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Why LeBron James Should Consider the Miami Heat

May 28th, 2010 1 comment

I’m not sure if you already know this, but the rumor is that LeBron James is thinking of leaving Cleveland, now that his contract with the Cavaliers is up.

Everyone from Jay-Z to Barack Obama is in on the act of recruiting him.

Speculation over where he’ll end up has run wild. In the past 24 hours, Vegas oddsmakers have increased Miami’s odds of landing James from 35-1 to 7.5-1. In a poll of six ESPN experts, two felt Miami was the most likely destination.

What was once thought to be the ridiculous bantering of the hopelessly delusional is now a potential reality. A combination of Wade, James and Bosh has to be intriguing, and it is possible.

Moving the contracts of Daequan Cook and Michael Beasley are the only things that stand in the way. And both should be quite easy to move. You’d have to think a team would be willing to take on Cook’s expiring $2.1 million contract for, say, up to $3.0 million in cash. As for Beasley, you’d have to think a team would be intrigued about the possibility of acquiring the troubled forward at no cost, and perhaps even surrender future draft considerations to the Heat in order to do so.

Still, the ultimate trio would seem unlikely. And, as surprising as this may sound, it may not even be in the Heat’s best interests.

With LeBron in the mix, entirely new scenarios open up.

If I were Riley, my recruiting pitch to LeBron would go something like this:

I would talk about the benefit of playing in an no-income-tax state like Florida, something that would be worth millions to James, whose off-court earnings dwarf his on-court salary. I would cover the weather, the beaches, the lifestyle, and all else the city has to offer. I would point to the rings on my finger. They are, after all, exactly what he wants. I would point to Micky Arison, the multi-billionaire owner willing to spend whatever it takes to make it happen.

But my focus would be on building a dynasty. Read more…

Be Careful What You Wish For With Joe Johnson

May 26th, 2010 No comments

Joe Johnson is a great player. He has great length, great handles, a nice shooting touch, and he sees the floor. He’s also about as unselfish a player as you can get from an All-Star. He’d be a nice addition to any team, particularly the Heat.

But there are plenty of issues to worry about.

For starters, let’s rid ourselves of the notion that Johnson is worth a max contract. That’s flat ridiculous.

When the Hawks reportedly offered Johnson a four-year $60 million contract extension last summer, even that was arguably a big stretch. It ignored his age, his style of play, and his lack of production in key situations. But at least you could see the logic. The Hawks were a team on the rise, and Johnson was playing a key role. The Hawks were paying him as much for his past as his future. They were paying for a beloved Atlanta fixture to stay.

After having rejected that proposal, he figures to seek even more on the open market. A maximum five year contract would run his new team about $18.3 million per season.

So where does Johnson actually rank in the NBA? Let’s ignore need for a second, and focus solely on ability.

Amare, Bosh, Carmelo, Deron, Duncan, Durant, Gasol, Howard, Kobe, LeBron, Nash, Nowitzki, Paul, Roy and Wade and are inarguably better than Joe Johnson. You can’t even make a case that Johnson is better than any of one of these fifteen guys, right? Read more…

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Lessons in Game Theory

May 25th, 2010 No comments

What LeBron James’ uniform says next season could be a simple matter of game theory

LeBron James continues to insist his upcoming free agency decision will be based purely on the potential to win.

It’s not about legacy. It’s not about marketing. It’s not about becoming basketball’s first billion-dollar man.

If that’s true, it’s all just a simple bout of game theory.

The game consists of a set of players (LeBron James, Dwyane Wade, Chris Bosh, Amare Stoudemire, Carlos Boozer and Joe Johnson), a set of moves available to those players (Cleveland, New York, Chicago or Miami), and a specification of payoffs for each combination of strategies (title or no title).

LeBron is clearly aware that he is the centerpiece of the upcoming free agent class. He knows that whatever move he makes will be followed tit-for-tat by the other players. So all he really needs to do is break down the potential scenarios and weigh the likely outcomes.

LeBron’s possible destinations:

1. Cleveland

If LeBron chooses to remain in Cleveland, the Cavs get no better than this past season.

Dwyane Wade re-signs in Miami. Chris Bosh joins him there. Miami still has another $10 million or so with which to round out its roster.

