There will be talk of luxury taxes and repeater penalties, of David Stern's legacy and Adam Silver's mandate, of Kevin Garnett's Nets and the Clippers of Doc Rivers, of free agents and draft picks and this season's race to the championship. But the final chapter of this season's grand NBA narrative will be LeBron James, looking to threepeat in June, against his antagonist in Oklahoma City, Kevin Durant. All of the plotlines revolve around their duel.
This is an article from the Oct. 28, 2013 issue
The story began with LeBron's Decision four summers ago. While James's abandoned fans in Cleveland were setting fire to his jersey the night he picked Miami, LeBron's union with Dwyane Wade and Chris Bosh was galvanizing the NBA owners to take back control of their league financially and competitively. The 2011 lockout gave way to collective bargaining and revenue-sharing agreements that have reduced the costs of player contracts (in most cases, anyway) and restored profitability to the smaller-market franchises. But while the owners are content with the financial end of their new deal, the impact of the CBA on the court is still TBD.
The league's competitive balance rests upon a new system of luxury taxes that are meant to deter the deepest-pocketed teams from outspending their less affluent rivals. The more you lavish on salaries, the higher your tax rate. And if you outspend your rivals year after year—if you are a repeat offender—then those penalties grow ever more punitive.
Going into the lockout, a majority of NBA franchises wanted protections to prevent their superstars from being poached by the rich big-market teams. But now there is a sense of dread among the small markets that their problems may be worse under the new deal. Consider the six teams that are on track to pay the luxury tax this season: the Nets ($189 million in payroll plus luxury tax), the Knicks ($123 million), the Heat ($103 million), the Bulls ($90 million), the Lakers ($87 million) and the Clippers ($78 million). Five of these franchises reside in the nation's three largest markets, which helps explain why they can afford their profligate ways. Their combined rosters include 27 All-Stars, at least eight future Hall of Famers, five starters from the 2012 Olympic gold medal game and nine of the last 10 league MVPs. The two New York teams alone are paying more in taxes ($122 million) than the combined payrolls of the 76ers and the Suns.
The one expensive team that isn't in a major market is the Heat, who could test the repeater tax when it goes into effect next summer. Because Miami is on track to pay taxes this year for a third straight season, owner Micky Arison will be confronted with penalties that begin at a rate of $2.50 for every dollar spent above the tax level. Add it all up and his 2014--15 roster would cost Arison more than $29 million on top of the $83 million he'll pay to players. The team will be punished even though president Pat Riley has constructed one of the NBA's most efficient payrolls, loaded with bargains. "Miami has this very good team put together and may or may not continue to pay the tax," Stern said last March. He then made a surprising prediction: "My guess is they will."
If the commissioner sees a mid-market team choosing to ignore the most important piece of legislation to emerge from the lockout, then what in the name of Mikhail Prokhorov is going to prevent the colossal major-market franchises from outspending the rest of the league in years to come?
The system is far from perfect from the league's standpoint," says Silver, the deputy commissioner who will replace the retiring Stern in February. "It was a compromise in terms of the harsher tax, to get closer to a hard cap than what we had before. But we're going to see how it works in operation."
It's last March, and Silver and Stern are discussing the early impact of the CBA around a conference table adjacent to Stern's office. On the wall are portraits of the three preceding NBA commissioners—Maurice Podoloff, Walter Kennedy and Larry O'Brien—their expressions reflecting curiosity and intrigue. The past, present and future of pro basketball are squeezed together in this one small room, and where their league is headed, no one could say.
"We're seeing some early, positive indications that the new system is beginning to work," Silver says. "Whether it's a high-revenue team like the Knicks [declining to match an offer sheet to] a huge star in Jeremy Lin, or Oklahoma City moving James Harden—those are two examples where teams apparently have made decisions based on the implications of a harsher tax. And the by-product has been another competitive team in the league: the Rockets, with Lin and Harden."
Of course, Houston is in one of the NBA's bigger markets and has an owner, Leslie Alexander, willing to splash money around. And the four biggest trades under the new CBA—Harden to Houston; Chris Paul from the Hornets to the Clippers; Dwight Howard from the Magic to the Lakers; and Rudy Gay from the Grizzlies to the Raptors—saw stars move into larger markets, a one-way talent pipeline.
