The origin of the "need" for restrictions on the maximum allowable salary NBA players can make, or "max contracts," can be traced to the summer of 1996. It started with Michael Jordan, who, fresh off a dominant season in which he led the league in scoring and captured his fourth title, signed a one-year deal for an estimated $30 million. In the following days, three players would sign the first $100 million deals in NBA history: Shaquille O'Neal (seven years, $120 million), Alonzo Mourning (seven years, $112 million) and Juwan Howard (twice: a voided seven-year, $100 million deal with Miami, and then a seven-year, $105 million contract with Washington).
The straws that broke the camel's back came the following offseason, when Shawn Kemp (seven years, $107 million) and Kevin Garnett (seven years, $126 million) joined the $100 million club. Owners had seen enough, and cracking down on escalating player salaries -- particularly on the high end -- became a central theme of the 1998 NBA lockout.
When the dust settled, the new collective bargaining agreement included language that (A) set maximum limits players could make in a given season and (B) allowed a "grandfather clause" that would ensure players could make at least 105 percent of their previous year's salary. (According to the new CBA, a player on a max contract must be paid the higher amount between 105 percent of his previous year's salary or 35 percent of his team's total payroll.)
As the CBA and economics of the NBA have evolved, the max-deal clause has become outdated, and instead of protecting teams, it now does more to hurt them (and the league overall). Here are four reasons to do away with restrictive max deals in the next CBA:
1. Max deals result in unfair redistribution of wealth.
There is a rhyme and reason to the total salaries paid to players each season, represented by the percentage share of basketball-related income (BRI) they receive (this was an especially contentious point during lockout negotiations in 2011). As such, by limiting the amount of money players can make on the high end, the surplus is redistributed to lower-level players.
For example, if LeBron James is worth $40 million per year but can only make $20 million, that remaining $20 million eventually goes to another player or players, giving someone else more money (through devices like the midlevel exception). This happens because, while owners are contractually committed to paying roughly 50 percent of BRI (about $2.24 billion for 2013-14) to players as a whole, the CBA does not otherwise differentiate whether this money goes mostly to stars or to the rank-and-file players.
This redistribution has two effects:
A. "Credit" is taken away from players who are most responsible for wins and losses. The NBA is predicated on star power, and by paying stars less than true worth, the league is devaluing how essential stars are in achieving franchise success and how difficult it is to replace them. This tangentially relates to why bad teams tank: For many of them, the easiest way they can acquire such a player is by being "gifted" one via the draft lottery.
B. The surplus is redistributed to players who are ultimately replaceable. For most toxic cap situations, teams are bogged down not by big contracts to stars, but by multiple medium-range deals to role players whose production could have been more easily duplicated by players on a fraction of their salaries. This is a big reason why owners lobbied (unsuccessfully) for the elimination (or extreme reduction) of the midlevel exception.
2. Max contracts artificially subsidize superstar talent, allowing for "super teams."
By signing superstars to discounted rates, owners with deep pockets and/or desirable locations are able to stock up, something that could never happen if they had to pay "retail" prices. An analogy would be a Black Friday shopper who is able to buy $1,000 TVs for $200 each; that shopper can now own five such TVs for the price of one.
On a true open market with no max-salary regulations, James could have commanded upward of $30 million a year. If that were the case, Miami never would have been able to afford to sign James, Wade and Bosh.
This is pretty much what happened in 2010 when Miami signed James, Chris Bosh and Dwyane Wade to discounted deals. On a true open market with no max-salary regulations, James could have commanded upward of $30 million a year. If that were the case, Miami never would have been able to afford to sign James, Wade and Bosh. However, with max-salary regulations in place, it almost encouraged a super-team scenario.
With the cap set at $58.044 million, the maximum allowable salary was about $16.6 million for three stars. However, in order to play together, the trio had to sacrifice $2 million each, to about $14.2 to $14.5 million. To make it to $14.5 million in an environment free of max-salary regulations, James would have had to come down from an actual value of $30 million (theoretically sacrificing more than $16 million). Instead, because of the regulations, James came down just $2 million, a much more palatable discount (relatively speaking). If his decision was made in an environment free of max-salary regulations, it's highly unlikely James would have acquiesced to such a massive pay cut no matter how much he wanted to play with his buddies -- and thus there would be no "super team" in Miami.
