Summer of 2016 Update
The Heat, as of now, projects to have Goran Dragic, Josh Richardson, Justise Winslow, Josh McRoberts and Chris Bosh under contract next summer and, at a projected $89.0M salary cap, up to $37.4M of cap space for Dwyane Wade, Hassan Whiteside and another player. If Richardson is cut, that amount would increase to $37.7M. If McRoberts is traded, it would increase further to $43.0M. If Winslow is also traded (i.e., most aggressive case plausible), it would further increase to $45.0M.

Maximum contract values would be as follows: $20.9M for 0-6 year veterans, $25.0M for 7-9 year veterans, $29.2M for 10+ year veterans.

NBA Strikes Partnership Deal With Daily Fantasy Sports Operator FanDuel

November 13th, 2014 No comments
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Fantasy sports is a huge business – 41.5 million people in the U.S. and Canada spend $3.6 billion on fantasy league and related fees each year.

A relatively small(1) but fast-growing sub-segment of the industry is daily fantasy sports. As that part has grown, sports leagues are taking notice and looking to get in on the trend. With that in mind, the NBA announced yesterday that it has signed a four-year strategic partnership with venture-backed FanDuel, the largest player in the space with an estimated 75 percent market share, to promote the one-day fantasy sports website.

The agreement establishes FanDuel as the NBA’s official daily fantasy basketball outlet. FanDuel will unveil the first “Official One-Day Fantasy Basketball Game of the NBA,” that will be free to all fans on and, the prizes for which will include regular-season tickets, unique NBA experiences, NBA merchandise and memorabilia. While the NBA and its properties will only promote the site’s free fantasy games, FanDuel retains the right to have pay-to-play versions of such free games as well, with cash prize payouts. Other fantasy sports websites will still be able to offer fantasy basketball to customers, but FanDuel will be the only such company featured on the league’s digital properties, including its official website and mobile apps.

The NBA is hoping the partnership will drive more engagement with, and more interest in, the league among its fan base. Fantasy participants spend an average of 8.7 hours per week on fantasy and, after placing a bet, increase their weekly intake of sports TV programming from 17.5 hours to 24 hours. The NBA will also receive an undisclosed ownership stake in FanDuel as part of the deal.  Read more…

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NBA Reaches 9-Year, $24 Billion Media Rights Deal with ESPN/ABC, TNT

October 6th, 2014 No comments
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The central question of the 2011 lockout, endlessly paltered, parsed and probed was whether the league was actually losing money. While it was a key point of negotiation, its importance was somewhat overstated. A new CBA shapes the future of the league; it doesn’t necessarily need to address the past. It must be asked: How much of the lockout, then, was about owners feeling poor in 2011, and how much of it was about owners trying to get rich in 2016?

2016 is when the NBA’s current national TV deals expire – eight-year agreements that promise pro basketball a total of $7.44 billion from Disney (ESPN/ABC) and Turner (TNT) starting with the 2008-09 season and running through 2015-16, an average of $930 million per year. The deals were originally signed in June 2007.

The NBA was cratering back then. New stars had struggled to grow in the darkness of Michael Jordan’s ever-enveloping shadow. The Shaq-Kobe drama had breathed temporary life into the league, but their eventual break up left the NBA to slowly wither in its wake. Big market teams like the Lakers, Knicks, Celtics and Bulls were brands lacking a product, with no signs of future improvement. The Spurs had just pummeled LeBron’s Cavaliers in the finals, a dismal four-game extermination that limped its way into the record books as the lowest-rated series in NBA Finals history. Things were getting ugly.

An eight-year, $930-million-per-year combined deal? Sold!

Then-commissioner David Stern had negotiated for an increase of more than 20% from the previous average of $767 million despite declining viewership (which itself represented a nearly 25% increase over the $614 million per-year deal signed in 2002, then, also, despite declining viewership). The networks were more than willing to comply with what amounted to a modest 2.5% compounded annual growth rate in rights fees in exchange for an atypically long eight-year deal. The preceding six-year 2002 deal had been the longest one Stern had ever signed.

