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More Money, More Problems: The Trouble With Max Contracts

Superstars can earn more than ever thanks to the latest collective bargaining agreement. But NBA players and owners are quickly finding out that the new arrangement isn’t all that it was billed to be.

Getty Images/Ringer illustration

Imagine someone told you one year ago that Blake Griffin would be on the Pistons, Chris Paul would be on the Rockets, Jimmy Butler would be on the Timberwolves, DeMarcus Cousins would be on the Pelicans, Kyrie Irving and Gordon Hayward would be on the Celtics, and Paul George and Carmelo Anthony would be on the Thunder.

Have so many All-NBA-caliber players ever changed teams in a single calendar year? The transaction log has been on fire since Kevin Durant joined the Warriors in the summer of 2016. But it’s not just the formation of a superteam in Golden State that’s shaken up the league. A new collective bargaining agreement and the cap boom two summers ago have created an abnormally active atmosphere. Some NBA executives don’t think the changes are going away, and that they could have major repercussions moving forward.

The New Max Deals Are Superbad

There were rumblings in 2014 that LeBron James would push for the removal of the max contract, a position that stars like Durant and Kobe Bryant supported. It’s true that the league’s superstars don’t make as much as they probably should, but such a drastic shift would have opened the door for a single player to earn more money than every other player on his team combined, like when Michael Jordan made $33.1 million in the 1997-98 season. The NBA instituted the max contract the year after Jordan’s big payday, and it has remained since.

Instead of abolishing the max altogether, the players’ union wound up negotiating other changes, including a new set of possible max contracts. A free agent or designated rookie could now earn up to 25 percent of the cap, designated rookies or veterans could now earn up to 30 percent if they hit certain criteria, and superstar players that hit certain qualifications are eligible for the designated veteran player extension, or the “supermax,” which can be up to 35 percent of the cap but can only be given by the team that drafted the player. The latter two were similar in the previous CBA, while the supermax is a brand-new creation.

But the new menu of max offerings isn’t exactly working as intended. The whole point of these changes, from the owners’ POV, was to help teams keep star players by giving them greater financial incentive to stay, thus preventing another scenario like Durant going to the Warriors. But totally deserving candidates, like Paul George and Gordon Hayward, didn’t meet the qualifications for the supermax; George would’ve wanted out anyway, and Hayward walked even with Utah offering an extra year of financial security. The Kings didn’t want to pay Cousins more than $200 million, so they traded him. And Griffin, at “only” 30 percent of the cap, was an injury and financial risk the Clippers weren’t willing to take.

Players can earn way more money than ever before from the team that drafted them. But that doesn’t mean owners will want to spend it, nor that players will want to take it. The biggest issue, however, is that signing such deals has made it it tremendously difficult to build a title-contending team around that player.

Griffin’s situation is the perfect example. Multiple front-office executives told me that though the Griffin blockbuster sent shockwaves through the NBA, Clippers consultant Jerry West was ready to reconfigure the roster back in the summer once he knew Paul was a goner. Steve Ballmer just wasn’t ready to pull the plug. But even after the Clippers made several notable hires in the front office, West has the owner’s ear. As time passed and Griffin got injured again, Ballmer came to agree with West that paying an injury-prone player $171 million over five years, including $39 million when he’s 32, wasn’t in their best interest.

So they made the smart decision, dealt Griffin, and are in the process of exploring other moves to clear a path for a new direction, such as trading center DeAndre Jordan rather than re-signing him. A big-market team took a long view and opted to create asset and financial flexibility, while a mid-market team thought short-term and took an enormous risk. Even Pistons coach Stan Van Gundy noted the dangers of acquiring the injury-prone four-time All-NBA player, but he has to gamble to make the playoffs and put butts in the empty seats at Detroit’s new downtown arena.

The Wizards may encounter a similar issue with John Wall, who will make $169 million over four years starting in 2019-20, including a whopping $46.9 million when he’s 31 years old. Wall, despite his obvious talent, has already missed two extended periods this season because of an injured left knee this season and is a low-efficiency half-court scorer whose success relies heavily on his athleticism. The Wizards have won four straight without Wall, and there’s talk that they move the ball better without him.

Even if he never misses a game, Wall could take up so much cap that the Wizards will have little to no flexibility to make other transactions. With the supermax offer on the table early last offseason, Wall remarked that the team was “one piece away,” essentially calling for the team to replace Otto Porter Jr. with Paul George. Easier said than done. Past mistakes, like signing Ian Mahinmi for $64 million, led to a lack of financial flexibility. The Nets signed Porter to a max-contract offer sheet and the Wizards had no other option but to sign it, just as they did when it came to inking Wall to the supermax.