What does work in the new CBA: payroll regulations (more punitive tax thresholds, loss of sign-and-trades, etc.) -- which further reduce an owner's ability to compile multiple stars.
If max salaries were removed, but team payroll limiters were kept, more stars would be available for other teams in the league, creating a league atmosphere more conducive to parity.
3. "Max" has become a status symbol rather than a player's worth.
For many players, receiving the max is the ultimate seal of approval, the sign that his skill set, potential and production are valued by a team and the league, and that he is among the NBA's elite. The problem with this definition of self-worth is that "max" means different things for different players, depending on seniority. For players coming off their rookie-scale deals, like Paul George, a max deal starts at $13.7 million, while nine-year vet Dwight Howard's starts at $20.5 million.
Issues arise when a player who was paid max in a rookie extension assumes that his next deal must be a continuation of "max" rather than a continuation of the value he has produced. As a part of the front office in Phoenix, I encountered such a situation when Shawn Marion (due to make $17.8 million in the final year of his max-deal extension) was resistant to any new extension (in his case, starting at $18.7 million) that was not a continuation of the official max contract. It didn't matter that he was the team's highest-paid player and one of the highest-paid players in the league; the fact he'd have to go from "max" to "not max" was an affront.
By eliminating "max" from the negotiation lexicon, teams and players are free to pursue the true value of a player's services rather than chase a number attached to an arbitrary label.
4. Designating players as "max level" can result in overvaluation.
Closely related to the previous point, the current CBA dictates that a max salary is either the leaguewide max (based loosely on 25/30/35 percent of the cap), or 105 percent of the player's previous salary – the aforementioned grandfather clause -- whichever is greater. But this is only an upper limit.
The problem with testing the upper limit of those max salaries is that it can skew average annual values, so that in 2014, when LeBron James is a potential free agent, it's very possible his max salary will somehow not be the highest in the league. Why? Because of the discount he took with Miami.
This system also hamstrings teams in the case of older max players whose production no longer matches or justifies their max salaries. It has become standard practice to continue to pay older max players based primarily on past production, but this off-kilter valuation often makes it difficult to field a competitive lineup.
In the case of Kobe Bryant, even when disregarding his Achilles tendon injury, it's hard to make the case that he deserves the $30.4 million he'll be making in the last year of his deal, let alone the $31.9 million he's eligible to make in the first year of a new deal, as he's indicated an initial unwillingness to take a pay cut.
Further, an ancillary benefit of removing max salaries is that it rewards shrewd and accurate talent evaluation by GMs. The max contract allows for decision-makers to "paint by the numbers" -- i.e., they don't have to differentiate between the elite talents on their team. For instance, Indiana GM Kevin Pritchard doesn't have to worry about whether Paul George or Roy Hibbert is more valuable (or more irreplaceable) -- the CBA dictates how much each player makes.
Obstacles to eliminating the max
1. The National Basketball Players Association: Removing maximum salary limits, but keeping all other features of the CBA, effectively takes the player population from a socialist system, in which the "rich" (stars) are taxed heavily to benefit the "proletariat" (rank-and-file players) to a less equal system. While players on the high end, like James, would reap enormous benefits by elimination of max limits, the burden would be felt by players who hope to cash in on midlevel exception-type deals (like Thabo Sefolosha), since the owners are only obligated to pay out the 50 percent BRI amount. The irony is that this is the polar opposite of the stance the NBPA took in 1998, when the union fought to keep maximum salary limits out of the CBA.
2. Owner myopia: The gut reaction to the removal of the max would give many owners fears of a baseball-like system with out-of-control salaries that would make it even more difficult for small-market teams to acquire and retain high-level talent. While eliminating max contracts would price some players out of some owners' payroll limits, it would give small-market teams a fighting chance to keep elite talent. Going back to our Black Friday analogy, if we stop discounting TVs, we give more of a chance for more people to buy them.
3. It's not foolproof: Despite being a huge step in the right direction, there is still a slight opportunity for a doomsday "super team" scenario to occur. As the Brooklyn Nets showed this offseason, a team hell-bent on racking up massive costs in the name of adding talent can still achieve that. The difference is, by removing the max, small-market teams have more of a fighting chance to retain their star players and achieve more flexibility in revamping the supporting cast if they are devoting fewer dollars to those roles.