Best Situated For New NBA Economy

By: Eric Pincus Last Updated: 7/19/11 10:07 AM ET | 1270 times read

Soon the NBA will have a new Collective Bargaining Agreement (CBA). Of course "soon" is a relative term and hopefully in this case it will be well before games and/or the season is canceled.

With the owners looking to put in a hard(er) cap while locking in a bigger piece of the pie at the players' expense, which teams are best situated for the new NBA economy?

The short answer, if the league gets its way, is "All of them."

The Haves
When it came down to negotiating with the Los Angeles Lakers before the NBA Draft, the Minnesota Timberwolves hoped to get Pau Gasol in what would be a salary dump for L.A.

The thinking was a hard cap could force the Lakers to have to make drastic moves to reduce payroll.

While it's true salary limitations, along with greater revenue sharing, might hurt the Lakers, no matter how you break it down the teams bringing in big dollars are going to remain in a position of power.

The Lakers, the New York Knicks, Chicago Bulls are three of the top tickets in the NBA, by revenue. Whatever the rules, those are the teams with the capital.

A hard cap would make it harder for L.A. to keep its core together. It might make it extremely difficult for the Knicks to add a third star to play with Amar'e Stoudemire and Carmelo Anthony. The Bulls need to give Derrick Rose a new contract after next season, which may take away the necessary flexibility to add to the team.

How it will resolve is unclear.

The Players Union has been clear a hard cap is a nonstarter and the league has already moved off the most extreme position, going with a flex cap which has a higher limit but still an upper range that can't be breached.

The Lakers are on hook for about $91.6 million next year although both Lamar Odom and Andrew Bynum's contracts are not guaranteed the following season (Odom is partially locked in for $2.4 million). If the Lakers were forced to trim payroll, it would probably be over a period of years as the system's restrictions are graduated in.

The Knicks in particular are well positioned as one of the league's top money-makers but also as a squad that has just $45 million in committed salaries after next year.

The Bulls are at about $61 million heading into next season. Of the $54 million they have on the books for the 2012/13 season, the contracts of Kyle Korver, Ronnie Brewer and C.J. Watson aren't guaranteed (except for $500k to Korver) . . . before they re-sign Rose.

The Lakers do have their local television deal with Time Warner Cable kicking in after next season, bringing in about $150 million a year (a sizable increase over the $30-50 million, roughly, the Lakers are currently getting from Fox Sports West and K-Cal).

The issue for a team like the Lakers would be limited spending power and a sizable obligation to revenue share.

Still, most every team aspires to be on that side of the equation.

Big Spenders
Any number of teams in recent years have spent big, big money to chase a title. It paid off in 2008 for the Boston Celtics but hasn't since despite their 2010 return to the NBA Finals in a losing effort.

It's the notion that it takes spending into the luxury tax to reach the highest heights that has bled the profit from some of the bigger name teams.

The Orlando Magic have spent to win a championship. They just haven't gotten it done. Now they may lose Dwight Howard because the money went to the wrong players . . . or maybe it was just bad luck against the Los Angeles Lakers in the 2009 NBA Finals.

The Dallas Mavericks finally got their ring but it's cost Mark Cuban a small fortune (which fortunately for him, as a billionaire, was worth every penny to generate a title).

The Mavericks and Magic may be bringing in dollars but Dallas (with luxury tax) paid out around $105 million in salary last season. Orlando, in an even smaller market, spent $109 million. The new CBA may do away with the luxury tax system altogether which would have trimmed some $17.6 and $19.6 million off of the Dallas and Orlando payrolls, respectively.

That's not to say money equals playoff success. It took forever for the Knicks to get back in the playoffs and they didn't make much noise at all once there this past run.

The Atlanta Hawks beat the Magic in the first round of the playoffs, despite spending $39 million less in payroll. The Oklahoma City Thunder nearly made it to the NBA Finals with about $51 million spent on players.

Other examples of big spenders would include the Denver Nuggets, San Antonio Spurs and, to a lesser extreme, the Hawks - who will be paying $18-$24 million to Joe Johnson alone over the next five years but still struggle to sell-out playoff home games.

Each of these teams has been losing money. Be it market, not enough local television income (Boston) or just overspending, it's expensive to compete with teams like the Knicks, Bulls and Lakers without a matching level of income and a reasonable payroll.

Getting the spending reigned in across the board, ideally, will provide each of these teams a chance to compete without toiling through years in the red.

In the case of the Magic, a soft franchise tag might make it more likely that Howard extends his contract.

Up And Comers

The NBA attests only eight teams profited this last year. Among those are believed to be the Knicks, Bulls, Houston Rockets, Detroit Pistons, Oklahoma City Thunder, Los Angeles Clippers and Lakers.

Note that most published estimates are indeed just that . . . estimates. The books have gone to the union but nothing has been released publicly.

A number of teams have found a way to profit and compete. Some are still trying to figure out a winning formula but show signs that they may soon break through.

The Thunder are considered to be one of the league's more profitable teams despite the smaller market. Of course, Kevin Durant and Russell Westbrook are a big reason why the Thunder have been successful financially. The team's two young stars have been playing on rookie contracts, allowing for the team's payroll to stay low.

The Thunder had extra cap space to spare during this past season, leading to an unorthodox contract extension for Nick Collison who ended up with a rare signing bonus that made his cap number $13.3 million in 2010/11. Collison got the bulk of his money when the Thunder could afford it. His contract for next season actually starts at $3.3 million and declines over a four-year period to $2.2 million.