Wall’s new deal doesn’t even kick in until the 2019-20 season. But adding capable role players or another star will be problematic when his contract continues to rise by at least 7 percent each season as the cap continues to level off.

The lucrative new TV deals the NBA signed created a huge influx in cash, which meant more for player salaries. But the players voted against “smoothing” (i.e., a steady climb in teams’ available cap space) in favor of one large spike. As a result, the cap took a historic jump, from $70 million in 2015-16 to $94.1 million in 2016-17. It has since leveled off. The cap this season is $99 million. Next season, it’s projected to rise to just $101 million.

If Jason Smith and Jodie Meeks exercise their player options for next season, the Wizards will already be on the hook for $124.8 million. That puts them well over the projected cap and almost $2 million into the luxury tax before they fill out the back end of their roster. The tax has become the silent killer in the NBA, and not just for teams still trying to build a winner. It significantly limited the Heat’s ability to retool at the end of the Big Three era, and it’s doing the same to the Cavaliers. Maybe someday it’ll be the undoing of the Warriors. And those teams won titles. If an owner is paying a huge tax bill for a roster that can’t escape the second round of the playoffs, there’s even more reason to explore other options.

The Effect on the Trade Deadline

The growing concern over max deals has created a ripple effect heading into the trade deadline. Execs and agents I spoke to believe it explains the rise in trade chatter involving stars. Teams are more regularly gauging the value of their own centerpieces, and other teams are making more calls knowing they’ll listen. It’s why we’re hearing reports about Aaron Gordon and Kemba Walker being available.

They likely won’t get traded, but teams are being proactive about finding out their trade value in case the franchise decides to shuffle the deck, knowing the imminent financial risk. Walker can earn a hefty pay raise when he becomes a free agent in 2019, while Gordon could sign a max offer sheet this summer in restricted free agency. Both players are talented, but trading them would provide flexibility at a time when few teams are expected to have cap space.

Teams that have made similar moves lately haven’t exactly crumbled as a result. The Kings are still bad, but they hadn’t made the playoffs with Cousins anyway; at least now they have young talent and a potentially higher draft pick for their trouble. The Pacers ended up landing Victor Oladipo and Domantas Sabonis, who have helped keep the team competitive and arguably better positioned for the future. Jimmy Butler is thriving with the Timberwolves, yet the Bulls suddenly are on the rise rather than simply running on the treadmill of mediocrity.

Could Orlando do the same? The Magic haven’t been much of a destination in free agency of late, and just two summers ago settled for paying Bismack Biyombo $72 million. But with clear books and less competition, Orlando’s great weather and no state income taxes might look far more appealing.

A Market Correction

There’s a market correction coming, much like the one ongoing in Major League Baseball. Agents believe their players are worth a number similar to the enormous dollar amounts in the past, while teams claim they’ve reached their budget and therefore have limited available funds to spend. There’s no salary cap in baseball, so it’s not exactly the same as the NBA, which has a “soft” cap. But players may also see a significant dip in earnings this offseason.

With few teams expected to have cap room, players will have less leverage to demand big-money deals. As one exec put it to me: Whereas recent deals looked like massive overpays, contracts this summer will look like bargains. If teams are smart and only the truly special players are given max money, then there’s an opportunity to recalibrate what players are worth.

That could mean a reckoning for the upper-middle-class contract, like the $17 million annually the Magic are shelling out to both Biyombo and Evan Fournier, because there’s simply not a lot of free cap space to spend on them. To sign players of this quality, teams might instead use the non-taxpayer midlevel exception, which is currently worth $8.4 million and will near $10 million in the coming years. Or they’ll re-sign such players using Bird rights.

Some league executives even think some teams could aim to avoid deals in this range altogether. As the dollar amounts for the true stars skyrocket, there will be an even greater incentive than there already is to target younger, cheaper talent to fill out a roster around them. The Celtics don’t have a single player making between $6 million and the max. The Thunder have two maxes (Paul George, Russell Westbrook) and two near-maxes (Carmelo Anthony, Steven Adams) but only one contract in the middle (Andre Roberson). Meanwhile, the Blazers have five deals between $6 million and $20 million, the Wolves have six, and the Bucks have seven. As a result, all three franchises will likely lose future flexibility.

This summer could end up setting a new precedent for what a player is worth—though it may only be temporary. We might be right back where we started once all the bad contracts are off the books and teams have new cap space to burn. That’s when we’ll learn which franchises have learned from their mistakes, and which are stuck in a never-ending cycle of bad decisions.