The agreement looked even better for Stern and the league as the economy got even worse. In 2008, credit froze because mortgage insanity stirred by (us) Wall Street evil-doers planted massive hidden debts packaged in complex synthetic financial products throughout the business world. The ensuing global economic meltdown blazed its way into the NBA, spurring widespread layoffs and igniting fears that league revenues could collapse by, as Stern described it, “maybe as much as 10%.” The league seemed fortunate to be able to cling to a $930 million lifeline every year.

Times have certainly changed.  Read more…

When Should Kevin Love Lock In His Long-Term Contract?

September 15th, 2014 No comments
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With the Cleveland Cavaliers on the verge of completing a blockbuster trade for Kevin Love, the Minnesota Timberwolves granted permission for Cavs owner Dan Gilbert to meet with Love. Whatever was discussed at that lengthy July meeting in Los Vegas gave Gilbert enough comfort to finalize what became the biggest trade in franchise history.

The problem Gilbert had to overcome? Uncertainty.

Love has as few as one year remaining on his contract. To trade away a potential future superstar such as Andrew Wiggins in exchange for a man, perennial All-Star though he may be, who could walk away in just one year represents a substantial risk.

Did Love affirm his desire to remain with the Cavs over the long term in that meeting? Maybe. But you’re not going to hear about it. That’s because Love its still under contract. It’s technically against the rules (and among the most serious violations a team can commit) to strike a future deal. But something made both parties comfortable that this was a long-term arrangement. In the news conference to announce his arrival, Cavs general manager David Griffin welcomed Love by saying this was a “long-term relationship.” Moments later, Love himself said he was “committed to this team, committed long term.”

So when will Love lock in the long-term deal that solidifies his commitment? Love’s age, tenure and skill-set have created a perfect storm of interesting – a fascinating story that figures to be unlike any other in the NBA in the years ahead.

Stating the obvious: The higher the starting salary in a long-term contract, the higher the salary can be in all subsequent years of the contract as well. That’s because annual raises in any contract are limited to 7.5% of the starting salary. The maximum length of a contract is five years. In what summer, then, will Love strike the optimal balance for himself between locking in the highest starting salary and locking in a full five-year deal, while taking into account risks associated with such things as his health and inevitable basketball mortality?(1)

It won’t be this summer. That much we know. Why? Because he can’t. NBA rules prevent it.

In January 2012, Love signed a four-year, $60.8 million maximum contract extension(2) with the Wolves in which the last season, the 2016-17 season, was to be a player option. Love will make $15.7 million this season and his option for next season is for $16.7 million.

If Love wanted to sign with the Cavs today, it would therefore need to be an extension of his current contract. Contracts cannot be extended until the three year anniversary of their initial signing. That’s next January.

So if not this summer, which?(3)  Read more…

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Los Angeles Clippers: Salary Cap Maneuvering In Action

August 11th, 2014 4 comments
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Update #2 (01/16): 

As of the last update, the Clippers effectively traded away their 2017 first round pick and incurred a $950K dead-money salary cap charge for this and the next four years in order to get rid of the contract of Jared Dudley, who despite a down year remains a solid player, dropping the team down from 12 to 11 players. They then used the resultant cap space to sign four players: Chris Douglas-Roberts, Epke Udoh, Hedo Turkoglu and Jared Cunningham (and Joe Ingles, who was later waived).

The question then became: Would you have rather had (i) those four players OR (ii) Dudley + one of those four players + the 2017 first round pick back + no $950K dead-money charge for the next five years? This is the question I posed as the conclusion to my first update. 

Since that time, the Clippers traded away $300K in cash to get rid of Jared Cunningham and then traded 2013 first round draft pick Reggie Bullock, Chris Douglas-Roberts and a 2017 second round draft pick for the expiring contract of soon-to-be unrestricted free agent Austin Rivers (son of coach Doc Rivers). 

So… After being hard-capped at the apron back in July, the Clippers have essentially traded Bullock, Dudley, a 2017 first round pick, a 2017 second round pick, $300K in cash AND incurred a $950K dead-money salary cap charge for five years in exchange for Rivers, Turkoglu and Udoh.

