Sluggish economy sapping all the fun out of 2010 shopping spree
Tracking changes in the NBA salary-cap and luxury-tax thresholds can start to feel as abstract as counting widgets for a Harvard business school case study, what with all those zeroes and commas and, where most folks would be thrilled to stick the dollar sign, a decimal point instead.
Still, high finance marches on, from Wall Street to Pennsylvania Ave. to the front doors of our favorite professional basketball teams. The recession of the millennium has been grabbing some headlines lately in the NBA, from commissioner David Stern's remarks at the Las Vegas Summer League to details of an internal league memo that leaked first to ESPN.com two weeks ago.
The news has been gloomy, the numbers headed down: If dips in the recently announced 2009-10 salary-cap and luxury-tax cutoff ($57.7 million and $69.92 million, respectively) from last season's $58.7 million and $71.15 million weren't bad enough, the projections for '10-11 seem downright dire. A feared drop of 2.5 percent to 5 percent in "basketball-related income" could push the cap toward $50.4 million, the tax threshold to $61.2 million. To some, divvying up even those numbers by 12 or 15 player salaries wouldn't seem tough. But as the old saying goes, a million here, a million there and pretty soon you're talking serious money.
At those worst-case levels, using last season's payrolls, more than half of the NBA's 30 teams would have been subject to the dollar-for-dollar luxury tax. The penalty actually hit only seven teams because a few that came close -- Denver, Houston, Sacramento, Milwaukee -- worked hard to avoid it, a logical maneuver but now a source of new cap- and tax-related concerns.
The biggest? That in adhering to the lower limits, what was anticipated as a spending spree of historic proportions on the most attractive NBA free-agent class ever instead could be as exciting as a milk run. The so-called Summer of LeBron wasn't supposed to be anchored in Cleveland, any more than Dwyane Wade, Chris Bosh, Amar'e Stoudemire, Dirk Nowitzki, Joe Johnson and other marquee names necessarily were expected to stay put in their respective cities. That might happen now, thanks to the tighter payroll controls, less action at the turnstiles, fewer Yao Ming jerseys sold in Shanghai during his layoff and an economic reality that Stern and the Board of Governors might be lucky to have dodged this long.
Remember, ticket purchases and sponsorship deals for last season were set before the worst of this downturn kicked in. Stern hinted at the NBA Finals that a 10 percent drop might be in the offing, which allowed for some buoyancy in his remarks in Las Vegas. "In this 'new normal' with the great recession, most businesses would sign on immediately for a 5 percent decrease in revenues," Stern said. "In fact, some businesses would sign on for any revenues."
It's a pinch that the NBA, its owners and its players are only beginning to feel. For perspective, the projected salary-cap rollback would take everyone back only as far as '05-06 levels ($49.5 million). But it's the direction (down) as much as the dollars, since so much was predicated on the up, up, up arrows to which NBA insiders had grown accustomed.
Here are ways in which various constituencies could be affected by the dip in salary-cap and luxury-tax numbers:
• James, Wade, Bosh
Whether these three still-young talents relocate, re-up next summer or sign extensions soon with their current clubs, they won't be living check to check. They might, however, have to forsake several million dollars in starting salary -- $15.6 million vs. $18.6 million, in some reports -- that compound over the length of their next contracts. Thus, the chance to lock in for the long haul before a possible reopening of the collective bargaining agreement after 2010-11 won't come without some sort of considerable price. The chance to select their whereabouts gets trickier, too, if a team can't afford both the marquee player and a sidekick-level talent. By synchronizing their three-year contracts, these guys could wind up competing for the reduced dollars of a tighter market rather than all hitting the lottery together.
No team has zeroed in on the offseason of 2010 with more purpose than the Knicks, manipulating their roster and hiring Donnie Walsh to do the heavy shopping. But as soon as the projected numbers leaked out, the grim reality set in: New York might only be able to fit one, not two, maximum-salaried guys under the cap ceiling. So much for The James and Bosh Show, unless they're both willing to take less (right). It's like planning a special cross-country vacation with your honey, based on buying his 'n' her Harleys, then having only enough money for one Harley and one Vespa. Good luck with that.
"You're still going to have your max pieces, but instead of getting two of them, you might be getting one max and one half-a-max," an Eastern Conference general manager said.
Steve Nash's decision to accept a two-year, $22-million extension Monday to stay in Phoenix is the sort of market chill the Knicks and others hoping to spend their way to relevancy will have to confront. Jason Kidd might have doubted sufficient help was a year away, too, when he talked with New York but re-signed with Dallas.
With ominous numbers on the horizon, teams with designs on a championship like the Spurs faced a choice: Wait and watch your plan unravel or spend, baby, spend. The Spurs have added pricey pieces like Richard Jefferson and Antonio McDyess in a determined effort to maximize the Tim Duncan era, likely pushing their payroll past $80 million. Other teams can reach for their wallets next summer, without guarantees of success; San Antonio has done it now, hoping to reach instead for another championship trophy next June. It's risky, it's pricey but it apparently is selling tickets -- which is the goal, after all. "All of a sudden, the fans seem reenergized," Spurs majority owner Peter Holt told the San Antonio Express-News.
When Joe Dumars started breaking up that old Pistons gang last fall, the assumption was he would try hard to land Bosh, James or Wade, ideally in some combination, and spend his way back into contention. Instead, Dumars opted to write his checks this summer, adding free agents Ben Gordon, Charlie Villanueva and Chris Wilcox, and probably a veteran big man. With the hiring of John Kuester as coach, Detroit is on its way, rather than sitting, hoarding, dragging another season to the trash bin and holding less appeal for a star 12 months from now anyway.
This applies not only to the Bucks but also to all the other teams that weren't going to be big spenders next summer regardless, either because of their team's competitive arc, their finances or their market's lack of allure. Milwaukee is regrouping, shedding Jefferson's and Villanueva's salaries and setting itself up to shop not next summer or in 2011, but way off in '12. Maybe by then the recession will break. "Do I see a light? Yeah," GM John Hammond told the Milwaukee Journal Sentinel last week. "The little light is the numbers we are out from under."
• The B-listers
The players who stand to gain or lose the most in a warped NBA economy could be guys like Nowitzki, Johnson, Ray Allen and a few others. If the biggest names take themselves off the market via extensions, teams aching to spend might bid up the prices of the next tier of players. Then again, if a club can only afford "one max and one half-a-max," secondary and complementary players might find their market falling, much like Lamar Odom this summer. They might get squeezed just in time to get squeezed all over again when the owners go after the collective bargaining agreement in 2011.
Rancorous times ahead? Maybe. Humbler times? Hard to avoid, based on NBA numbers getting crunched like so many 401(k) plans these days.
