So, the NBA Finals just concluded, then the Draft and now Free Agency began. What that used to mean was players who no one has heard of changing jerseys. However, in the modern NBA, player movement is incredible. In fact, most the top players opt for shorter or even 1 year contracts to leave their options open for not just more money, but a better team.
Free Agency Basics
So, for the newbies out there, let’s go over how free agency works. On the team side, each team has a limit they can spend on salaries. That limit is called the “salary cap” which means a team can only spend a set amount of money on the player salaries in a given year. The NFL has a “hard cap,” which means that a team cannot go over that cap in a given year. Major League Baseball and the NBA have a “soft cap” which means you can go over the number, but if you do, then you pay a “luxury tax” to the league. That money is redistributed among the other teams in subsequent years. The NBA cap in 2018-2019 is up to $108MM. Teams do have to spend at least 90% of the cap each year. The luxury tax amount is capped each year, too, so teams can exceed the game up to $20MM over the cap, but will pay a percentage to do so.
The luxury tax is layered based on how far a team goes over the cap. The higher they go over the cap, the steeper the penalty. In fact, if a team goes over the cap in back to back years, the penalties are even sharper. So, it is rare for teams to continue to do that. The exceptions would be teams that are winning championships. However, the better practice is to have your high end players paid handsomely, then have several roles players that rotate year in and year out to avoid the cap and still win with the stars on your team.
Now, that is the team side of the equation. On the player’s side, they sign a contract with a given team. The contract will dictate the terms based on duration and actual salary. In the NBA, the salaries are predominantly guaranteed. If a player signs a deal that is 2 years and $20 million, then that player gets paid $10MM a year whether they get hurt or not. So, a player wants to make the most money they can, of course. Since the league is so healthy with a lucrative TV deal and viewership across the globe, the salary cap keeps going up. That is good for the players. The more money a team spends means the more a player will get since the roster size is fixed.
Modern Free Agency
As stated, the NBA player of today has benefitted from a very rich TV deal with the league and wide popularity. To give you an idea, in 1993, Michael Jordan won his 3rd NBA title and had multiple MVPs, clearly the best player in the game. His salary that year was $4 million. He did later jump up to $30MM at the end of his career. However, the salaries were just much lower then. Lebron James just signed with the Lakers for 4 years and $154 million, that is $38.5MM per year. Almost 10x that of Jordan at the same age, basically. Incomes in the United States have not gone up at that clip. In 1993, the average US salary was around $51K. In 2017, the average US salary was $88K that is an increase of 170%. So, the impact is really not at the top of the league, but at the middle and bottom. Players are making so much more money to play this game than ever before and not by a little by a huge factor.
The way players are able to leverage their position is by signing shorter term deals. Like Lebron, he signed a deal that gave him a player option to opt out of his contract, which made him a free agent. That move allowed him to either change teams or to stay with his current team at the current salary market (which of course was higher). You see that more and more in the NBA since the demand for quality players is so high. Where in the NFL, the contracts are not guaranteed, so the players are looking for the largest guaranteed portion of the contract and a longer term for security. NBA players seem to not need the security of a long deal, since they can get re-signed for more money year in and year out.
So, as I review the movement in the past couple days, keep in mind not just the number a person signs for, but the duration of the deal. Also, take a look at how many players really just stay with the same team but get paid more.
Top Names
Lebron James – Signed with the Los Angeles Lakers after a 3 hour meeting. He gets the amount written above – 4 years and $154MM. Now, that is a longer deal than he has signed in Cleveland. To me, this is his last contract in the NBA. He is going there to work with the young Laker nucleus, but I’ve heard a lot about getting another big fish there maybe next year.
Chris Paul – Re-Signed with the Houston Rockets for 4 years and $160MM. This was no surprise given their success this year. That makes Paul the highest paid NBA player currently.
Paul George – Re-Signed with the Oklahoma City Thunder – 4 years and $137MM. George played will last year, but if this team wants to win, then they have to address the Carmelo Anthony problem. The Thunder with Lebron in LA may still only be a Top 5 team in the West.
Kevin Durant – Re-Signed with the Golden State Warriors – now, he only signs a 2 year deal with a player option in Year 2, so essentially a 1 year deal. He will make $35.65MM per year.
Other Huge Free Agents not decided/signed:
- DeMarcus Cousins – New Orleans Pelicans, but unrestricted free agent coming off Achilles tear. There is a lot of talk about Cousins moving, even to the Lakers.
- Kawhi Leonard – San Antonio Spurs, Leonard is not a free agent, but his camp has been very vocal about wanting to be traded. Leonard becomes a free agent after next season, so the team that gets him via trade will need to feel like he will stay in order to give up players and/or picks. Leonard also may go to the Lakers, but he has been rumored to go a lot of places. We have to wait on that one.
Next Tier Free Agents of Note:
There are really dozens of players out there looking for deals. Here are a few that piqued interest.
- DeAndre Jordan – Jordan opted out of his player option from the Los Angeles Clippers where he was set to make $22MM. He has signed a 1 year deal for $24.1MM with Dallas, now he agreed in principal with Dallas 3 years ago, but changed his mind and got more from the Clippers. This time, he will stay in Dallas.
- Aaron Gordon – Re-Signed with the Magic for 4 years and $84MM – Gordon was playing under his rookie deal at $5.5MM per year – Gordon was a “restricted” free agent which meant that Gordon could accept offers from other teams, but the Magic would have the right to match the offers presented. Most free agents discussed here are “unrestricted” or they can sign with any team they want and not be matched.
- Derrick Favors – Re-Signed with the Utah Jazz for 2 years and $36MM, Favors made $12MM per year this year.
- Will Barton – Re-Signed with the Denver Nuggets after a really good year for 4 years and $54MM – the 4th year is a player option. Barton made $3.54MM last season.
- The Lakers were also busy at other positions signing – Golden State big man, JaVale McGee for 1 year for $2.4MM and Lance Stephenson formerly of the Pacers (and Lebron irritant) for 1 year and $4.5MM
- Clint Capela – the Houston Rockets center is a restricted free agent, and he played really well this season, including a great post-season. Look for him to get a nice offer from Houston.
The wheel will continue to turn over the next few days. Let’s see if there are any other big moves made. With Lebron in LA, they may be waiting a year to grab Kawhi, unless they can figure out something for DeMarcus Cousins off the injury.
Wegs