“Wait, how much money is that basketball jamoke getting?” is probably a question you’ve asked yourself over the past 24 hours, as all sorts of NBA players sign contracts for absurd amounts of money. DeMar DeRozan for $145 million. Dick-punching Nic Batum for $120 million. “Not good enough to get off the bench during the playoffs” MOZGOV for $64 million. How did we get to this crazy place?
Two years ago the NBA signed a new national TV deal that increased their annual haul from $930 million to $2.66 billion. That deal kicks in this season, and since the salary cap is set at a certain percentage of league revenue, it is shooting up drastically. At the time, it was predicted that the salary cap would grow to $88 million, but because of a few years of strong revenue in addition to the TV deal, next year’s salary cap will be $94 million. It was $70 million last season.
Usually the salary cap only goes up by a couple million dollars, so most teams don’t have significant room under it to offer huge contracts. But this year basically every team in the league, perhaps with a bit of easy maneuvering, can offer a max contract. The competition (the demand) for players is higher than it has ever been, but the supply is the exact same.
In fact, it is fair to say that this is a weak free agent class. Assuming LeBron James simply opted out to re-sign a better deal with the Cavs, Kevin Durant and Al Horford are the only elite players on the board. Dwyane Wade and his creaky body is still out there (though it’s doubtful he leaves Miami), as are a number of young restricted free agents re-signing with their teams (Andre Drummond and Bradley Beal). But there are two dozen teams circling with pocketfuls of cash, and not nearly enough elite players to spend it on. But that money needs to be spent somewhere, so it ends up going to guys like DeMar DeRozan and Nic Batum.
And it needs to be spent, because there is a salary floor. As part of the Collective Bargaining Agreement, teams must have payrolls that constitute 90 percent of the salary cap. By the end of the season, teams must have $85 million worth of contracts on the books. For comparison sake, that floor—the very least amount a team must spend—is more than 21 teams spent on their rosters last season. So even setting aside how much teams might want to spend on players, most teams have to.
But along with the TV money, the biggest reason good players are getting great contracts is because the NBA doesn’t remotely resemble a free market, as the CBA has a number of distorting effects. Besides a salary cap, there are also maximum salaries—35 percent, 30 percent, or 25 percent of the cap depending upon tenure. The biggest contract any team can sign Durant to is $114 million over four years, but if that wasn’t capped, somebody would furnish a deal worth $160 million over four years, or maybe $180 million. By some calculations, James was being paid $25 million less annually than he was “worth” in Miami.
The elite players aren’t the only ones underpaid. Rookie contracts are also capped, and more egregiously, they aren’t even pegged to the salary cap. So while the salary cap (and thus the total pool of money that has to be spent on players, roughly) is rising by 34 percent, the rookie salary scale—which was permanently set for a decade in the 2011 CBA—is rising just 3.5 percent. The rookies are getting boned, and beyond scale issues, you have absurdities like Karl-Anthony Towns being locked into $6 million next season (and $6.2 million the next) when somebody would pay him $20 million on an open market.
Dozens of NBA players aren’t allowed to make as much money as they would in a truly free market because of the CBA, each team has tens of millions of dollars to spend because of the overall health of the league and the television windfall, and teams are forced to spend most of that money.
And that’s how Evan Turner gets $75 million:
And how Evan Fournier gets $17 million annually:
And how an extra from Mad Max: Fury Road gets $38 million:
There is (and will be) a lot of grousing about how so many free agents are going to be earning more than they’re worth, but that line of criticism is self-defeating. Because of the distorting effect of the higher salary cap and the absence of a true free market, “worth” is a meaningless word in the NBA. There is a fairly set amount of money that must be spent and a set amount of players that must be paid, and the spending bonanza we have seen so far today is simply a result of the former outpacing the latter.