The Clippers could have instead kept Bullock, Dudley, their 2017 first round pick, their 2017 second round pick and their $300K in cash,  either of Turkolgu or Udoh (but not Rivers), and avoided the $950K charge for the next five years, and still remained below the hard cap. While the Clippers remain a very solid team on the court, it would appear that their general management of the court has been rather awful.

The two players who caused the hard cap issues?

Hawes: Hasn’t worked out thus far.

Farmer: Bought out (giving back $950K of the $3.2 million remaining on his contract for this and next season), with next year’s remaining cap hit stretched over three seasons at a cost against the salary cap of $510,922 per season.   

Read more…

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A View Into the Miami Heat’s Local TV Deal

August 4th, 2014 No comments
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Update (11/24/14): The Miami Heat announced the signing of a new deal with Sun Sports that will extend the partnership for another seven years, through the 2024-25 NBA season. Details of the extension are not yet known.

Update (04/17/15): For the 2014-15 NBA season, the Miami Heat produced an average rating of 5.02 on Sun Sports, good for fourth in the NBA despite the team losing LeBron James, suffering through a rash of injuries, and missing the playoffs. That means an average of 82,000 of the 1.63 million TV households in the Heat’s primary designated market area (Miami-Ft. Lauderdale) were tuned into Heat local TV broadcasts.

“This is a hobby of passion, it’s not a business… The reality is we’re not a big market team. Where we find ourselves struggling is our local TV revenue is smaller than big markets…”

That was Heat owner Micky Arison in July of 2012, describing the difficulties of producing a winning basketball team while maintaining some semblance of profitability under the auspices of the new and far more restrictive Collective Bargaining Agreement.

Local rights deals for sports franchises are in the midst of a tremendous boom in the television landscape that social media sculpts, as regional sports networks (RSNs) bid up prices to secure access to one of the few remaining DVR-proof properties.

In 2011, the Los Angeles Lakers signed the richest local television rights deal in NBA history; the 20-year contract with Time Warner Cable included the launch of two new regional sports networks – one English channel and one Spanish channel – and averages a payout to the Lakers of approximately $200 million per year, for a total value of $4 billion!

To give you an idea of just how astronomical that is: It’s roughly 10x the $20 million payout the Heat currently generates from its own longstanding TV rights deal. In fact, the average annual payout on the Lakers’ deal is more than what the Heat currently generates in total revenues!

The Heat is at a substantial disadvantage when it comes to negotiating the payout on its local TV rights deals. That’s because the size of a team’s local TV rights deal is directly proportional to the projected number of TV households tuned into its broadcasts. The Heat, by the NBA’s own definition, is a small-market team. Read more…

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NBA Sets Salary Cap and Tax Level Numbers for 2014-15

July 9th, 2014 No comments
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On Thursday July 10 at 12:01 a.m. ET, the NBA’s 2014-15 season begins. That’s when the league’s salary cap, luxury tax threshold, maximum salaries and other figures all adjust to their new values.

Most NBA business ceases for the first several days of July as the league conducts its annual audit to determine the league’s revenues from the previous season. With that figure in hand, the league huddles with the players association to project revenues for the coming season, and uses it to calculate the new cap, tax and related figures.

Revenues on the season came in at an all-time high $4.52 billion, up 5.3% from the previous year and more than $50 million higher than initially projected. On that basis, the league then projected revenues for next season to increase another 4%, to $4.71 billion.

To get the salary cap for the season ahead, they took 44.74% of that projected amount, subtracted projected benefits, and divided by 30 (the number of teams in the league). Adjustments are then made to the cap if players received too much (or too little) in salaries and benefits for the completed season relative to the finalized revenue figure; this serves as a mechanism to maintain the integrity of the agreed-to revenue spit between owners and players. The luxury tax uses a similar formula, but is based on 53.51% of projected revenues.

The finalized figures were announced at 5 p.m. Wednesday in a memo distributed by the league to all member teams.

The new salary cap has been set at $63.065 million, a 7.5% increase from last season. That is slightly less than the $63.2 million estimate teams had been using since April, but higher than previous forecasts. Last year at this time, the league initially forecasted a cap of $62.5 million, before increasing it to $62.9 million in November and again in April.

The new luxury tax line will be $76.829 million, a 7.1% increase from last season. Tax projections started at $76.1 million last year at this time, before rising to $76.6 million in November and $77.0 million in AprilRead more…

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Miami Heat’s Great Hope Is … Josh McRoberts and Danny Granger?

July 8th, 2014 No comments
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The Big Three era Miami Heat were always the ideal test case for a new collective bargaining agreement designed primarily as a cash grab for owners, but also with a secondary goal of engineering greater competitive balance around the league.

The new CBA went about achieving its secondary goal in large part by implementing a far more punitive luxury tax(1). Spend a lot on players, and you’re going to face a crippling “incremental” tax penalty that gets more severe as you add payroll. Keep spending year after year and eventually you’ll tack onto it the dreaded “repeater” tax.

It’s working. Just five NBA teams paid the tax this past year; that’s tied for the fewest ever in a tax-triggered season. Competitive balance is more prevalent today than at any point in recent history. Team salaries around the league have leveled out dramatically. The spending habits on the high end are down significantly, with particular emphasis for those in smaller markets which can’t support the weight of such enormous tax bills.

No one team has felt the burden of the new tax structure more than the Miami Heat. Some would say that was always the plan – a plan brought about by the demands of envious fellow owners in the wake of the Big Three formation. The Heat have had to make several painful and wildly unpopular cost-cutting (e.g., waiving Mike Miller via the amnesty provision) and cost-controlling (e.g., not utilizing the mid-level exception this past season) moves since the lockout, as a direct consequence to the harsh realities of the new CBA.

It wasn’t all that difficult to forecast. People have been predicting the inevitable demise of the Heat, as presently constructed, for three solid years. Whether owner Micky Arison could afford to keep his team together was never in question; he’s a six-billion-dollar man. But the limitations of his market – the Heat’s designated market area is good for just 17th overall, among the league’s 30 teams; smaller than, for example, that of the Minnesota Timberwolves – have made it virtually impossible to maintain some semblance of profitability while spending deep into the tax (at least in the near-term).  Read more…

Miami Heat Struggling Early In Free Agency

July 3rd, 2014 10 comments
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The Miami Heat would love to get younger.

The Heat would love to get some youthful assistance on the wing, as protection for Dwyane Wade as his advancing age and health restrictions cause him to miss so many games and render him so ineffective in so many others.

The Heat would love to get a youthful presence down low, a big man capable of imposing his will on the block and the boards.

But for as much as we, as fans, have dreamed it to be so, it was never truly possible. Supremely talented youth is almost never a possibility on the open market. The very nature of NBA rules makes it virtually impossible to attract youthful talent in free agency.

The intensity of recruiting these days is such that the vast majority of all of the best free agents will have once been first round draft picks. Such selections provide their teams the promise of cheap labor over an extended period – via four year “rookie scale” contracts which make it categorically impossible for them to shake free during the interim. If not for being operated under a set of rules which were collectively bargained, the concept alone would surely violate anti-trust laws.

And, yet, it doesn’t get much better for these players after just the four years. At that point, the door opens, but only very slightly. The player is then to enter free agency in restricted fashion, such that any agreement he strikes with any team can be matched by his prior team and, in-so-doing, obligate said player to play for his prior team under its terms. These rules are so restrictive that, typically, the only option for any team desiring such a player is to severely overpay for him, in the hopes that his prior team refuses to match such ludicrous payouts. Most teams don’t even bother to bid on such players. And, thus, by the time the better former first round draft picks are truly free to consider other alternatives, somewhere between eight and nine years will have already passed them by.  Read more…

Miami Heat Create NBA-Record $55 Million in Potential Cap Space

June 29th, 2014 5 comments
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Many years from now, Saturday, June 28, 2014, could be remembered as a critical day in Miami Heat history. It marks the day when guard Dwyane Wade and forwards Chris Bosh and Udonis Haslem declared their intentions to join LeBron James and Chris Andersen in opting out of their contracts. It could ultimately mark the day in which the destruction of the Big Three era was initiated in earnest, or the day in which the remodeling of Pat Riley’s two-time championship-winning creation received a major boost.

