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

May 22nd, 2010 No comments
Tweet about this on TwitterShare on FacebookEmail this to someone

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…

Categories: Commentary Tags:

Chris Bosh narrows his list to five

May 21st, 2010 1 comment
Tweet about this on TwitterShare on FacebookEmail this to someone

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…

Categories: Commentary Tags: ,

Knicks’ Stock an Influential Factor for LeBron?

May 20th, 2010 No comments
Tweet about this on TwitterShare on FacebookEmail this to someone

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 company that 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. MSG Media consists of the MSG Network, the regional sports network that broadcasts Knicks games locally.

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. However, in practical reality, it is almost certain that the financial statements of the Knicks organization contains various expenses not captured by Forbes such the reported profitability is far less than those presented above.

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. 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
Tweet about this on TwitterShare on FacebookEmail this to someone

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
Tweet about this on TwitterShare on FacebookEmail this to someone

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…

Pre-draft considerations

May 17th, 2010 No comments
Tweet about this on TwitterShare on FacebookEmail this to someone

Pre-draft workouts have begun for the Heat, and for several teams across the league.

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.

Pat Riley already has it on record that he doesn’t believe in building through the draft. Of course, that’s because he’s had an abysmal track record with it. Since having Dwyane Wade fall into his lap in the first round of the 2003 draft, only four other players he’s selected have ever seen the NBA hardwood for the Heat – Dorell Wright, Wayne Simien, Michael Beasley (excluding five captivating minutes from the great Jerome Beasley; who?). The very next players taken in those drafts were Jameer Nelson, David Lee and O.J. Mayo.

The stakes are higher in this draft, particularly as it relates to the first round selection. First round draft picks are paid based upon a predetermined salary scale. The contracts run four years in length, with the first two years guaranteed and the following two at the option of the team.

Unsigned first round picks are included in team salary immediately upon their selection in the draft. For the 18th pick in the upcoming draft, the amount will be $1,237,500. Therefore, as soon as the Heat makes its selection, its cap space will be reduced by $1,237,500. That’s a big gamble, considering it eliminates the possibility of a Wade-James-Bosh trio.

Some of us may be under the misconception that once a first round draft pick is drafted, there is nothing a team can do (short of a trade) to shed his salary. That’s actually untrue. Unsigned first round draft picks can be renounced at any time, just like any other unsigned free agent, in order to recover the cap space.

The ramifications for the player, however, can be devastating. A first round draft pick has something sacred – a two-year, multi-million dollar guaranteed salary. If such a player were renounced, he would lose that security, as the salary scale would no longer apply to him. In these instances, the player typically ends up signing a contract similar to that of a second round draft pick – a one-year minimum contract with a second year at the team’s option. Consequently, it is rarely done. Since the institution of the salary scale for first round draft picks, I can only recall it happening once. In 1996, rather than give their first round pick Travis Knight (29th overall) a multi-year guaranteed deal, the Chicago Bulls renounced him, making him a free agent. Read more…

Categories: Commentary Tags:

Interesting Developments in Grizzlie-land

May 16th, 2010 No comments
Tweet about this on TwitterShare on FacebookEmail this to someone

In what is perhaps some small measure of vindication for Heat president Pat Riley, Memphis has invited undersized 6’4″ shooting guard O.J. Mayo to participate in their summer league. The goal for Mayo would be to improve his point guard skills. Mayo’s shaky ball handling and poor decision-making have been major deficiencies throughout his first N.B.A. two seasons.

If you recall, Riley gave serious consideration to drafting Mayo with the second overall pick in the 2008 N.B.A. draft, before ultimately selecting Michael Beasley.

Draft analysts automatically assumed Beasley and Derrick Rose would go with the first and second picks in the draft. Many even considered Beasley to be the more talented. Mayo was therefore viewed as being a reach with the second overall pick at the time. Riley, however, had visions of turning Mayo into a point guard, in order to create a dynamic backcourt pairing with Dwyane Wade. The Heat needed (and continue to need) outside shooting, and using the second pick on Mayo could have added a ton of it. It was felt that Mayo could tee off from deep while Wade drove hard to the basket. Mayo also had the ability to create his own shot at will. Ultimately, Riley did not see enough to upend the more popular selection.

