Tag Archives: money

The Thunder and the NBA’s Television Deal

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NBA Announces New Media Partnerships

With the historical TV deal the NBA signed on Monday, the salary cap is poised to jump up by at least $30 million dollars in the next 2-3 seasons. The increase in salary cap also means an increase in players’ salaries, of which is of keen interest to the Oklahoma City Thunder. The team that has meticulously constructed itself around a developing nucleus of Kevin Durant, Russell Westbrook, and Serge Ibaka will be extremely tested in the next 2-3 years. The first series of extensions the players signed eventually led to the trade of James Harden. While the team wanted to keep the burgeoning quartet together, the economics of the day forced the Thunder to trade Harden, who was looking for a max deal, of which the Thunder could not afford without destroying their salary cap flexibility.

The first extension after the rookie deal is usually easy for a team to handle. At its apex, the 5 year max is only worth about $80 million dollars (or 25% of the salary cap). Its the second extension that can difficult for teams to handle. By the time a player has reached his second extension, he’s been in the league at least  7 seasons, which qualifies his max salary to take up at least 30% of the salary cap. Salaries for max players in their 2nd extension can easily climb above $20 million per season. If you are a championship contending team in the league, you more than likely have at least 2 players worthy of a max deal. And if you are paying them accordingly, then upwards of 55% of your cap space could possibly be used up on two players.

NBA: Playoffs-Los Angeles Clippers at Oklahoma City Thunder

Luckily for the Thunder, those two players happen to be Durant and Westbrook (aka the reigning MVP and arguably the best point guard, respectively). Both players will be up for extensions in consecutive years, beginning in the 2016 offseason. And both players, health permitting, will be deserving of max extensions. Here’s the beauty of the CBA though: max deals are determined by percentages of the salary cap. So it does not matter whether the cap is $63 million (2014-15) or $90-100 million (projected for 2016-17), a max player will only take up a percentage of the salary cap. Even though there is more money in the pot, the percentages for max players should remain the same. And if your GM knows how to manage the money within the parameters of the luxury tax line, then it should be business as usual.

The trickier part of the equation will be Ibaka. The Thunder signed Ibaka to 4 year/$49 million dollar contract two seasons ago. It has turned into one of the better bargains in the NBA. If Ibaka continues on his developmental trajectory, will he be satisfied with a slightly below level max deal again? The Thunder saw how valuable Ibaka is when he missed the first two games of the Western Conference Finals. With no rim protector in the middle, the Spurs had their way with the Thunder, blowing them out in both games. In addition, Ibaka’s value to the offense as an offensive rebounder and perimeter release valve became even more apparent through the year last season. If Ibaka were a free agent right now, he’d likely fetch a slightly below market max deal. While Ibaka does appear to be extremely loyal, loyalty has to run both ways to be effective.

reggie jackson thunder

Then there’s the Reggie Jackson situation. As discussed in a previous post, Jackson wants to start and wants to get paid. The Thunder may be able to accommodate the monetary issue, but probably won’t be able to appease Jackson on the starting issue. The Thunder like to start a big defensive-minded SG. Unfortunately, Jackson is similar in stature to Westbrook. Jackson is in the unenviable position of being up for an extension about a year or two before the big money starts to flow in. Which means, even if he signs a big contract now, it may pale in comparison to similar contracts 2 years down the line. In the end, much like Harden, Jackson may be the odd man out,, when it comes to getting paid by the Thunder. Or Jackson may choose to sign a shorter deal with an eye towards the big money in 2-3 seasons.

A team is not just composed of 2-4 players, though. This is where the arduous planning of Thunder GM Sam Presti starts to take effect. If you’re going to have 3-4 players making max or close to max money, then you have to fill your roster with a mixture of specialists, veterans, and young players that are all relatively inexpensive. This is where Presti’s “kiddy-gloves” handling of the Thunder’s finances (keeping them under the luxury tax line) and asset usage begins to pay dividends.

adams jones roberson thunder

 

Presti has mostly done a great job of turning assets into usable parts and more assets. The Harden trade netted the Thunder Jeremy Lamb and 3 draft picks, which turned into Steven Adams, Mitch McGary, and Eurostash Alex Abrines. But it’s the Thunder’s penchant for stockpiling young talent that will make re-signing their core as a possibility. In addition to the 4 young players obtained in the Harden trade, the Thunder have stockpiled another Eurostash in Tibor Pleiss and a domestic draft and stash in Josh Huestis. Also, 2014 2nd round pick Semaj Christon appears to be in the Thunder’s future plans as he begins his career with the Thunder’s D-League affiliate, the Blue.

