The much-anticipated Summer of 2010 is nearly upon us. Negotiations with free agents can begin on July 1st and all signings and trades can be commenced on July 8th (although a few minor personnel transactions can actually be completed before then). Entire franchises have pointed towards this summer for years with the goal of obtaining one of the big name players that are likely to be available. Players such as LeBron James, Dwyane Wade, Chris Bosh and others will be hearing numerous recruitment campaigns during that first week of July. And for the NBA fan, it should be interesting to see which players change teams and which ones stay with their current franchise.
There are, however, significant implications for for players who do not fit into this category of “big name free agent” or “max contract player”. There are over 150 potential free agents (depending on whether certain options are exercised or not) who played on NBA franchises this past season, plus a number of overseas players rumored to be interested in playing for an NBA team this coming year. Add to that the number of not only undrafted players but also the 2nd round draft picks (who are not guaranteed a salary slot) and you have a large pool of players that will be competing for roster spots among the 30 NBA franchises.
But beyond simply the availability of roster spots lies perhaps an even greater factor, that of finances. It is one thing to say that an NBA team has 5 available roster spots to fill this summer. It is quite another to take each team’s financial position into consideration. For example, compare Chicago with Orlando. Each would appear to need to add at least 5 players to their roster this summer, in order to reach the NBA minimum of 13 by the time that the regular season starts. Each has a 1st round draft pick that could be used to fill one of those spots. But how do they fill the other four spots? The answer to that question cannot be properly answered without understanding that Chicago looks to have about $20 million in cap room to use to fill those spots, while Orlando is not only over the projected salary cap with their current stable of committed salary, they also look to be above the luxury tax threshold before they add even one more player. Two very different situations for teams both looking to add the same number of players to their roster this summer.
Much has already been written about the afore-mentioned ‘big name free agents’ and how they look to draw a maximum (or near maximum) salary amount either by staying with their current teams or by switching franchises through a trade or a FA signing. They will get their money. But after those transactions have taken place, what will the landscape look like for the remaining free agents? After all, a good number of them have timed their free agency so that they can reap the benefits of the reported ‘bonanza’ that will be available this summer for free agents. After all, haven’t a lot of teams conscientiously cut salary so that they can be players in free agency this summer?
I’ve tried to look at each team’s current financial position to try and formulate a prediction as to what might happen in free agency this summer after the big names have been signed. And I am led to the conclusion that this summer might best be described as “Feast or Famine”. If we categorize free agent signings into 3 categories – Large ($10+ million), Medium ($4-9 million) and Small ($3 million and less), I simply do not see much happening in the Medium category. The big names will get the big money. But after that, I’m not sure that many will get a contract that exceeds the level of $4 million for their services in 2010-11.
There are a number of factors that lead me to this conclusion:
Factor #1 – The Luxury Tax. Just as the salary cap figure is anticipated to drop again this summer, so too the threshold for teams in regards to the luxury tax. Many of the NBA’s franchises are simply unwilling to go over the luxury tax threshold, especially those teams in smaller markets or who are not expected to collect post-season money. And a lower tax threshold simply means less money available for players. Assuming the tax threshold ends up at $68 million, my analysis shows that 9 teams look to be either over the threshold or less than $4 million under the threshold before they add even a single player to their roster. The great majority of those 9 teams will probably not add a player making more than $4 million. And what about the 4 teams that are less than $10 million under the tax threshold before they add a single player to their roster? Although they might be more inclined to spend free agent money this summer, logic would dictate that their list of roster moves does not necessarily include adding a player making more than $4 million.
Factor #2 – The Mid-Level Exception. This exception to the salary cap was intended to help the continuation of a ‘middle class’ of NBA contract. And I would argue that it has been successful in this endeavor. However, in the current economic climate that the NBA finds itself, use of this exception to sign players has become less frequent. During the 2009-10 season, for example, 25 teams had access to a Mid-Level Exception but only 13 of those teams used even a portion of it. Of those, only 3 teams used the entire MLE and only 2 used the full MLE on a single player (the Lakers to sign Ron Artest and the Celtics to sign Rasheed Wallace). Most of the teams using the MLE did so to sign players to contracts of $1-3 million and chose to use the exception on multiple players. I would contend that we are likely to see the same happen this summer. There will probably be a few teams (perhaps 4 or 5) that will use the full MLE on single players, but I think that most teams, if they choose to use the MLE at all, will choose to use it to sign multiple players for less money rather than on a single player for the full amount.
Factor #3 – The large number of higher-profile free agents this summer. The big name free agents signed in the summer of 2009 were Hedo Turkoglu, Ben Gordon, Charlie Villanueva, Andre Miller, Trevor Ariza, Mike Bibby, Jason Kidd, Lamar Odom and Rasheed Wallace. Most of those would not even break onto a top-10 list of 2010 free agents. Also consider that none of those big name free agents signed for more than $10 million in the first year of their new contracts and that multiple free agents this summer are destined to do so. There is more free agent money available this summer, compared with last, but it will go fast because of the size of contracts. Take New York, for example, who could have $34 million in cap room but needs to sign at least 8 players to reach the minimum roster size. If they are fortunate to get two max-contract players with that cap room, that will leave them with little option but to sign 6 minimum or near-minimum contract players to complete their roster. Similarly, if New Jersey uses its $26 million in cap room to sign an $11 million player and a $13 million player, that will leave no room for a medium-sized contract signing. Yes, it is possible that teams with significant cap room choose to sign several medium-sized contracts instead of one or two large ones – but a number of these teams have been cutting salary for a year or more, telling their fans to be patient as these salary cuts will result in better players when the 2010 free agent period is over. Can they legitimately justify anything less than getting at least one large salary out of the cap space? Oklahoma City might, but probably not Chicago. Minnesota might but probably not Miami and Washington. Consider, too, that if a team like Washington or Chicago uses its cap space to sign a large contract they will have some cap space left for another significant free agent, but that the amount of money they have left will be on the lower end of the medium contract scale and not the higher end (ie, closer to $4 million than $9 million). And once those teams with significant cap space spend their money, the remaining free agents will be looking at teams over the cap with only the MLE – and I’ve already addressed that issue.
So what about a player like Tyson Chandler who is reportedly contemplating opting out of his current contract which would pay him $12.6 million in 2010-11? I can understand his desire to try and have a new contract in place before the current CBA expires next summer, as it appears that the next CBA will probably result in overall lower salaries for players. But would it be wise for him to expect even a 4 year, $35 million contract if he does so? IMO, no. He’s not going to jump over players like Carlos Boozer or Amare Stoudemire to get some of the money that will be spent on large contract amounts, and he might be looking at MLE-level money at best. Even if he can get $6 million a year, that will take 2 years to re-coup what he’s giving up in 2010-11. So if I were advising him, I’d counsel him to take his guaranteed money and hope for the best next summer.
By “Feast or Famine”, I don’t mean that NBA players will be starving after signing new contracts this summer, even if some of them have Sprewell-sized families. What I do mean is that, looking at the current economic climate and at where teams are currently at from a financial perspective, I don’t see a lot happening this summer in terms of medium sized contracts. The large ($10+ million) contracts will be given out early. And there will be plenty of small ($3 million and less) contracts signed. But those $4-9 million contracts? Much rarer than you’d expect in a year with plenty of teams having free agent money to spend. And, I think, most of those in the lower end of the range rather than the higher end.