Through the lens of 2010

 

With the unraveling of Amar'e's future in Feenix, I've taken a much greater interest in the 2010 Free Agent sweepstakes.  The sweepstakes is an unprecedented anomaly of contractual convergence that I would have wished could have passed Phoenix by.

However, it is upon us, and as any good armchair economist, weekend engineer or junior physicist knows, the only way to make sense of the 2009 Free Agent season starting in the next few days is to solve backwards, and understand it through the lens of 2010 Free Agency, when more players will move cities in the off-season than ever in the history of the NBA.

 

Here's list of 2009 Free Agents

 

 

What Created the 2010 Bonanza?

 

The strong draft of 2003 and changes in the CBA, created the Free Agent Bonanza of 2010.  The 2010 draft is headlined by the first, fourth and fifth players drafted in 2003, Lebron James, Chris Bosh and Dwayne Wade, respectively.  Number 2 draftee Darko Milicic never lived up to the hype and Carmelo Anthony has accepted a contract with the Denver Nuggets that will keep him out of Free Agency one year longer than his peers.

The reduction in contract length's by one year may have also helped cause the 2002 and 2003 contracts to come up at the same time, so the 2010 opt out festivities may include the top draft picks of 2002, namely Yao Ming and Amare Stoudemire.  Finally the widepsread use of player options help players time the free agent market, either jumping into the 2010 party or taking the risk a year later that teams won't be too financially strapped from overbidding to offer a good contract.


The Effect of Player Options on NBA Players

I kid you not, the upcoming NBA unemployment in 2010 is shocking, even without comparison numbers.  Only 113 players of a minimum 390 players have a contract 367 days from now.  That's less than 29% employment for you calculator jockeys at home. The worst offender, as you might guess, is Miami.  Aside from newly drafted rookies, Miami only has one head under contract for 2010/2011 and that's Dwayne Wade.  D-Wade has a player option for that year, so he may not even be with Miami, giving Miami 0 for 13 possible players.  What will Miami look like in 367 days?  Your guess is a good as mine.

Now sure, all those unemployed NBA players will find jobs, there's 277 or so open spots.  Some of them will get their spot in the next 2 days.    However, by and large, many average NBA players will be subject large changes in the team rosters by 2010, because of unintended consequences of the Collective Bargaining Agreement, mainly the rampant and wanton use of player options. 

No less than 57 players currently under contract have player options.  Only 4 notable players, Chauncey Billups, Vince Carter, Josh Howard and Steve Nash, are under contracts with team options.  With the exception of Vince Carter, these guys signed their contracts before they became big stars.  By and large, only rookie contracts and deep bench players have contracts with team options.

A player option, in general, is not a bad idea.  It shifts valuable decisions in favor of a star player and provides a non-monetary benefit with significantly huge monetary value. Ask any financial economist and they could put a large dollar value on these player options -- probably a few million dollars.

However, while this shift in value is to the benefit of players, it benefits only the max contract players that can negotiate these options, while lesser players and rookies must acquiesce to team options.   Another way to see the trade-off is to consider the firm pressure from the salary cap and luxury tax.  If a star player earns a better contract via timing the Free Agent market, then the surplus comes not from owners but from a star's teammates who must then earn less.  These non-superstars, as we shall see, are the ones that will be paying the price for the Free Agent sweepstakes of 2010. 

Still these NBA players are not the only ones paying, as teams will expend enormous financial and personnel resources to woo superstars.  The fans will also suffer from the team merry-go-round.  Some lucky fans will like the end results, but most will not.

 

Over-Bidding War 2010 - Who's in

 

Some teams have long been in the 2010 sweepstakes (Miami was the innovator).  Other teams have headed that way, holding on to shreds of hope for redemption (NYK, NJN).  Still others are inevitably roped into the sweepstakes by the bad luck of having a star with a 2010 player option (Cleveland, Miami, Toronto, PHX).  I say bad luck instead of bad foresight, because, after offering a max contract with all the perqs, what else can management offer but the player option?

