot of space under the salary in the summer of 2004 - more on this below.
I do not, however, see the Clippers with any significant free agent signings, except for their own players.
TEAMS UNDER THE SALARY CAP
It will be interesting watching these teams and the Clippers to see who spends their money this year and who saves their money for next year. I will discuss in more detail my predictions about these teams after I discuss the free agents. Overall, I expect this group to offer about five to seven MLE or above contracts, not including Tim Duncan.
26. Washington Wizards - [Committed in 03-04: $35.2M] (Profits: -$6M in 00-01, +$13M in 01-02, and +$30M to +$40M in 02-03)
Free Agents: Tyronn Lue, Byron Russell, Michael Jordan, Charles Oakley, Bobby Simmons
(I am assuming that Jerry Stackhouse exercises his player option for $6.9 million. Update: The Wizards signed Jerry Stackhouse to a two-year extension for $18.7 million – quite a bit more than I think he would have received on the open market.)
Note that we have to add about another $0.4 million to Washington’s committed total because of the 11 player minimum. If the salary cap hits at $41 million, this would put the Wizards just $5.4 million below it, less than the full value of the MLE and million dollar exceptions. However, the Wizards already have a lot of players (and not much in terms of its own free agents), so I would expect them to renounce their free agents and exceptions so that they are under the salary cap. This way they would be able to offer a player slightly more than the MLE exception.
27. San Antonio Spurs - [Committed in 03-04: $23.6M] (Profits: -$2M in 00-01, +$8M in 01-02, and +$2M to +$12M in 02-03)
Free Agents: Tim Duncan(p), David Robinson, Danny Ferry(ng), Steve Kerr, Speedy Claxton, Stephen Jackson, Kevin Willis, Menk Bateer, Steve Smith
(I assume that Tim Duncan exercises his player option and I have included Tim Duncan’s very likey $12.6 million contract in the committed category. I assume that the Spurs do not guarantee Danny Ferry’s contract.)
To get the Spurs salary cap space, we should add $0.9 million for Stephen Jackson’s salary cap hit, and
$1.8 million because of the 11 player minimum, which puts the Spurs at about $26.3 million – about $14.7 million below a salary cap of $41 million (This is assuming that the Spurs can get completely out of Danny Ferry’s $4.5 million contract. If a large fraction of that contract is guaranteed, then the Spurs may not have enough salary cap space to offer Jason Kidd or Jermaine O’Neal a maximum salary contract, depending on where the salary cap ends up.)
With a $41 million salary cap, Jason Kidd and Jermaine O’Neal would cost about $12.3 million, leaving only about $2.4 million for other free agents (not including Stephen Jackson). Thus, once the Spurs sign Tim Duncan, it only has enough salary cap space for one maximum salary player or two players at slightly above the MLE. Thus, adding Jason Kidd likely would result in a minimum salary player (or slightly above) backing up Tim Duncan and Malik Rose, which would really hurt their chances of beating the Lakers again. I think lots of people are wildly overestimating how much salary cap space the Spurs have.
The Spurs also renounce Speedy Claxton (and all of their other free agents, except Stephen Jackson) under this scenario. Failing to renounce Speedy Claxton would result in another $3 million hit to the salary cap – something the Spurs are very unlikely to do. Also, if teams start offering Stephen Jackson money right away in the free agent season, the Spurs may have no choice but to let him go. They cannot afford to re-sign Stephen Jackson for something near the MLE until after they have acquired their other free agents. Thus, the Spurs very easily could lose Stephen Jackson as well.
However, long-term is where the Spurs have the most serious problems. Under reasonable scenarios for re-signing Emanuel Ginobili (the Spurs most likely will only be able to offer him up to the MLE – similar to Gilbert Arenas and the Warriors this year), Bruce Bowen, and Tony Parker in the next few years, along with a maximum salary free agent pick-up this year, the Spurs easily could be between $10 and $20 million above the luxury tax threshold in 2005-06 through 2008-09. Given their small market, this would practically guarantee that they would lose a lot of money during these years, even if they were winning championships.