Mayo was then drafted with the third overall pick by the Memphis Grizzlies.

While Riley’s assessment of Mayo’s point guard skills appears to have been proven correct thus far into his N.B.A. career, the unexpected gem at the position appears to have come in the fourth spot in the draft, where the Seattle Supersonics – the Oklahoma City Thunder predecessor – selected Russell Westbrook. Westbrook has yet to develop a reliable outside shot, but his contributions in all other phases of the game have him as a sure-fire perennial all-star. However, without the ability to space the floor, even Westbrook may not have produced a quality backcourt pairing for Wade. In fact, no other 2008 draftee has shown the backcourt skills that would cause one to second guess Riley’s decision to draft in the frontcourt. While the frontcourt selection can certainly be second guessed, namely due to the superb play of 7’0″ center Brook Lopez, Beasley was widely considered the wise choice at the time.

Now just two years later, questions abound as to whether the Heat should, or even could, abandon its attempts to further develop Beasley and trade him.

Ironically, the answer to Beasley’s fate could once again be tied to the Grizzlies. Read more…

Let the LeBron James Sweepstakes Begin!

May 14th, 2010 No comments
Tweet about this on TwitterShare on FacebookEmail this to someone

The world has come to an end!

The Boston Celtics have just defeated the Cleveland Cavaliers in the biggest game in the history of professional basketball! Well, maybe not. Maybe it’s only the most important (or perhaps painful) game in Cleveland’s franchise history. But it will nonetheless hold far-reaching implications for players and franchises across the league.

The consensus has always been that it was highly unlikely that James would leave Cleveland this summer. But I, like most many others, have always felt that if the Cavaliers don’t win the NBA championship, LeBron was as good as gone. So naturally one can understand the magnitude of the moment.

The next 55 days will now be filled with the kind of rampant over-speculation fit only for a king.

In Cleveland, there is nothing but dread. Losing James will be nothing short of catastrophic for a team that no longer has the flexibility with which to rebuild and for a city whose sports curse is perhaps the heaviest of active burdens in the country.

Elsewhere, as many as a third of the league’s owners and general managers are quietly pumping their fists while pacing across their living room floors. The impossible task of landing the NBA’s greatest ever free agent prize just got one step – one large step – easier. Hopes and prayers, as ridiculous as they may be in certain cases, are still alive.

The anticipation will be nearly unbearable.

At the same time, LeBron’s performance will be carefully and painfully scrutinized. His seven-year career, one in which he has established himself as the game’s best, will continue to be called into question. The media will continue to suggest his legacy has been permanently tarnished. Conspiracy theorists will continue to suggest he threw one or more of the series’ games in order to make his impending exit that much more justified. It’s kind of a rough deal that a man who’s done so much for the game of basketball can’t hit a rough spot without suffering such ridiculous character assaults and total invalidation of sustained and unparalleled greatness.

In a season that started with such promise, there was certainly nothing magical about the Cavs’ seemingly uninspired exit. It wasn’t holding the Larry O’Brien championship trophy, as so many felt was the only acceptable end. It wasn’t fighting the Lakers in the NBA Finals for the rights to it. Rather, it was all the way back in the second round, against a team widely considered too old to compete – a team the Cavs were supposed to squash into irrelevancy. And the responsibility, whether justified or not, will be placed squarely on the shoulders of LeBron James.

And so it begins.

Categories: Commentary Tags:

Joel Anthony to Decline His Player Option

May 13th, 2010 2 comments
Tweet about this on TwitterShare on FacebookEmail this to someone

Joel Anthony will reportedly decline his $885,120 player option, and test free agency.

This is good news for both the Heat and Joel.

