If you miss the days of irrational exuberance, that halcyon era of the late '90s when otherwise sensible people spent thousands of dollars on stock in companies they knew nothing about except that their names contained the suffix ".com," then follow the NBA for the next couple of weeks. The spending of some teams is so loose and unjustified that it may take you back to that time.
The first two weeks of July are an annual hoops ritual of utter insanity. Teams go on spending sprees that resemble teenagers in a mall with a credit card of unlimited balance. So far, Baron Davis has agreed to leave the Golden State Warriors and join the Los Angeles Clippers for five years and $65 million. The Warriors then turned their pursuit to Gilbert Arenas, who opted to stay with the Washington Wizards for six years and $127 million. Meanwhile, Sacramento guard Beno Udrih re-signed with the Kings for $33 million for six years.
In the interest of accuracy, I must say that these are all rumored reports, since the NBA salary cap won't be announced until July 9. Until then, no paperwork can be signed but these verbal agreements have all been officially announced and acknowledged. By the time the cap is set, expect insane amounts of money to go to swingman Corey Maggette, power forward Elton Brand and forward Josh Smith.
Let me stop here and point out that I'm not one of those people who decries the amount of money in sports. I don't have a problem with the fact that sports in general is a multi-billion dollar business and that basketball in particular is a big piece of that pie. I'm also deeply in favor of the players getting a big share of that money.
I watch well more than 100 NBA games each season, and never once am I attracted by the owners or even the coaches. But that said, in the NBA, there is a salary cap and 50 weeks a year it's heeded carefully. These are the other two weeks.
The NBA salary cap is one of the most capricious in all of sports because it's flexible, or in the parlance of sports economics, it's a soft cap. The NFL has a hard cap; every team has to stay under it. They can sign a player that puts their payroll over the cap, but they have something on the order of 24 hours to cut someone to bring their payroll back in line. NBA teams can exceed the cap, as long as it's done to re-sign their own player.
The league doesn't expect fiscal prudence from their teams, so they apply another restraint, a luxury tax for all payrolls over a certain amount. Current estimates for the NBA fiscal year beginning July 9 is that the salary cap will be $58.5 million, and the luxury tax threshold, above which teams pay a dollar for dollar penalty, will be $71 million.
Now do you see why I find big money deals so ludicrous? The NBA isn't a three-on-three league. You need to have 12 players available each night, and most of them are going to make more than $4 million per season. With each eight-figure annual contract a team takes on, the more it will have to face the rock-and-a-hard-place choice of either filling out its roster with players from the deep margins of the sport or pay the luxury tax.
Davis' contract isn't without merit, though; it is guaranteeing $13 million per season to a player with a history of back trouble.
The Clippers are in a unique situation in that they share an arena—and city—with the Lakers, who are the defending Western Conference Champions, a perennial media favorite and a team that has dominated the hearts and minds of L.A. sports fans for decades. Yet, just two years ago, the Clippers were a better team, and with this signing, they look to get a two- to three-year window to become a significant alternative to the Lakers.
Also, the Davis signing makes it a virtual lock that they will re-sign Brand, who produces films with Davis. Davis is an L.A. native who starred at UCLA. And lastly, the signing gives the Clippers the marketing push of offering two articulate and likable public faces to contrast with Kobe Bryant, the Lakers' often-petulant superstar.
Still, in the three seasons from '04-'05 to '06-'07, Davis missed an average of 28 games a year. If the back trouble recurs, he's going to be a very expensive marketing ploy.
The Arenas signing is a bit more of a head-scratcher. Last season, Arenas played in only 13 games due to injury; the Wizards went 43-39. In '06-'07 Arenas missed eight games and the team went 41-41, and in '05-'06, Arenas missed only two contests and the Wizards went 42-40. When healthy, Arenas is a great player, arguably among the 10 best in the NBA, but his impact on the Wizards appears to be, well, negligible. His presence or absence doesn't appear to make any difference whatsoever in the win column; without him, Washington is a second-tier playoff team and with him, they aren't any better.
The wisdom of committing fully one third of your payroll to such a player eludes me. Once a team breaks into the win column after many years of losing, which is what the Wizards did four seasons ago, they then have to choose between just being interesting to watch or gunning for a title. With the re-signing of Arenas for $127 million, it looks to me as if the Wizards have chosen looks over rings.
The Udrih signing isn't a cap killer in a noxious way, but its characteristic of NBA financial incompetence. The Slovenian guard had a decent season as the starting point guard for the Kings after three indifferent-to-bad seasons as a backup in San Antonio.
I could see offering a player of this profile a two-year deal, three if pushed, but five years and $33 million is absurd. Udrih's production, 14.4 points, 4.9 assists and 46.4 percent shooting per 36 minutes of action, is comparable to several free agent point guards who will happily sign for two years and $3 million each. Committing $33 million dollars to such a player illustrates that even good NBA GM's (Sacramento's Geoff Petrie is one of the most respected execs in the league) get caught up in the frenzy of early July.
The toll that this spendthrift period exacts comes due when teams are a piece or two away from a title run. It's then that the star making superstar money, or the always injured player making eight digits or the bench-warmer making $6 million a year become obstacles. Teams with such players lack the cap room to become real contenders. That isn't much of an issue in July, but fans bear the brunt of it in April and May.
Martin Johnson is a New York writer.
Martin Johnson writes about music for the Wall Street Journal, basketball for Slate and beer for Eater, and he blogs at both the Joy of Cheese and Rotations. Follow him on Twitter.