As mentioned above, the luxury/escrow tax system is a killer for small market teams trying to keep together a dynasty,
and even though Peter Holt thinks the luxury tax system is good for his team, he is wrong. Unless changes are made to this system, in a few years he will have to choose between losing a lot of money and breaking up his team.
28. Denver Nuggets - [Committed in 03-04: $23.1M] (Profits: -$8M in 00-01, -$5M in 01-02, and +$8M to +$18M in 02-03)
Free Agents: Juwan Howard, Shammond Williams, Donnell Harvey, Chris Andersen, Junior Harrington(ng), Predrag Savovic(ng), Vincent Yarbrough(ng), Jeff Trepagnier, Adam Harrington
(I am assuming that the Nuggets do not guarantee its non-guaranteed contracts to Junior Harrington, Predrag Savovic, and Vincent Yarbrough, but remember the Nuggets may not be able to get completely out from under these contracts. Also, given how much space the Nuggets have, they may end up guaranteeing them.)
Note that we have to add about another $1.8 million to Denver’s committed total because of the 11 player minimum. If the salary cap hits at $41 million, this would put the Nuggets at about $16.1 million below the salary cap. This would require that the Nuggets renounce Juwan Howard. The Nuggets should be in a competitive position for players above the MLE. However, there are not a lot of players that are worth more than an MLE that will not be retained by their own teams. I would not be surprised if the Nuggets stock up on one-year contracts and try their hand next year when restricted free agents from the Clippers and other teams may be back on the market.
(The Charlotte Bobcats, Utah Jazz, and the Los Angeles Clippers may be the only teams significantly under the salary cap next year, and there is a possibility that any or all of these teams may not be.)
29. Utah Jazz - [Committed in 03-04: $22.6M] (Profits: +$3M in 00-01, +$2M in 01-02, and +$14M to +$24M in 02-03)
Free Agents: Karl Malone, John Stockton, Calbert Cheaney, Mark Jackson, Scott Padgett, Carlos Arroyo, Tony Massenburg
Note that we have to add about another $0.7 million to Utah’s committed total because of the 11 player minimum. If the salary cap hits at $41 million, this would put the Jazz at about $18.7 million below the salary cap. The Jazz may not want to immediately renounce Karl Malone, perhaps signing and trading him for an ending contract and a draft pick or future prospect. The Jazz, like the Nuggets, should be in a competitive position for players above the MLE. However, there are not a lot of players that are worth more than an MLE that will not be retained by their own teams. I would not be surprised if the Jazz stocks up on one-year contracts and tries their hand next year when restricted free agents from the Clippers and other teams may be back on the market.
FREE AGENT ANALYSIS
Maximum Salary Players: Tim Duncan, Jason Kidd, Jermaine O’Neal, Elton Brand(r)
Each of these three players is likely to command the maximum salary, although Elton Brand may take the qualifying option with the Clippers, so that he can become an unrestricted free agent next year. Personally, I think the Spurs would be best off with Jermaine O’Neal or a combination of Gary Payton and Brad Miller, which would leave Jason Kidd for the Nets or (in a sign-and-trade) for a team like the Mavericks. I think the Pacers will do everything in its power to keep Jermaine O’Neal, so I think it is very unlikely that any of these players end up with a team like the Nuggets or Jazz.
Below Maximum Salary, Possible MLE Players:
Center (6): Brad Miller, Alonzo Mourning, Michael Olowokandi, Rasho Nesterovic, Arvydas Sabonis(ng), Elden Campbell
Power Forward (6): PJ Brown, Juwan Howard, Karl Malone, Robert Horry, Derrick Coleman
Small Forward/Shooting Guard (10): Corey Maggette(r), Lamar Odom(r), Scottie Pippen, Stephen Jackson, Richard Hamilton(r), Jim Jackson, James Posey(r), Reggie Miller, Kenny Thomas(r), Jumaine Jones(r)
Point Guard (4): Andre Miller(r), Gilbert Arenas, Jason Terry(r), Gary Payton
There are 26 players in this list, but many probably are reaches for an MLE. If I add up the number of MLE players from each of the groups of teams above, it adds up to between 19 to 33 MLE contracts. Because I do not think there are that many players that teams will be willing to pay the luxury tax for, I am expecting 19 to 22 players on this list to land salaries at the MLE and up to the maximum, with 4 to 7 landing contracts significantly above the MLE. Consequently, 4 to 7 of these players are likely to be available for less than the full MLE.
Possible Above Minimum Players, Below MLE Players:
Center (8): Kevin Willis, Sean Rooks, Wang Zhizhi(t), Sean Marks, Shawn Kemp, Pat Burke, Andrew DeClerq, Jake Voskuhl
Power Forward (10): Danny Ferry(ng), Malik Allen, Corie Blount, Brian Skinner, Tyrone Hill, Gary Trent, Samaki Walker, Mark Madsen, Scott Williams, Popeye Jones
Small Forward/Shooting Guard (20): Donnell Harvey, Byron Russell, Jon Barry, Lucious Harris, Fred Hoiberg, Demarr Johnson, Dion Glover, Ira Newble, Darvin Ham, Kendall Gill, Walter McCarty, Voshon Leonard, Adrian Griffin, Raja Bell, Walt Williams, Lee Nailon, Laphonso Ellis, Anthony Peeler(ng), Eric Piatkowski
Point Guard (17): Mark Jackson, Steve Kerr, Tyronn Lue, Travis Best, Chris Whitney, Darrell Armstrong, Jacque Vaughn, Erick Strickland, Anthony Johnson, Rod Strickland, Earl Boykins, Damon Jones, Charlie Ward(ng), Kevin Ollie, Kenny Anderson, Antonio Daniels, Speedy Claxton
Adding the 4 to 7 remnants from the above group to this list of 55 players results in a lot of players who could be had for about the million dollar ($1.5 million) exception. Most of these players probably will get minimum contracts. It is in this group where the best bargains are likely to be found.
Overall, this market is very difficult to predict, because so much hinges on what the Clippers and Spurs decide to do. But here are a few guesses that I have.
The MAX Players
Tim Duncan – He resigns with San Antonio – easiest call of the season.
Jason Kidd – I think he stays with the Nets with a maximum six-year contract, although I think a trade with the Mavericks is a possibility. (What about Michael Finley, Steve Nash, Shawn Bradley, and filler for Jason Kidd and Dikembe Mutumbo?)
Jermaine O’Neal – If the Pacers can complete an Austin Croshere and one of Al Harrington/Ron Artest/Jonathan Bender for Terrell Brandon and filler, then I think Jermaine O’Neal stays with the Pacers. Otherwise, I think he leaves for the Spurs.
The Clippers’ Restricted Free Agents
Elton Brand – He accepts his qualifying offer with the Clippers and waits for next year.
Andre Miller – Unless the Jazz picks up a good point guard in a trade, I think they sign Andre Miller to a 6-year $50 to $55 million deal and the Clippers do not match it.
Lamar Odom – If the salary cap rises to $42 million, then the Wizards sign Lamar Odom to a 6-year $42 to $47 million deal and the Clippers do not match it. Otherwise, I think he either accepts his qualifying offer with the Clippers or the Clippers match another team’s offer.
Corey Maggette – Corey Maggette signs a three-year $16 million MLE contract with another team (possibly the Bulls or the Wizards), and the Clippers match it. Corey Maggette is young enough that he can afford being stuck with the Clippers for another three years. The three-year MLE contract is more than he likely would get by accepting the qualifying offer and entering the free agent market next year.
The Centers
Brad Miller – Brad Miller re-signs with the Pacers for $47 to $52 million over six years, and perhaps for a bit less if they re-sign Jermaine O’Neal and are able to complete a trade for Terrell Brandon. However, Gary Payton and Brad Miller to the Spurs is a possibility, as well.
Michael Olowokandi – He signs for $45 million over six years with the Nuggets.
Rasho Nesterovic – The Timberwolves go for broke this summer, and re-sign Rasho Nesterovic to a 6-year $40 to 45 million contract.
Alonzo Mourning – Unless the Mavericks trade for someone like Dikembe Mutumbo, I think Alonzo Mourning signs with the Mavericks for three years at the full MLE, provided that he is healthy.
The Veteran Power Forwards
Karl Malone – After bringing in Andre Miller, the Jazz saves the rest of its money for next year, perhaps for Elton Brand. They offer Karl Malone a one-year deal for $7 to $9 million. After being courted by a few different teams, Karl Malone accepts it.
PJ Brown – He is tempted with a three-year MLE deal from the Lakers, but signs a four-year $25 to $30 million deal with the Hornets.
Juwan Howard – He signs a three-year $16 million MLE deal with the Lakers.
Other Key Free Agents
Gilbert Arenas – After coming close to signing a one-year MLE deal with the Warriors, Gilbert Arenas signs a six-year $55 to $60 million deal with the Nuggets – just barely above what Andre Miller signs for.
Gary Payton – If Jermaine O’Neal does not sign with the Spurs, I think that Gary Payton and Brad Miller to the Spurs is a possibility – both being paid a bit over the MLE. Otherwise, I think that Gary Payton is likely to end up in with the Trailblazers, Heat, or back with the Bucks.
Scottie Pippen – If the Bulls are able to unload Jalen Rose or Eddie Robinson, he signs with the Bulls for two years for $10 million. Otherwise, he re-signs with the Trailblazers for a bit more than that.
Richard Hamilton – I am not sure if there will be anyone competing with the Pistons for Richard Hamilton. I think he re-signs with Pistons for 6 years at $35 to $40 million.
Jason Terry – One of the losers of the Gary Payton bidding (the Bucks or Heat) makes a bid for Jason Terry. I suspect that the Hawks end up with Jason Terry for six years for $35 to $40 million.
James Posey – I don’t see a lot of competition for James Posey, perhaps the Bulls, and I see the Rockets ending up with him for five years at 4 years at $25 to $30 million.
Stephen Jackson – He re-signs with the Spurs for six years for $30 to $35 million.
I think this will be about it in terms of who ends up with MLE-type contracts. I think the remainder of players in the list above will be paid significantly less than the MLE. I think the biggest bargains in this free agent market will be in this sub-MLE market.
ASSUMPTIONS
(1) I have guessing a 2003-04 salary cap of $41 million and a 2002-03 luxury tax threshold of about $52 million. The Clippers
are predicting a 2003-04 salary cap of $40 to $42 million, and
Frank Hughes is predicting a 2003-04 luxury tax threshold of $52.5 million, so this assumption seems about right.
(2) I have assumed that teams under the cap renounce all of their free agents and trade exceptions, unless their trade exeptions would put them over the cap.
(3) I have included salaries for 1st rounders at 120% of the rookie scale.
See Larry Coon's site for a fabulous description of CBA issues. Thanks, Larry!
(4) I have assumed that teams do
not exercise team options, except in the most obvious of cases.
http://<u>See Patricia Bender’s site... Patricia!</u>
(5) What I call “profits” is before taxes and before stadium debt payments. I also expect that some substantial revenues are not included in these “profits,” such as some licensing revenue and synergies to other business the team owns. Furthermore, since one-time payments, such as expansion fees, and franchise appreciation are not included in these “profits,” I suspect the “profits” that I report are lower bounds for the “true profits” that these teams receive.
(6) My salary and contract status information comes from a highly reliable non-public source. It is occasionally wrong, but is better than what is at HoopsHype and is often reported in various newspapers.
I might add some more to this post later, or add some additional analysis in a later post in this thread. Please let me know if you see some mistakes in this thread, and I will try to make changes if I agree with what you call a mistake. I certainly hope this starts an interesting set of conversations. Have Fun!
Dan Rosenbaum is an assistant professor of economics at the University of North Carolina at Greensboro and has been cited in several newspaper and ESPN web-site articles on NBA-related issues. He also has done some consulting work for the National Basketball Players Association (NBPA), but this piece in no way reflects their views. Rosenbaum also has done some unpaid consulting for a couple NBA team.
2003 Complete Free Agent Analysis