The Heat now recovers up to $885,120 in additional spending money (or $411,516, net of the incremental $473,604 roster charge for having fewer than 12 players on the roster).

For Joel, it is a chance to get a bigger payday. Joel’s statistics don’t immediately jump off the page. In his sixteen minutes of action per game, he displayed limited – though improving – scoring touch. But he’s a scrappy kid who hustles after every ball and is a shot-blocking force on the block. He finished with the 15th most blocks in the league. His 3.96 blocks per 48 minutes is seventh-best among all players.

Teams looking to strengthen their interior defenses may take a look at the 6’9″, 245-pound Canadian-born, three-year veteran.

But Miami will have the clear inside track to retain him.


First, the Heat can choose to make him a restricted free agent, which would afford the right to match any outside offers. To do so, however, the Heat would be required to extend him a qualifying offer of $1,060,120. The qualifying offer is essentially a contract offer, which prevents the Heat from not offering Joel a contract and waiting to swoop in when he tries to sign elsewhere. This amount would count against the Heat’s salary cap as soon as it is offered, and Joel could then accept it at any time in lieu of continuing to test the free agent market. And while it would be more than the original $885,120 salary Joel opted out of, the Heat would be able withdraw its outstanding qualifying offer at any time if it so chose, in which case the charge would be wiped away and Anthony would become an unrestricted free agent. The qualifying offer cannot be withdrawn after July 23 without the player’s consent.

If Miami chooses not to extend Joel a qualifying offer, his cap hold to start the off-season will be the minimum salary applicable to a three-year veteran less the amount that would be reimbursed by the league, or $854,389. Note that this figure is $30,731 less than the $885,120 salary he opted out of. So, Miami would get an instant cap savings, albeit tiny. The risk to this approach would be that Joel could simply sign a contract with any team he wants any time he wants, and Riley would be powerless to stop him.

Second, and more important, is that the Heat will hold Joel’s Bird rights (whether or not a qualifying offer is ultimately extended). Because Miami will retain his Bird rights, it will be able to utilize all of its cap room (less the $1,060,120 cap hold if a qualifying offer is extended or the $854,389 cap hold if it is not) on other players and then come back to Joel. At that point, Miami will be able exceed the cap to offer Joel whatever salary he wants – all the way up to a maximum contract for a player with less than seven years of experience.

Extending Joel a qualifying offer appears more likely at this point than either keeping him unrestricted or cutting ties with him outright. Why? Because there is absolutely no drawback to keeping his qualifying offer on the books right up until the second Riley would rather use the cap space elsewhere.

The most likely course of action will be as follows. The Heat will extend Joel a qualifying offer by June 30, which will count $1,060,120 against the salary cap. Prior to July 24, however, it will be rescinded. When it is, his cap hold will be reduced to $854,389, giving the Heat an additional $205,731 to spend on its outside free agents. At this point, the Heat will still retain his Bird rights (and he will be unrestricted). Once the team’s entire cap space is used up, the Heat will then utilize Joel’s Bird rights to replace his $854,389 cap hold with the significant raise he deserves, allowing the Heat to legally exceed the salary cap.

So, at least for now, Joel doesn’t appear to be going anywhere.

Categories: Commentary Tags:

Placing Bets on LeBron’s Destination

May 12th, 2010 2 comments
Tweet about this on TwitterShare on FacebookEmail this to someone

Sports betting website is now taking bets on where LeBron James will wind up for the 2010/11 season.

The Miami Heat is not a popular projection.

The current line is as follows:

Cleveland Cavaliers: 2/5
New York Knicks: 4/1
New Jersey Nets: 9/1
Chicago Bulls: 12/1
Any Other Team: 18/1
Dallas Mavericks: 30/1
Miami Heat: 35/1
Los Angeles Clippers: 40/1
Olympiakos S.F.P. (Euroleague): 125/1

It will be interesting to see how these lines change on Thursday at about 11:00 pm.

Categories: Commentary Tags: