checkbookdoc
Well-Known Member
Hey everyone, this is a long post so here is a quick summary: In this post I contend that the NBA market is significantly underestimating the salary cap number which should be used in decision making, I discuss what I believe the consequences of this will be, and then I discuss general actions that the front office should take in response to this belief. In the end, I ask if you agree, and what specific moves you would make if this is correct.
Over the last few months I have come to believe that the consensus expectation of future salary cap levels is significantly underestimated. I believe this underestimate is driven by 1) the current collective bargaining agreement incentivizing the league office and owners to use conservative estimates (this results in, for example, projecting the unusually low number of playoff games of the last few years into future estimates), and 2) the current estimate not taking into consideration revenue from new sources (e.g., jersey advertisements & sports gambling). In December 2016, the salary cap estimate by the Player’s Association for the ‘20-’21 season was $120 Million, which is about 20% higher than this year’s $101 million. Again, this projection does not include the new sources of revenue. In short, I believe the salary cap will climb significantly over the next few years.
If the salary cap does increase by more than was expected by the NBA market, 1) long-term contracts at market price now will be significant assets in the future, similarly, long-term contracts that are overpaid now will be at market price in the future, and 2) the use of cap space to sign long term contracts will be more valuable this summer than future summers (both because there will be a greater market inefficiency this year, and also because there will be more teams with cap space than projected in future years), and 3) the ability to generate cap space for another team will be more valuable in the future (as teams recognize there will be significant increases to the salary cap).
If this is correct, then I believe the front office should be aggressive in, 1) acquiring players with long-term contracts through both free agency and the trade market, 2) creating cap space this year, rather than waiting for 2019, 3) acquiring contracts which will facilitate cap creation for other teams, and 4) taking on “bad” contracts in exchange for future draft picks since the rookie contracts will be an even greater value (at least through 2020-2021).
So I am interested in knowing: 1) do you think this is correct and 2) does it change your opinion on any transactions this summer?
Over the last few months I have come to believe that the consensus expectation of future salary cap levels is significantly underestimated. I believe this underestimate is driven by 1) the current collective bargaining agreement incentivizing the league office and owners to use conservative estimates (this results in, for example, projecting the unusually low number of playoff games of the last few years into future estimates), and 2) the current estimate not taking into consideration revenue from new sources (e.g., jersey advertisements & sports gambling). In December 2016, the salary cap estimate by the Player’s Association for the ‘20-’21 season was $120 Million, which is about 20% higher than this year’s $101 million. Again, this projection does not include the new sources of revenue. In short, I believe the salary cap will climb significantly over the next few years.
If the salary cap does increase by more than was expected by the NBA market, 1) long-term contracts at market price now will be significant assets in the future, similarly, long-term contracts that are overpaid now will be at market price in the future, and 2) the use of cap space to sign long term contracts will be more valuable this summer than future summers (both because there will be a greater market inefficiency this year, and also because there will be more teams with cap space than projected in future years), and 3) the ability to generate cap space for another team will be more valuable in the future (as teams recognize there will be significant increases to the salary cap).
If this is correct, then I believe the front office should be aggressive in, 1) acquiring players with long-term contracts through both free agency and the trade market, 2) creating cap space this year, rather than waiting for 2019, 3) acquiring contracts which will facilitate cap creation for other teams, and 4) taking on “bad” contracts in exchange for future draft picks since the rookie contracts will be an even greater value (at least through 2020-2021).
So I am interested in knowing: 1) do you think this is correct and 2) does it change your opinion on any transactions this summer?