Chicago then makes a strong push for, and gets one of, Amare Stoudemire or Carlos Boozer. The Bulls hold right there, unless someone is willing to take on Kirk Hinrich or Luol Deng.

New York re-signs David Lee. Joe Johnson becomes the consolation prize.

Net Result: James’ decision will have created two more perennial powerhouses, and one significantly better organization, with which to compete on an annual basis. The odds of LeBron winning a championship decrease dramatically. Not a viable option. Read more…

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A Look Ahead to the 2010 NBA Draft

May 24th, 2010 2 comments

Kentucky guard Eric Bledsoe would be an intriguing option if available to the Heat at No. 18

The Heat has four picks in the upcoming draft – the 18th pick in the first round, and the 41st, 42nd and 48th picks in the second round.

The three mid second round picks won’t provide much value. They hardly ever do. So let’s focus on the first rounder.

In this post I suggest that the best alternative for the Heat may be to swap it to a trade partner in exchange for a 2011 first round pick.

Why? Because the Heat needs every bit of its cap space in order to build a title contender. It’s certainly possible. Take a look at what $56.1 million can do.

The prospect of winning the Larry O’Brien trophy in just five months is certainly thrilling.

Wouldn’t it be even more thrilling to win the trophy next June and then enter the 2011 draft later in the month with two (or potentially three, should the Raptors make the playoffs) first round draft picks? Imagine the dynasty that could be created if those three first round picks were traded in exchange for just one lottery pick.

That’s what I see. It sounds all too perfect.

That is, unless the Heat can snag a game-changing talent here and now. The 2010 draft may just have a couple of those types of players, and both might just be worth selecting if available.

Read more…

Dirk Nowtizki won’t be available this summer

May 23rd, 2010 No comments

Dirk Nowitzki will join the best free-agent class in NBA history, but he's not going anywhere

Rumors are swirling in South Florida now that Dirk Nowitzki is reportedly planning to opt out of his contract and test the free agency market this summer.

Everybody calm down. It means absolutely nothing.

Media outlets and fans are confused as to why the eleven year veteran would consider leaving an organization so committed to winning and so supportive of its players. In short, he isn’t. Dirk’s decision is purely for peace of mind, nothing more. He’s not leaving Dallas.

Dirk has one year remaining on his current contract, which will pay him $21.5 million next season. However, he has an early termination option that would make him an unrestricted free agent this off-season if exercised.

Dirk wants to lock in a long-term contract under the terms of the current collective bargaining agreement, which is set to expire after the upcoming season, because it is generally regarded to be significantly more favorable than any new agreement to come. So he needs to act now.

Dirk turns 32 years old on June 19. Due to the overly complex “Over-36 Rule” (which I won’t bother to explain unless you ask me to), if he wants to secure maximum dollars, he has two options: (i) he can sign a three-year extension (in addition to the year remaining on his existing contract) or (ii) he can terminate his existing contract and enter into a new four-year deal.

If he enters into a new four-year deal, Nowitzki is eligible to make up to $96.2 million from Dallas. The contract could be written in July, based on the current agreement through the life of the contract.

If he signs a three-year extension, things get a bit more complicated. Utilizing the terms of the current collective bargaining agreement, Nowitzki would be eligible to make nearly equivalent money – up to $96.1 million or more over the next four years. The difference, however, is that, by rule, extensions do not actually take effect until the summer before the first extended season. Dirk still has one year left on his existing contract, which means his extension would take effect in the 2011 off-season. By then, the new collective bargaining agreement will (hopefully) already be in place, which would expose Nowitzki to potential after-the-fact reductions to his annual wage if league owners are successful in their attempts to lower the value of maximum salaries.

I would imagine it to be highly unlikely that a reduction in maximum salaries in any new agreement would affect an extension that has been signed under the terms of a previous agreement. I just can’t see the players association agreeing to that.

But let me put it to you this way – what does Dirk have to lose?

By opting out, he gets the peace of mind of having his entire contract fall under the terms of the current agreement. He gets the ability to include a no-trade clause in his contract, something he couldn’t include in an extension. And he gets an additional $178,978.95.

What does he lose? Nothing. Mavericks owner Marc Cuban is clearly willing to offer him a full, four-year maximum contract. So he’s taking no risk in sacrificing his guaranteed $21.5 million upcoming salary.

There will continue to be widespread panic in Dallas for the next two months, particularly given the Mavericks’ first round exit at the hands of the Spurs. But Cuban has shown a commitment to spend beyond the tax threshold in order to retool. This summer, he has his sights set on LeBron James (which he illegally made known to the world, at a cost of $100,000). Whether or not he is ultimately successful need not matter. He will always do right by his players.

Dallas fans need not worry. Dirk isn’t going anywhere. It’s all just minor contract stuff.

Short N.B.A. Playoff Series Affecting the Salary Cap

May 22nd, 2010 No comments

N.B.A. commissioner David Stern projected last month that the league’s 2010-11 salary cap would be about $56.1 million when figures are released in early July, but he admitted they “might have to hustle to get it.”

His projection came just before the start of the playoffs. Since that time, things might not have gone quite the way he expected.

Six of the 12 playoff series in the first two rounds ended in four or five games. Those first two rounds had the fewest number of total games played, 63, since the NBA expanded to a best-of-seven first round format in 2003. That’s down from the seven-season average of 67.7. The previous low was 64 during the 2007 playoffs.

The Conference Finals aren’t doing us any favors either. As of right now, the Boston Celtics have taken the first three games of the series with the Orlando Magic in the east, and look to sweep at home on Monday. In the west, the Los Angeles Lakers have taken the first two games at home against the Phoenix Suns.

Since the expansion in 2003, the playoffs as a whole have lasted as few as 79 games and as many as 89, with an average of about 84.7. This year’s edition can finish in as few as 75 games or as many as 84 – although 84 would be a stretch. A more likely total is 80 – which would rank this year’s playoffs among the shortest since the first round expanded.

But how do so many short playoff series affect the league’s salary cap outlook?

Fewer games means less revenues. That, in turn, means a lower cap.

The salary cap is set by calculations based on projected amounts for revenue and benefits for the upcoming season. Barring any adjustments that are necessitated, they typically use the set amount for national broadcast rights (which is determined in advance), plus the revenues for the previous season (other than national broadcast rights), increased by 4.5%.

The salary cap calculation takes 51% of the league’s projected revenue, subtracts projected benefits, and divides by the difference by the number of teams in the league. Adjustments are then made if the previous season’s revenues were below initial projections – the difference, multiplied by 51% and then divided by the number of teams in the league, is subtracted from the cap.

Thus, the lower the revenue this year, the lower the salary cap in 2010-11.  Read more…

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Chris Bosh narrows his list to five

May 21st, 2010 1 comment

Chris Bosh has narrowed his sign-and-trade list to four teams, including the Miami Heat

Chris Bosh has been rumored to have informed the Toronto Raptors that he’s narrowed his list of preferred destinations in free agency to five (of course, he’s denying it).

The list – which includes the Chicago Bulls, Los Angeles Lakers, Miami Heat and New York Knicks, in addition to Toronto – was reportedly given to management in order for the Raptors to pursue a sign-and-trade deal.

That Bosh has selected to narrow the list to these five teams should hardly be surprising. Why?

  • Bosh is clearly motivated by the potential to make maximum dollars. By either signing with the Raptors or pursuing a sign-and-trade transaction, he would take full advantage of the additional $29.4 million in salary his Bird rights would afford versus signing with an organization as an unrestricted free agent.
  • Bosh is steadfastly keeping it as one of his top priorities to play for a winner. The Lakers are sure to be perennial championship contenders, while the Bulls and the Heat are both building toward that same goal.
  • Bosh will keep a keen eye on the whereabouts of LeBron James. LeBron is rumored to be most interested in the Knicks, Bulls and Heat. Each has the capability, with varying degrees of roster maneuvering, to sign both to maximum contracts.

If – or perhaps more accurately when – Bosh leaves, the Raptors will be looking to work out a sign-and-trade transaction. The Raptors will not get a player equal to the skill of Chris Bosh. Owner Brian Colangelo will, however, do everything within his power to maximize Bosh’s return value. Read more…

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Knicks’ Stock an Influential Factor for LeBron?

May 20th, 2010 No comments

Three days ago, Forbes national editor Michael Ozanian created a national frenzy when he published this article detailing how the New York Knicks could land LeBron James. He wrote that James should consider the Knicks because he would be eligible to purchase stock in the public company MSG, which owns the Knicks.

The premise of this article is quite interesting. But in the end, it is flawed. I’ll build you two hypothetical cases to show you why.

First, some background. Madison Square Garden, Inc. (NASDAQ: MSG) is a U.S. based entertainment promotion company and live entertainment. The company spun-off from Cablevision on February 9, 2010.

MSG is divided into three entities: MSG Sports, MSG Media and MSG Entertainment.

MSG Sports is the division that owns and operates four sports franchises, including the New York Knicks of the NBA, the New York Rangers of the NHL, the New York Liberty of the WNBA, and the Hartford Wolf Pack of the AHL. The Knicks, Rangers and Liberty play their home games at Madison Square Garden.

MSG Entertainment is the division that owns the Madison Square Garden arena.

Here’s a brief breakdown of the profitability of MSG by division:

 

Extracting the contribution of the Knicks from the MSG Sports division is quite a difficult task. According to a December 2009 Forbes report on NBA team valuations, the New York Knicks had the following standalone financial performance for the seasons ended June 30:

According to these cursory figures, the Knicks would appear to contribute meaningfully to the overall profitability of the company.

Now on to the cases.

Case 1: LeBron trades in MSG stock before announcing his intention to sign with the Knicks

The first question is whether doing so would be considered a violation of insider trading laws.

The purchase or sale of a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, non-public information about the security is a crime. Section 10(b) of the Securities Exchange Act of 1934 allows the SEC to recover up 3x any profits made from the use of inside information. Additional criminal prosecution could lead to up to 10 years in prison. So we’re talking serious stuff here.

Despite the appearance of impropriety, how LeBron would fit within the above description has been the subject of much debate. Clearly LeBron would be in possession of material, non-public information (i.e., his decision to join the Knicks). Whether or not he can be considered an insider within the confines of the law is less clear. Relevant case law for this type of situation simply doesn’t exist. Consider the situation. How often can one man who has absolutely no affiliation with a company materially affect the performance of its stock? James hasn’t even been contacted by the Knicks, let alone been offered a contract.

The courts have expanded the meaning of the word “insider,” and its definition is set up to evolve and adapt to an ever expanding array of possible crimes. Utilizing my own legal background, I would be inclined to believe James would have significant exposure.

It doesn’t matter anyway.

The second question is whether the NBA would allow it. And the answer is no. The NBA has publicly declared it would not accept such trading, as it would be considered a circumvention of the salary cap rules.

Case 2: LeBron trades in MSG stock after announcing his intention to sign with the Knicks

From an NBA standpoint, there wouldn’t be any issue. In fact, the collective bargaining agreement explicitly states:

“During the term of this Agreement, no NBA player may acquire or hold a direct or indirect interest in the ownership of any NBA Team; provided, however, that any player may own shares of any publicly-traded company that directly or indirectly owns an NBA Team.”

From an SEC standpoint, there would be larger issues at stake. The SEC would certainly monitor any trades LeBron makes, in accordance with Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934. He would also be subject to SEC reporting requirements (at a certain level of ownership) as well as the company’s own compliance regulations. However, ownership in and of itself would not appear to be problematic.

***

These two cases depict why the author’s logic may be a bit flawed.

Once LeBron becomes a Knick (an event upon which he would not be allowed to trade), the stock price will adjust to reflect the revised earnings potential of the company. Any further stock price appreciation thereafter would be based on the company’s ability to meet those revised expectations, for which LeBron would be no more qualified than any other investor to determine. He would gain no advantage over anybody who would otherwise view MSG as a solid investment opportunity. And if he did gain an advantage, he wouldn’t legally be allowed to trade on it.

But the article is thought-provoking and creative. I give Michael a certain amount of credit for that. Think about it. This one article got so much attention, the NBA felt the need to step in and make a public comment about it.

The lottery changes nothing, on to more troubling things

May 19th, 2010 No comments

Gilbert Arenas is surely celebrating the potential addition of Kentucky point guard John Wall

The Washington Wizards won the first pick in the 2010 N.B.A. Draft lottery last night, which means they won the right to select the most dynamic player in college basketball. At 6’4″, John Wall is a special player who has the size and athleticism to become an incredible point guard in the game’s best league.

What at first might appear to be a redundancy at the point guard position is anything but. The addition of Wall will allow Gilbert Arenas to slide to his more natural shooting guard position.

Arenas should be ecstatic. He’s always been something of a shooting guard trapped in a point guard’s frame. He just doesn’t have that pass-first, help-my-teammates-become-better mentality a true point guard should have. Allowing him to roam free on the edges without the ball could unleash his talents to a level as yet unseen.

A backcourt of Gilbert and Wall instantly becomes one of the most feared in the NBA. Wall’s pure playmaking skills are a perfect complement to Arena’s outside touch and dynamic scoring ability. Although undersized, the two should be able to do a lot of damage.

The Wizards also possess an extremely raw but supremely talented frontcourt pairing of Andray Blatche and JaVale McGee. Add to that the more than $22 million in cap space Wizards owner Ted Leonsis is about to have this offseason and the Wizards are well on their way to resuscitating the image of that confounding and often embarrassing pro basketball team from last year. They’re not going to be able to woo the likes of LeBron James or Chris Bosh, but such cap space is nothing to scoff at. Joe Johnson or Rudy Gay could certainly be a target. If not, one season of development removed from the spotlight might be able to convince a Carmelo Anthony to join what could by then be a wide open Eastern Conference next offseason.

That’s certainly the dream in Washington anyway.

But for now, if Pat Riley cannot construct a basketball team in South Florida that can handily defeat a 26-win basketball team from one year ago that just received the good fortunate of a first overall draft pick, the offseason will by all accounts be considered a wicked failure.

So let’s instead focus on potentially more troubling issues.

We’re still a month and a half away from the beginning of free agency, so let me stir the pot with some ridiculous speculation. Today’s spotlight will be on Chris Bosh. Read more…

Why LeBron James Should Consider the Chicago Bulls

May 18th, 2010 No comments

Oh no! LeBron James called Derrick Rose!

While I wouldn’t necessarily hit the panic button just yet, the Bulls clearly offer a compelling value proposition.

If LeBron’s exclusive criterion in selecting his future destination is to have championship-caliber pieces placed around him – as he claims it to be – his choices would appear to be readily apparent. Friend and mentor Charles Oakley said it best. “Chicago or Miami.”

If I were Bulls owner Jerry Reinsdorf, my pitch would be synthesized into one sentence: Anything the Heat can do, we can do better.

And depending on how you believe he can manipulate his roster, he would be right.

For all of the bantering about coaching stability, about living in the shadow of Jordan versus sharing the spotlight with Wade, about the warmth of South Beach versus the beauty of Chi-town, all of these issues are inherently subjective in nature. So let’s set them aside for the moment and focus strictly on the numbers.

The Bulls have six players under contract for next year: Derrick Rose, Kirk Hinrich, Luol Deng, Taj Gibson, James Johnson and Joakim Noah. They will make a combined $31,850,976 in guaranteed payroll next season.

LeBron would eat up another $16,568,908.

The Bulls also have the 17th pick in the first round of the upcoming draft. Unsigned first round picks are included in team salary immediately upon their selection. For the 17th pick, the amount will be $1,302,600. But, of course, the Bulls don’t have to use it. It can always be traded. So let’s not count the pick.

That’s seven total players and a total team salary of just $48,419,884.

At the currently projected $56.1 million salary cap, the Bulls would also still be left with $5,312,096 to spend on any single complementary piece (after incorporating roster charges).

So that’s Rose, Hinrich, James, Gibson and Noah, with Johnson and Deng on the bench and an as yet undecided $5 million man.

Impressive! But perhaps that’s still not enough to trump a Miami Heat value proposition that includes the likes of Dwyane Wade and Chris Bosh.

But here’s where it gets interesting.

If Luol Deng, with his $11,345,000 contract, were to be deemed superfluous in a LeBron James scenario, the Bulls could try to move him. And if Kirk Hinrich, with his $9,000,000 contract, were to be deemed superfluous behind Derrick Rose, the Bulls could try to move him too. Yes, their contracts are inflated. But they’re not ridiculous. And the Bulls have a ton of assets with which to sweeten a potential deal or two. And with more cap space available around the NBA this offseason than can appropriately be utilized, something stupid is bound to happen.

Read more…