Why is this important? Because the Thunder’s current young players are all up for their first extension in the next 2-3 seasons. Of the current group of Jackson, Jeremy Lamb, Perry Jones, Andre Roberson, and Steven Adams, it is possible the majority of them will not be with the Thunder within the next 2-3 seasons. All these players have value, and the Thunder like to maximize the value of a player if they don’t necessarily see a future with them. With a cupboard full of young (unused) talent, the Thunder will be able to replace their current group of young players with cheaper alternatives within the next 2-3 seasons.

As the Thunder (and the NBA as a whole) ventures into this great unknown of luxury, it is good to know the Thunder are in prime position to continue doing what they are currently doing. They own the Bird Rights to their core players and can offer them more money than any other team. They are one of the few teams in the league that has a present and a foreseeable future when it comes to championship contention. If the CBA remains the same, the Thunder should be operating in the same manner 2-3 seasons from now.

The Harden Conundrum

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I have a friend that currently finds himself at a crossroads in life. Now, before I continue, let me give a little background of my friend. He moved into town about 5 years ago right out of law school. He was from a bigger city, but decided to start a law office in a smaller town to avoid the oversaturation of law offices in the bigger cities. He started the law firm with one of his old law school classmates, who was already in the area working as a public defender. After struggling for a couple years, they finally started building a good clientele portfolio from in and around town. Besides his job, my friend also began laying down roots in the community, marrying a local girl and becoming a recognized lawyer in the area. With that recognition, comes opportunities, of which, some were not local.

Now, I’ll keep my friend nameless, because I am privy to his finances. Due to them having their own business, much of their profits go to operational costs. My friend currently pays himself a salary of $65,000; enough to get by pretty well in the small town. As his clientele portfolio has expanded, he has increased his salary by $2000 every year since he began. He recently got a job offer from a law firm in a bigger city that would start him off at $100,000 with the opportunity to be a partner within a year of accepting the job.

My friend’s partner has started his own attack to keep my friend by his side. He has started pulling on my friend’s heartstrings, telling him that they can be the best law office in the area if they continue what they started; telling him that he is like the brother he never had; and even said he would increase his salary to $78,000 to prevent him from leaving. So this is where my friend finds himself: an opportunity to go to a major law firm and be a major player in the future or stay behind based on loyalty to continue building something that he started.

What would you do?

Before you answer, realize that there is no wrong answer. When it comes to financial decisions, you always decide with one of the two things: your heart or your wallet. Sometimes those two things are homogenous, making decisions extremely easy. But sometimes, those two things are at war, making the decision that much tougher. But in the end, you make your decision and live with it. Like I told my friend, people will always judge, but the only judges that matter are the ones at home and, more importantly,  the one in the mirror.

Would you fault this person for whatever decision they make?

I would hope that most people wouldn’t. When we are talking about money in the $50,000 – $100,000 range, we see a lot of ourselves in those dollar amounts, and know how we would side. In my friend’s case, he was debating between $100K and $78K. In this economy, many people would take the money and hope that the extra 22% would cushion the homesick feeling that sometimes accompanies a job-related move. And yet, when those figures move from $100,000 to $63 million, sports fans feel completely sickened by the fact that an athlete would choose the money over the team.

James Harden, of the Oklahoma City Thunder, currently finds himself in a boat similar to the one my friend is in. In a year, he could take the money and sign a max 4 year/$63 million contract with another team. Or, he could take less money (possibly as low as the $49 million Serge Ibaka extended for) to stay with the tightly-knit, championship-contending team he has help build from the foundation up. We, sports fans, are sometimes so myopic in our thinking, that we don’t realize the difference in money between my friend’s two offers and James Harden’s two possible offers are the same in terms of percentage (22%).

Would you ever leave 22% of your possible future income on the table?

Think about that. How ecstatic would you be if your job offered you a 22% raise tomorrow? I don’t know if there is a sound proof room insulated enough to not hear my screams of joy if that happened. And yet, sports fans like to believe they are above reproach and would always choose loyalty over money. And let’s not argue over the semantics of thousands versus millions. Most people in our salary range would like to think they can live just fine off of one million dollars per year. But if you had the opportunity to choose between $63 million and $49 million, would you really leave $14 million on the table? Forty nine million dollars can help you and children. Fourteen more can help your grandchildren. Money is money. The more you have, the better off you usually are.

 

I know James Harden’s heart is currently at war with his wallet. He has stated that he loves the city, loves the team, and hopes to continue building a possible dynasty with his brothers. He even intimated that he is willing to take less money, but, recently has backed off of that statement. When you don’t know what you are worth, you make statements like that. But when you realize what your market value is, your wallet (agent) starts to do the talking. I won’t fault Harden if he runs and takes the money. In an occupation where you are an injury away from not earning another paycheck, you take what you can, when you can. If the stories of my friend and James Harden are parallel, then we Thunder fans better enjoy the Bearded One as much as we can this season.