It's going to get trickier for Oklahoma City over time given that Durant's extension jumps up to $13.6 million this coming season. Russell Westbrook is due for his extension after this year. Serge Ibaka and James Harden have begun to blossom as players and their contracts come up in the summer of 2013.

What Commissioner David Stern and the rest of the owners are trying to do is come up with a system where smaller contracts, with fewer guarantees, will allow for a team like the Thunder to keep their core together at a reasonable dollar figure.

Of course the players are naturally resistant.

The Thunder represents teams that are profitable because they're young, exciting, in the playoff hunt and relatively inexpensive. For the coming season they have about $51.9 million locked in and only $45 million the next.

The hardest part in recent years has been keeping things inexpensive as players blossom. The new NBA economy may not solve the issue in its entirety, but it may help OK City stay together while maintaining a profit.

The Clippers have yet to prove they're a playoff team, but with the emergence of Rookie of the Year Blake Griffin they may be inching closer to that mark. They're also a team with significant financial flexibility with about $45 million going into the coming season and just $25 million the next year.

Guard Eric Gordon will need to be re-signed after this coming season and Griffin's deal comes up in 2013, but the Clippers plan to spend whatever it takes to retain both. That's where the new CBA should help. The Clippers will have major spending power and with salaries expected to go down in the new deal, they may be able to round out a potent roster and positive cash flow.

Based on record historically some have written the Clippers should be contracted should the league go in that direction, but LAC is actual a model franchise when it comes to economics.

They aren't the Lakers but they have their niche in Los Angeles. The team has no debt and manages to keep a small profit.


MORE BY ERIC PINCUS

Layoffs And Lockout Fatigue: The NBA lockout can't get in the way of Shaquille O'Neal's rookie season...
NBA Chat With Eric Pincus: HOOPSWORLD Senior Writer Eric Pincus answers your questions on the L.A....
15 Current Players Already Bound to the Hall: Judging by the mysterious standards of the Basketball Hall of Fame, 15...
View Eric Pincus Archive
Part of the lockout is competitive balance but that hasn't been the issue with the Clippers (despite the record). Depending on how revenue sharing resolves, LAC may end up with additional financial support as well.
Sharing is an issue the owners are trying to keep separate from the player negotiations but could be a significant factor for teams like the Thunder are Clippers.

Transition Teams
The Utah Jazz have lost money in recent years because they've put competition as a higher priority than profitability. The team didn't have tremendous playoff success but ownership spent heavily to try and get there.

A number of teams are rebuilding. After the Deron Williams trade, it's difficult to say where Utah goes looking ahead. They're one of the model small-market teams, competing on a budget - spending more than they probably should at times but giving the fans a solid product.

The new CBA should help even the playing field and the Jazz have just $57 million on the books this coming year and $43 the following. Should they look to trade Al Jefferson, Paul Millsap or Mehmet Okur (as an expiring contract), they'll probably get a solid return.

For teams to bring in the revenue (and fans), generally they need to stay in the playoff hunt at or above .500.

How many teams have spent years trying to get through unfortunate contracts?

The Toronto Raptors have a solid Canadian fan-base and a low payroll ($46 million), but it's unclear exactly how this 22-60 team is going to improve.

The owners want to make it easier for teams to keep their existing stars with a soft franchise tag that wouldn't require a player like Chris Bosh to stay, but would give him greater financial incentive to stay.

Of course the Raptors need to find that franchise star. Andrea Bargnani can be a match up nightmare with his outside shot but he still hasn't developed a complete game. Jonas Valanciunas may be the sleeper pick of this last draft. Toronto management has a lot of work to do to get a competitive team together but the new CBA should put the Raptors on a more even playing field.

The Phoenix Suns are also in transition with only $4 million of Vince Carter's $18.3 million guaranteed. If they eventually cut him, as expected, the team's payroll drops to $52 million. Steve Nash is going into his last year and depending on what the team does with restricted free agent Aaron Brooks, the Suns' total may drop to as low as $30 million the following season.

The Phoenix community will support their team. Smaller player contracts will help in the post-Nash era . . . or maybe inspire Steve to continue a few more seasons with the Suns.

Over half of the league is seemingly "in transition."

Teams Needing Support
The Sacramento Kings nearly departed for Anaheim. They're losing money, don't have much on payroll, and didn't get the kind of fan support they needed.

Times were so tight for the New Orleans Hornets the franchise was sold to the NBA.

The Indiana Pacers were a playoff team this past year but they need more revenue. It took years for Indiana to get out of some poor decisions (Troy Murphy, Mike Dunleavy Jr., etc.). They finally have the spending power but need to fill the stands to make it worthwhile.

Sometimes it's about making the right decisions and the new CBA will help prevent teams from taking on players (who don't produce) for too long.

In other cases, like with the Hornets, it's just too difficult an economic climate to support a team. If the NBA had its way, location in general should not be a problem. Every team has a story. The owners have competing interests as the big market teams want to maintain their economic advantage while minimizing revenue sharing.

The smaller markets are tired of overspending to compete. The up and comers will find it easier to get there economically, although in all cases the right basketball decisions need to be made.

That's not a given so the NBA is looking for easier exits to erase mistakes. Rebuilding and transition shouldn't take years.

Naturally the players want as much as they can lock in for as long as they can lock it in. Unfortunately the owners can't support the current business model any longer. Where the compromise is made is unclear but if the owners get their way, every single team will be better situated once play resumes.

112288