|Keeping both James Harden (left) and Serge Ibaka may cost OKC more than it can afford. (Getty Images)|
MIAMI -- In the aftermath of a compelling NBA Finals, a championship coronation for LeBron James and his Miami Superteam, the question is -- as always -- what now?
That question ripples through the NBA, from the biggest of big markets to the smallest of small, especially now, as the league ventures into new salary cap and player movement guidelines that resulted from the 149-day lockout that almost canceled the season.
How do the Heat add to their championship roster? How do the Thunder keep their core together and still have flexibility to make the improvements necessary to get back to the Finals? How does the rest of the league catch them, and more interestingly, which model prevails? The clear-space-and-load-up-on-stars model? Or the patient, snail's-pace, build-from-within approach?
These questions take on even broader significance in the coming days as executives, agents and players prepare for the first full-fledged free agency period since the new collective bargaining agreement reset the NBA's economic and competitive model. In the coming days, officials from the National Basketball Players Association will continue holding a series of regional conferences around the country to explain the new rules to agents who will be negotiating contracts and trying to arrange trades under the new rules.
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Under the CBA ratified by owners and players in December, the salary cap and luxury tax threshold cannot go lower in 2012-13 than their levels in the first year of the deal -- $58 million and $70.3 million, respectively. Despite a robust post-lockout recovery that included salvaging all $900 million or so of the league's national broadcast revenues, sources familiar with the NBA's finances believe overall revenues did not increase enough in 2011-12 to push the cap and tax significantly beyond current levels until 2013-14, the first season under a more punitive luxury tax designed to rein in big-spending teams.
Current spending levels are expected to be status quo when the free-agent floodgates open July 1. But the restrictions within that model are much harsher, and it isn't clear yet who the winners and losers will be.
While NBA officials have lauded the presence of so-called small-market teams in the playoffs -- commissioner David Stern specifically has mentioned Oklahoma City, San Antonio, Indiana, Memphis and Utah -- this season was simply more of the same. Three of the four teams to reach the conference finals were in the top five in the league in payroll: Boston (2), Miami (3), San Antonio (5) and outlier Oklahoma City (17), according to league salary data.
Of the top five teams in average payroll for the past five seasons, all made the playoffs: Dallas (1), the Lakers (2), Boston (3), New York (4) and Orlando (5). Only Memphis (27) and Oklahoma City (28) made the postseason from the bottom five in average payroll over the past five years. Charlotte (26), New Jersey (29) and Sacramento (30) did not.
League executives expect the spending gap between the top and bottom to narrow as the effects of the new CBA kick in, beginning in 2013-14 with vastly more onerous luxury-tax provisions. Indeed, some of the financial reset is expected to phase in during free agency this summer as teams position themselves to comply with the new guidelines and new player contracts begin to converge with old ones on teams' salary books.
But deputy commissioner Adam Silver, the league's lead negotiator during the lockout and chief proponent of flattening payroll disparity to enhance competitive balance, has admitted that no one knows for sure what the effects will be. Indeed, when the previous CBA went into effect in 2006, league executives expected the luxury tax would be more of a spending deterrent for high-revenue teams than it wound up being in practice. By the end of the deal last season, seven teams were taxpayers: the Lakers, Magic, Mavericks, Celtics, Jazz, Trail Blazers and Rockets.
"It's very difficult to predict behavior under these systems," Silver said.
The cruel irony for a small-market team like the Thunder is that no matter how much restraint and smarts GM Sam Presti has exerted in building a championship-caliber team through the draft, with minimal dalliances in free agency, it may prove difficult or even impossible to keep the core pieces of his roster together. James Harden and Serge Ibaka, two key players in Oklahoma City's trip to the Finals despite their poor play against Miami in the series, are eligible for extensions this summer. If long-term agreements can't be reached, they will become restricted free agents in 2013.
The Thunder have $63 million in payroll committed for next season, which almost certainly will be the team's sixth consecutive year under the luxury tax line. In 2013-14, the first year of the harsher tax, their committed payroll is $54 million, according to league salary sheets. That means if Presti adds no other players and trades all his draft picks, he'll have between $16 million and $20 million to commit to Harden and Ibaka without dipping into the tax. How league revenues grow over the next year and how high the tax line rises could be the biggest factors in whether the Thunder can keep their current core players. Enhancing the supporting cast will be another matter, and look no further than which uniform Shane Battier was wearing in the Finals. Battier signed with the Heat instead of the Thunder last summer because Miami offered a three-year deal. A third year with Oklahoma City would have eaten into the precious cap space that will be needed for the tough choices ahead.