Agent Henry Thomas, who represents all three players, has reportedly informed Heat president Pat Riley of their choices. Wade will exercise his Early Termination Option for the remaining two years and $41.8 million on his contract, Bosh will do the same for the two years and $42.7 million remaining on his contract, and Haslem will not exercise his player option for the lone season remaining on his $4.6 million contract.

Technically, there is no mechanism to notify the league that an option or ETO will not be exercised. Since the contracts of Wade and Bosh contain ETOs for this summer, they are required to inform the league of their intentions. Since Haslem’s contract contains a player option, he need do nothing but wait.

These actions, particularly in the wake of James, Wade and Bosh meeting last week on Miami Beach, make it rather clear that the Heat’s stars, as well as its supporting players, have decided to work together to provide the Heat the salary-cap flexibility with which to add additional components to a roster that earlier this month lost in the NBA Finals to the San Antonio Spurs, cutting spectacularly short the Heat’s bid for basketball immortality – four straight NBA Finals appearances and three straight NBA titles, a feat which has only been accomplished once in league history.

Without the opt-out decisions, the Heat would have gone into the offseason far in excess of what is projected to be a $63.2 million salary cap for the 2014-15 season, and without much ability to materially improve. Instead, the moves enable the Heat to create as much as an all-time NBA-record $55 million in cap space with which to reconfigure the roster(1).  Read more…

A Chris Andersen Decision to Opt Out Could Have Mutual Benefits

June 28th, 2014 No comments
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Update (07/18/14): The Heat utilized the strategy I described below to give Chris Andersen a much-deserved raise. But the amount he received was, in my humble opinion, too much. The 36-year-old was signed to a two-year, $10.4 million fully guaranteed contract. The contract was presumably designed to be as much a reward for Andersen playing under contracts that undervalued his production for the last two years as it was a true reflection of his projected value for the next two years. Heat president Pat Riley presumably figured he could give Andersen such a multi-year reward because the contract doesn’t figure to reduce the Heat’s flexibility for either of the next two years, at least as things stand right now, but the basic rule of good management is that you must prepare for a future you cannot predict. This contract could prove costly as things materialize over the next couple of years.

Chris Andersen is impossible to ignore. The sometimes-bearded, sometimes-Mohawked 6-foot-10 forward/center has his nearly luminous skin filled in technicolor artwork to mask the body of a man who is part enigma, part cult hero, part unlikely role model.

Andersen’s popularity stems from some cosmic combination of hops, hustle, hair and history. His boundless energy speaks volumes about a life predicated on endurance.

If you’ve followed the story of his life, you might wonder how it’s possible that he’s been able to endure. Or where along his path you might have quit. The “Birdman” never has – not after impossible childhood circumstances, not after tragic personal relationships, not after the drugs that forced a mandatory two-year suspension from the league, and certainly not after the most bizarre of stories destroyed his reputation.

In May of 2012, detectives in the Internet Crimes Against Children unit of the Douglas County, Colorado came to his door – confiscating both his computers and his dignity, causing widespread rumors and whispers of hard drives and the age of consent, and forcing him to live under the worst kind of suspicion. He was amnestied by the Denver Nuggets two months later. Nobody would touch him. Serious talent wasting away. He kept quiet while his life was falling apart. Six months passed by. Nothing. His lawyer finally spoke up, proclaiming his client’s innocence. Within a week, Miami had signed him.

The next phase of his life story couldn’t be scripted much better. It’s a story of equal parts success and sacrifice.

A championship. A new two-year contract. Minimum salary. He was eligible for more. We all wanted to give it to him. He deserved it. But he sacrificed for team, his owner and his fans. Then, last September, complete vindication. It was revealed that he’d been the target of an elaborate online extortion plot engineered by a woman in rural Manitoba, Shelly Lynn Chartier. The case was so complex that even he didn’t know exactly what happened. He’s moved on. He even has a TV show in the works, called “Urban Outdoorsmen.”

The question now, for Heat fans, is how his journey will continue. Has a decision to make. He has one year left on his minimum salary contract if he wants it. Or he can opt out. It would appear he’s made it. It would appear he intends to opt out.  Read more…

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