Higher-than-projected salary cap makes signing LeBron, Wade, Bosh more palatable
It's been an offseason full of surprises.
We've seen teams line up to pitch to LeBron James. Amare Stoudemire went to New York. Joe Johnson and Rudy Gay were maxed out to stay put. Dwyane Wade and Chris Bosh formed a new power tandem in South Beach. James is holding a live TV special to announce his home for the next several years.
And now, another surprise -- the league released the salary-cap figure for the 2010-11 season, and at $58.044 million, it represents an unexpected increase from last season's $57.7 million.
Accompanying the release of the salary-cap number are new figures for the midlevel exception ($5.765 million), the luxury-tax threshold ($70.307 million) and maximum salaries ($13.604 million for players with zero to six years of experience; $16.324 million for players with seven to nine years; and $19.045 million for players with 10-plus years in the league).
Each July, the league conducts an audit of its just-concluded season to determine just how much money came in and where it all went. The salary-cap number is one outcome from this process; the cap is derived from a complicated formula that is specified in the league's collective bargaining agreement and is based on the league's revenues from the preceding season.
A year ago, the league gave teams a gloom-and-doom forecast by predicting a 2010-11 salary cap in the $50.4 million to $53.6 million range. Around the All-Star break in February, it revised its projection to the high side of that range. Just before the playoffs, NBA commissioner David Stern revealed that the league's latest projection was $56.1 million -- but he also intimated that the league would have to "hustle" to reach that amount. So despite the upward trend throughout the season, Wednesday's announcement of $58.044 million still comes as something of a surprise.
"Anyone who thinks you can project this kind of thing with complete accuracy is an idiot," Dallas Mavericks owner Mark Cuban said.
For the salary cap to reach $58.044 million, the league's basketball-related revenues would have had to increase to approximately $3.68 billion -- representing a 2 percent increase in a season that originally was forecast to see a decrease of up to 5 percent. For the NBA, at least, signs of an economic recovery appear to be here.
"It means teams busted their [butts] to invest in sales and marketing and put the best possible product on the court," Cuban said. "We recognized that the economy was soft, and we responded with better values for customers."
The coffers also certainly benefited from a seven-game NBA Finals that renewed the heated Lakers-Celtics rivalry, even though this year's playoffs had fewer games (82) than average. The Nielsen Co. said that this year's NBA Finals Game 7 was the most watched NBA game since 1998 and, aside from the Olympics, the most watched summertime show on network television since the August 2000 finale of the first season of "Survivor."
With the higher salary cap comes higher maximum salaries, and several players will reap the benefits. For teams, however, it's bittersweet. Both Johnson and Gay had secured maximum contracts from their former teams. With a maximum $13.604 million for a player with his four years of experience, Gay now stands to earn $82.3 million over the course of his five-year deal. Johnson's six-year contract, meanwhile, is now worth more than $123.6 million.
Interestingly, the starting salaries of the big three (James, Wade and Bosh) are unaffected. Players are eligible to receive a 5 percent bump over their previous salaries, even if that amount is above the leaguewide max. For these players, that amount comes out to $16.569 million -- which is still greater than the leaguewide maximum of $16.324 million for players with seven to nine years in the league.
This means it will not cost the Miami Heat any more to sign two of the big three -- or even all three -- than they previously thought. The higher cap therefore comes as a windfall, as the Heat now have an additional $2 million of spending power. This might make it more palatable for James, Wade and Bosh to divide the available cap room among themselves -- each signing for slightly less than the maximum -- so that all three could play together. It also allows them to offer additional money to one or more additional free agents once Wade and Bosh are safely secured. The Heat, who were facing completing their roster with second-round draft picks and minimum-salary veterans, can now afford to add a little more talent to complement their superstar nucleus.
New York is another team that benefits from the higher cap. After committing a maximum-salary contract to Stoudemire -- another player whose personal maximum is higher than the leaguewide maximum and therefore is unaffected by the higher cap amount -- the Knicks will now have almost $19.4 million left over. Should they fail in their quest to land James, one option for the Knicks would be to re-sign David Lee at $10.5 million to play next to Stoudemire and still have more than $9.3 million to offer to other players such as Mike Miller.
The Chicago Bulls secured a five-year commitment from forward Carlos Boozer, leaving just enough cap room to sign James, should they be so fortunate. They now find themselves with more than enough cap room (more than $19.1 million) to sign James and perhaps a complementary shooting guard.
And what was once $29.9 million in cap room for Mikhail Prokhorov's New Jersey Nets has now swelled to more than $31.9 million. But with the premier free agents rapidly finding homes, will there be anyone left to give it to?
With the higher salary cap also comes a higher luxury-tax threshold, and the new figure of $70.307 million is good news to teams that were facing a luxury-tax payment in 2011. Teams with a payroll over the tax threshold pay a dollar-for-dollar penalty for being over, and they also forfeit the distribution of tax funds, which are earmarked for non-taxpaying teams. Had the salary cap dropped from $57.7 million to $56.1 million as had been projected, the tax threshold likely would have dropped from $69.92 million to about $68 million.
Teams such as the New Orleans Hornets and Philadelphia 76ers likely would have been taxpayers at $68 million but now find themselves in position to avoid the tax given its new, higher threshold. This could change the way these teams do business in the coming year.
Teams well above the new tax threshold, such as the Los Angeles Lakers, saw their 2011 tax bill get about $2.3 million lighter. For the Lakers, it represents money that can now be used to retain point guard Derek Fisher at a mutually agreeable salary.
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