A cursory look at the financial obligations of teams going into 2010 tells you who's in the sweepstakes and who's out. However, the cursory look is wrong in any number of ways.  So here, I adjust the numbers.   I make two adjustments. (1)  I assume teams always exercise their team options and qualifying offers.  90% of the time they do, simply because these contracts are often for cheap talent with decent upside. (2)  Second, I assume every player opts out of their player options in 2010.  Many of them will, although some will not.  As a third case, I'll look at people like Eddy Curry and Kenyon Martin, who we expect to have enough sense not to opt out in 2010.

Through the analysis, we will see that New Jersey is not nearly as well positioned for Free Agency 2010 as first thought and that a number of teams, without announcing such, have positioned themselves for a bidding war, unless they make some big steps this off-season.

 

The numbers here come from www.Hoopshype.com . (Thank you very much for providing them.)

 

 

Rank Team Obligations
1 New Jersey $6,628,000
2 Detriot $11,148,760
3 Portland $12,205,300
4 OKC $13,485,484
5 Memphis $15,382,777
6 Miami $17,149,243
7 NYK $18,160,263
8 Minnesota $20,518,000
9 Altanta $24,180,000
10 Chicago $26,163,850
11 Houston $28,040,600
12 Sacramento $30,105,005
13 Cleveland $35,977,466
14 Milwaukee $40,437,750
15 Toronto $40,631,243
16 PHX $41,202,544
17 Utah $42,261,080
18 LA Clippers $43,392,111
19 Boston $44,726,729
20 GSW $45,414,000
21 SAS $47,200,000
22 Wiz $49,063,676
23 Dallas $49,538,524
24 Charlotte $50,649,075
25 Indiana $56,158,439
26 Philly $56,566,789
27 Denver $58,204,697
28 NOH $64,696,130
29 Orlando $66,345,822
30 Lakers $67,205,882

 

 

The first thing to note is that some of the top teams are clearly not in the 2010 sweepstakes.  The Lakers figure to take care of their business this off-season, dealing with Kobe Bryant, Lamar Odom and Trevor Ariza.  Above the luxury tax, they will be complete no-shows to next year's hysterics.  Orlando is also likely out, having brought in Vince Carter.  There are a number of bad teams without much financial flexibility here too.  Indiana, Philly, Goldent State and Charlotte can really only hope to get dramatically better through the draft, internal development and trades.  They will not be able to bring in several stars. 

Now if we adjust the numbers, allowing teams to pick up their options and player to opt out, we see a bit of change:

 

 

 Rank  Team  Adjusted Obligations 
1 NYK  $        5,435,041
2 Miami  $      12,619,096
3 Houston  $      15,618,741
4 Detriot  $      15,875,463
5 Cleveland  $      18,828,223
6 New Jersey  $      19,939,675
7 Boston  $      23,213,208
8 Altantla  $      24,180,000
9 Milwaukee  $      24,901,350
10 OKC  $      27,138,099
11 Toronto  $      27,317,738
12 Portland  $      29,177,090
13 PHX  $      29,469,287
14 Memphis  $      30,298,446
15 Minnesota  $      31,995,649
16 Dallas  $      39,860,000
17 Chicago  $      41,095,352
18 Denver  $      42,513,632
19 Sacramento  $      42,728,881
20 Utah  $      47,339,291
21 SAS  $      50,305,910
22 Charlotte  $      50,649,075
23 Indiana  $      51,412,759
24 LA Clippers  $      51,924,530
25 NOH  $      52,942,522
26 GSW  $      56,098,905
27 Wiz  $      60,366,310
28 Philly  $      63,429,903
29 Lakers  $      70,080,008
30 Orlando  $      71,642,012

 

This shows, that because Paul Pierce holds a player option in excess of 17 million, Boston is clearly in the 2010 sweepstakes (at 9 instead of 19 on the financial obligations).  It's up to Boston to lock up Pierce this offseason with an extension, or to face a bidding war with the likes of Heat, Nets and the Knicks.  Boston also of course needs to decide on Ray Allen this offseason (FA).

As also can be seen, PHX and Dallas appear closer to participation in the sweepstakes, with Amar'e and Dirk having large options in the offseason.  We already expect Amar'e to opt out given Phoenix's apparent refusal to offer a max extension.  Dirk on the other hand, appears highly likely to stay in Dallas.  For all intents and purposes, one would like Dallas is completely out of the sweepstakes. 