The lockout was undertaken on behalf of the smaller teams, and yet no franchise was hurt more than Oklahoma City, the league's third-smallest market. The new CBA retroactively increased the terms of Durant's max contract, signed one year earlier, from 25% of the salary cap to 30%, leaving the Thunder with $3 million less per year to pay to other players. One of those was Harden, who was the 2012 Sixth Man Award winner. But he wanted to be a max-salary star. OKC had been budgeting to pay the luxury tax at the old dollar-for-dollar rate in order to keep its young core of Durant, Harden, Russell Westbrook and Serge Ibaka together, but those plans ended when the new CBA not only increased the tax to a rate starting at $1.50, but also unveiled the devastating repeater penalties that would have hit Oklahoma City in 2016.
So when Harden was sent to Houston as part of a six-player trade in October 2012, the Thunder could only take back long-term assets—rookie swingman Jeremy Lamb, three draft picks and the expiring contract of shooting guard Kevin Martin, which would provide cap space down the road. On the other hand, nine months later the Nets surrendered three first-round picks to Boston, which is in full-on rebuild mode, for Kevin Garnett, Paul Pierce and Jason Terry. The contrast between the trades was overwhelming: The Nets were willing to take on a record $87 million in luxury taxes, while showing a complete disregard for draft picks, which the Thunder, trying to reduce payroll, valued so highly.
"The agreement was supposed to be about competitive balance and controlling spending—and then you have a team that's defecating on the agreement and laughing at it," a GM from a nontaxpaying franchise said of Brooklyn. The new strategy for megafranchises like the Nets, Knicks and Lakers will revolve around bursts of contention followed by brief windows of cap space enabling them to "scoop up everyone's players again," the GM predicted. "There are predators, and there are scavengers. The predators have no need for long-term planning, while the rest of us have got to be thinking four or five years down the line."
The Lakers are sure to survive the defection of Howard (who moved from one big market to another) far better than the small-market Cavaliers have done since James left in 2010. Attractive franchises that command massive local TV deals—the Lakers are in the second year of a reported 20-year, $3 billion contract—have the advantage because they drive the seller's market. Cleveland has been left to invest in a series of high lottery picks that include All-Star point guard Kyrie Irving and this year's No. 1 pick, forward Anthony Bennett of UNLV.
Back in March, as he surveyed Silver's future, Stern predicted, "Dynasties will be management dynasties. How you surround key players with other players." The Cavs have been developing a team for the long term. They have their other players, but they're lacking a key. But they may yet laugh last.
LeBron James was ruthless in his 2010 Decision, and the financial rules of the NBA grew more onerous in response. But James is the lone star with the power to trump those rules. Unlike, say, Carmelo Anthony, he doesn't have to play in a big city. Repeater taxes become reasonable for any team in exchange for him. Teams will trade or pay or renounce anyone for him. He transcends all constructs. Whether he opts out in '14 or in '15, or if he waits until his contract expires in '16, his ambition to win more championships means that he will play for the team that can bring out the best in him.
Wade, 31, has been diminished by knee problems; Bosh's production has been in mysterious decline; and the repeater tax will complicate the Heat's attempts to replenish the roster. So James could go back to small-market Cleveland if he thinks Irving & Co. are his best chance for more rings. Or Los Angeles if Kobe Bryant and Pau Gasol are willing to take less money in order to leave room for another star to follow. Or Portland if he wants to play with LaMarcus Aldridge and Damian Lillard, or Washington with John Wall and Bradley Beal. Or even tiny New Orleans if he believes the next breakthrough star is Anthony Davis.
Repeater taxes? Management dynasties? James won't be thinking about those things in June, when he'll run into Durant on the court. Will the yang outperform the yin? Durant may yet prove that it's possible for teams to conform humbly to the discipline of a tight budget and still win in the new NBA. Instead of re-signing Martin, who will be 31 in February, the Thunder chose this summer to reinvest for the long term around Durant, and now Oklahoma City has a deeper and more energetic bench than any other team in the league. Its unrivaled blend of experience, hunger, depth and tireless young legs across the board is the reason why SI is picking the Thunder to flout the marketplace trends. Durant will be prying the championship trophy away from his close friend James and the enervated Heat next June.
This new NBA era was inspired by James, and it continues to revolve around him, with Durant serving to keep LeBron focused on his championship goal. Their aims transcend money. They are a dueling pair of iconoclasts focused not on the bottom line, but rather on the sky.
HEAT OVER BULLS
11. TRAIL BLAZERS
THUNDER OVER CLIPPERS
THUNDER OVER HEAT
*SI's regular-season ranking for each conference
Ian Thomsen discusses his 2013--14 NBA picks and Chris Mannix breaks down all 30 NBA teams with a one-minute video on each in the tablet edition of SI, free to subscribers at SI.com/activate