The July moratorium is about to begin, meaning that teams will soon be allowed to negotiate with free agents, though they can’t sign any official contracts for several days. Throughout this moratorium period we’ll hear rumored deals, and to many fans the contract figures will be mind-boggling.
We’ve all already heard that free agent salaries will rise this summer compared to contracts for similar players in past years—largely as a result of the league’s massive media deal kicking in—so the real question is by how much. To find an answer to this question, let’s take a quick look at NBA salary cap history.
As shown in the chart below, the salary cap was essentially flat for the first few years under the current collective bargaining agreement. It then increased a modest 7% in 2014 and 11% the following year. This year is the first real spike, as the cap is projected to jump 34%, with an additional 17% increase projected a year from now.
Yet these numbers actually understate the inflation in free agent contracts, because nearly half of a typical roster in any given year consists of rookie-scale and minimum-salary contracts with much lower, fixed annual increases under the CBA. On average, a team spends $10M-$15M on these fixed-value contracts, leaving the remainder for free agency and extensions.
*[Initial amount in this category is an estimate rather than a figure determined precisely.]
As you can see in the far right column, after accounting for such fixed-value contracts, I estimate a 42% increase in spending power [i.e. dollars available to spend on the remainder of the roster] this off-season, which I believe is a useful measure for projected inflation.
To further project 2016 free agent salaries compared to past seasons, in the following chart I have listed the total aggregate increases in both the salary cap and spending power from prior cap years to this summer (2016-17) and next summer (2017-18).
We can best apply the salary cap increases to players who would receive a max contract in any environment. Their salaries are limited to a percentage of the cap, so this summer players like LeBron James and Kevin Durant should sign for 60% more than they would’ve gotten in 2013, 49% more than in 2014, and 34% more than in 2015 [in each instance presuming the same number of years of experience]. For all other players, I think that the increases in spending power are more useful in projecting comp-based free agent salaries.
With so much money flooding the market and only a small subset of players eligible for free agency, I believe that most contracts will fall somewhere between the 2016-17 and 2017-18 (and beyond) market expectations. If a targeted player is available on a long-term contract for less than he likely would command in future off-seasons, a team should prefer signing that contract to hoarding cap space.
Thus, based on the increases in spending power, I would apply the following inflation estimates compared to similar free agents in prior years:
2013 free agent comp: 73%-107% increase, or 90% salary inflation on average
2014 free agent comp: 60%-91% increase, or 75% salary inflation on average
As an example, let’s say I determine that 2013 Tony Allen is an ideal comp for 2016 Free Agent X. Since 2013 Tony Allen signed a 4-year, 20-million deal, I expect that a 4-year contract for Free Agent X will be in the range of $34.6 million to $41.4 million, or approximately $38 million. Also, since the cap figures remained constant from 2010 through 2013, the same estimate applies to those prior years.
Comparisons to last summer are more difficult because the massive upcoming cap increases were already expected and to some extent factored into free agent prices. Most teams didn’t have a tremendous amount of cap space to spend, but several teams with available funds adjusted their offers accordingly. As a result, it’s difficult to gauge how much to discount the 42%-69% figure that the above table suggests. I’ll broadly estimate 20%-60% inflation over summer 2015, and if pressed to be more precise, I expect free agent salaries to rise 33%-50% over last year based on the estimated 42% increase in spending power.
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