With the opening of NBA free agency last night at 12:01 A.M., teams are finally free to negotiate with players who are no longer under contract with another team. The next couple of weeks are important, whether a team is hoping to add the last piece needed to become a contender for a championship or looking for a superstar to build around for years to come. Historically, free agency has changed the course of teams, mostly for the better. In 1996, the Lakers signed Shaquille O’Neal away from the Orlando Magic and went on to win three titles. Three years ago in “The Decision”, Lebron James famously joined Dwayne Wade with the Miami Heat along with Chris Bosh, and went on to win two titles in three seasons.
Free agent signings can go wrong as well though. With a salary cap (spending limit) in place for teams, those who are are looking to improve sometimes overpay for a player and can be stuck with a ‘bad contract’ for years to come. In 2010, the Atlanta Hawks signed Joe Johnson to a six year, $119 million extension which left them unable to add any more pieces to a team that exited the playoffs in the first or second round five years in a row. Johnson proved not to be worthy of a maximum contract and the Hawks were finally able to trade him away last season to the Brooklyn Nets and are now in a position to sign two big name free agents in this years class.
Despite having room to sign free agents, teams now more than ever have to be smart when making decisions. The NBA Collective Bargaining Agreement (CBA) that went into effect last year, severely punishes teams who are over the salary cap after next season. Until now, the CBA penalized a team with a dollar-for-dollar ‘tax’. This means a team had to pay $1 for every dollar they were over the cap. While that sounds harsh, many organizations were willing to pay the tax, including the Lakers and Heat.
To further deter teams from exceeding the cap, beginning in the 2013-2014 season the tax will be far more punitive. Teams will be taxed as follows:
- Portion of team salary $0-$4.99 million over tax level: $1.50 for $1
- Portion of team salary $5-$9.99 million over tax level: $1.75 for $1
- Portion of team salary $10-$14.99 million over tax level: $2.50 for $1
- Portion of team salary $15-$19.99 million over tax level: $3.25 for $1
- Rates increase by $0.50 for each additional $5 million of team salary above the tax level.
The new tax can be financially crippling to an organization and will deter many teams from signing players they might have in the past.
The new rules have already forced teams to make decisions they would likely not have made under the old rules. The Oklahoma City Thunder (OKC) traded away James Harden last summer. Harden was OKC’s third best player behind Kevin Durant and Russell Westbrook, but has gone on to star for the Houston Rockets along with Jeremy Lin. The Thunder simply could not afford to pay all three, when Harden’s contract was up. Lin is another example of a player traded away, likely due to the new rules. Lin received a lot of publicity after performing well for a short stretch in the 2011-2012 season, however the Knicks were unwilling to exceed the salary cap and overpay for him.
In addition to discouraging teams from overpaying players, the idea behind the new CBA is to prevent organizations from creating a ‘superteam’ like the Miami Heat. The league would like to ‘spread the wealth’ and force teams to be more creative to be successful. The new CBA puts an emphasis on getting the most for your money from a player.
Of course, there will still be teams out there willing to ignore the tax and continue to overpay players who don’t provide value in return. The Brooklyn Nets (yes, the same team that took on Johnson’s deal) behind Russian billionaire Mikhail Prokhorov, last week agreed to trade for aging superstars Kevin Garnett and Paul Pierce. Trading for Garnett and Pierce may pay off for a year or two but it’s unlikely to help in the long run. On the other hand, the Celtics received draft picks in return, which they can use to find young talent through the draft or use as trade assets for veteran players.
In any case, the NBA is getting what they want. The new tax is forcing teams to reconsider past signings (Chris Bosh?) and carefully weigh their options before doling out millions of dollars to players in the future. One thing is for sure, the next few weeks will be exciting to say the least!