Without big-market ticket prices, high-dollar signage deals and the kind of massive local TV deals the Lakers and Celtics have recently signed -- with Miami and Dallas next in line -- the Thunder may find it implausible to use the kind of spending exceptions that high-revenue teams can justify. For example, if the Thunder exceeded the 2013-14 tax threshold to re-sign Harden and/or Ibaka, they would have only the taxpayer midlevel to offer role players on the free-agent market. But how could they justify the cost? The exception will be $3.2 million in 2013-14, but with the new tax penalties, it actually represents an $8 million investment for a team that is up to $5 million over the tax. The new tax will be $1.50 for each $1 over the tax threshold for such teams, and the cost gets steeper from there.
No one can predict what steps Presti will take to push the Thunder to the next level, but it's clear that paying $8 million for an average player has never been part of his formula. And while revenue-sharing enhancements ostensibly are in place to redistribute the NBA's $4 billion of wealth and help low-revenue teams, many executives are unfamiliar with the criteria and are having difficulty factoring that into their long-term payroll and roster planning. So in effect, drastic system changes designed to help small-market teams be more competitive may actually thwart the small-market Thunder's ability to keep a prudently built roster of home-grown stars from splitting up.
"That's the precise point we made to the union in collective bargaining," Silver said. "That's why we would've preferred a hard cap. ... All I'll say is, so far based on this agreement, Mark Cuban's behavior seems to have been altered by the new collective bargaining agreement. The Lakers' behavior has been altered. It's very difficult to predict. It's an extraordinarily harsh tax once it fully kicks in. You're right, though. Because it's a soft cap, a team has the ability to spend more money than other markets and it puts small markets at a disadvantage."
Under the hard-cap system the owners tried to negotiate, the same would be true. But it wouldn't just be true in Oklahoma City and Memphis. It would be true in New York, Los Angeles, Boston, Chicago, Dallas and Miami too.
"The fact that they won't keep the core together doesn't mean the system is unsustainable," Silver said. "The question is whether big-spending teams or large-market owners are willing to spend to go significantly into the tax. If we had a hard cap, which is what we had asked for, the outcome would've been the same for this team. They would've had to make difficult decisions about players. That doesn't change. The question is, will those players aggregate in a certain market? It's unclear yet what the impact of the agreement will be."
The Heat took a vastly different path to the Finals, clearing massive amounts of cap space and getting three superstars to, as Silver says, aggregate in their market. The model was vindicated with Miami's championship, but the Heat also will face difficult decisions in trying to keep the team together and improve the roster in their efforts to get back to the Finals and repeat as champions.
"The union would say it acts like a hard cap," Silver said. "We'll see. From ownership's standpoint, we'd like it to act closer to a hard cap. ... We're not necessarily looking to break up teams, but it's forcing teams to make difficult decisions."
The Heat have $79.4 million in committed salary for next season, about $9.1 million over the tax. Even if they got a disabled player exception for Mike Miller, who may have to retire due to a back injury, the Heat would still be able to add only minimum-salaried players and/or two $3.1 million players -- with the disabled player exception and taxpayer midlevel. And with the harsher tax coming the following season, owner Micky Arison had better hope the whole world decides to sell their homes and live on his cruise ships.
Miami has $81.1 million in committed payroll for 2013-14. At the existing tax level, the Heat would owe $16.7 million in tax based on the new formula, making their total commitment $97.8 million. And that's without adding any players to their current roster, keeping in mind that every player they add will cost more than double.
"There are tons of unintended consequences when you're putting together an agreement the size of the one we tried to work out," said union president Derek Fisher of the Thunder, who helped negotiate the compromise and consequentially may be disappointed in the market for his services as a 37-year-old free agent this summer. "That was, for sure, one of our big concerns for any team, small market or big market. ... As you build up impediment to teams being able to remain the same over time, it makes it difficult."
When taxpaying teams pass on midlevel free agents or let their own players walk due to the tax implications, will the players necessarily wind up with small-market teams? In theory, yes, but not necessarily. The Knicks, for example, are projected to be under the tax for the next three seasons and could wind up scooping up quality players that successful teams in small markets can't afford. That seems contrary to the purpose of the new rules, but it also is beyond question that the harsher tax penalties will force all teams to manage their payrolls differently and target smaller windows of spending and success. It also stands to reason that wealthier teams will be able to weather the ups and downs of the cycle better than lower-revenue teams, just as under the previous system.
"That's the nature of a hard-cap system," Silver said.
How hard or soft the new cap system will be, and which teams and markets it will punish most, is the $4 billion question.