In the final round of numbers, I reflect the certitude that Eddy Curry will stay with the Knicks for $11 million and that Dirk will also stay with Dallas. And Kenyon Martin will exercise his option at $16.5 million as well, effectively taking Denver out of the sweepstakes.

 

 

 Rank  Team  Likely Obligations 
1 Miami  $      12,619,096
2 Houston  $      15,618,741
3 Detriot  $      15,875,463
4 NYK  $      16,711,904
5 Cleveland  $      18,828,223
6 Altantla  $      24,180,000
7 Milwaukee  $      24,901,350
8 Toronto  $      27,317,738
9 PHX  $      29,469,287
10 Memphis  $      30,298,446
11 New Jersey  $      31,939,675
12 OKC  $      32,938,099
13 Portland  $      36,582,390
14 Minnesota  $      39,513,649
15 Chicago  $      41,095,352
16 Sacramento  $      42,728,881
17 Boston  $      44,726,729
18 SAS  $      50,305,910
19 Charlotte  $      50,649,075
20 Indiana  $      51,412,759
21 LA Clippers  $      51,924,530
22 NOH  $      52,942,522
23 GSW  $      56,098,905
24 Denver  $      59,059,086
25 Wiz  $      60,366,310
26 Philly  $      63,429,903
27 Utah  $      65,151,639
28 Lakers  $      70,080,008
29 Orlando  $      71,642,012
30 Dallas  $      73,208,524

 

 

How certain you are about Houston being in the sweepstakes depends on how you feel about Yao Ming moving.  I don't think he will, but how would I know?  San Antonio's obligations are also higher, since they intend to re-sign Manu (FA).  They'll commit about 65 million to four players, and then play scrubs for the rest. New Jersey ($40 million in obligations) doesn't appear nearly as competitive when you consider Devin Harris' free agency.

Overall, there appears to be more than 10 teams with less than $30 million in obligations 367 days from now.  One thing for sure is that Phoenix is right in the thick of it.   That's a scary thought, given the huge temptation to overbid for stars.  Perhaps there is no price to high to bring in Bron, but what about Wade?  What team will offer sick contracts to three stars in excess of $20 million each?  How much will Joe Johnson (FA, 2010) get?  Bosh?  Amar'e? 

Then after all the overpayments for the super-super-stars, there will be many sad teams and fans who had waited for summer 2010 with either hope or dread.  They will light up the chat boards with their gloating and their grief.  And then, there will be a the quality starters and role players who will be getting the minimum salary scraps under the cap and the luxury tax.

There is a chance that all the hullabaloo is just noise, that all of these superstars will listen to offers and elect to remain in place, without altering the NBA teamscape.  However, that does not mean there were no real effects of the 2010 sweepstakes.  The gross shedding of contracts promises to shift a large number of starters and role players from one team to the next. 


The lesson of 2010

Is a team really only 2 or 3 superstars and a large crowd of fungible assets?  Yes.

If you look at the teams that are in the 2010 sweepstakes, they are shedding all their personnel to get one or two stars.  If you look at the good teams out of the 2010 Free Agent market, likely have a few max players and a crowd of minimum salary players.  It's no longer just role players and benchers that are rentals, starters are often rentals as well.  The player revolving door continues to accelerate.  There is no more team, just nuclei and a crowd of rentals.

 

 

 

A few 2010 Free Agents and those with Player Options - Which ones will get locked up this season in advance?

 

 

Name Type
Emanuel Ginobili FA
Fabricio Oberto FA
Joe Johnson FA
Ray Allen FA
Richard Hamilton FA
Shaquille O'Neal FA
Steve Nash FA
Zydrunas Ilgauskas FA
Chris Bosh PO
Dirk Nowitzki PO
Dwyane Wade PO
Eddy Curry PO
Joel Przybilla PO
Kenyon Martin PO
LeBron James PO
Michael Redd PO
Paul Pierce PO
TJ Ford PO
Tyson Chandler PO
Vladimir Radmanovic PO
Yao Ming PO
Amare Stoudemire  PO

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