Jordan’s Forgotten Contract and Why it Matters in the Modern NBA

We’ve all heard it:

I can’t believe how much these athletes get paid!

Can you believe the Grizzlies gave Mike Conley a $152 million deal? He’s not even an All-Star!

It’s right up there with,

I can’t believe they put pineapple on pizza!

Let me be clear: it’s very real people. And it makes perfect sense. Oh, and if you don’t like the global mega power the NBA is becoming, and if you’re still in denial that ham and pineapple taste good together, turn off pro basketball and stop ordering pizza. The world is spinning faster than ever.

My goal is to make you face the truth. I want you to embrace the fact that neither NBA players, nor professional athletes at large are overpaid. Overvalued? All the time, but never overpaid.

Simply put, when Team A and Team B are competing for a free agent, whichever contract the player selects will be his market cost. It is precisely what he’s worth because multiple organizations competed and acknowledged the necessary rate for his services. It’s undeniable.

Of course, general managers severely undervalue and overvalue players. Inking Omer Asik to a five-year, $55 million deal was an example of Pelicans’ GM Dell Demps overvaluing a player – but not overpaying because that was the indubitable price tag for his talent. That’s how America works. When companies compete for a product, the decided price is the economic worth of that resource.

But I’m more interested in who is underpaid. Believe it or not, these are the superstars, the players making $25 million plus to play basketball.

————————————————————————–

It’s 1996. Michael Jordan is coming off his first full season back in the NBA, winning 72 games, another MVP, another title, and another Finals MVP. However, since he was on the last year of an eight-year, $25 million deal agreed upon in 1988, Jordan earned just $3.85 million in player salary that season.

So how much is unrestricted free agent Michael Jordan worth now? E.M. Swift of Sports Illustrated dubbed him the $40 Million Man that summer. Jerry Reinsdorf, the longtime Bulls owner purchased the franchise for $15 million in 1985. By 1996, thanks to Jordan’s return, the Chicago basketball team was worth at least $200 million, and would immediately plummet by at least 15 million if Jordan walked out the door. If he really did leave, Swift deduced that Jordan would spur a $25-$30 million uptick in annual stadium revenue for his new team…in just one season. Not to mention the millions trickling into businesses surrounding the arena. Up the average ticket price by 10% and it still sells out. In all, his actual worth was inconceivable.

Here’s the kicker: the salary cap for the 1996-1997 season was just $24.363 million – nearly $70 million less than the 2017 limit. But new laws were in place this time around for Jordan, including the ominous Larry Bird Rule. The mandate states that if a player has played for the same team for three seasons, excluding a trade, he would qualify for Bird Rights. Under these conditions, a player can be re-signed by the same team for an amount that exceeds the salary cap with no penalties.

Although Jordan publically said $18 million would be sufficient, Reinsdorf signed Jordan to a staggering, one-year, $30.140 million contract – $5.777 million more than the team salary cap allowed.

If his 1996-1997 deal didn’t fully detonate the world’s views of NBA salaries, Reinsdorf did it again the next summer – signing Jordan to a one-year, $33.140 million agreement for his final season in a Bulls’ uniform.

Perspective:

1984-1996: $27.975 million earned in player salary

1996-1998: $63.280 million earned in player salary

21 years later, Michael Jordan’s $33.140 million player salary is still the highest earning for an NBA player in one season.

So what gives? With the cap ballooning to $102 million this summer, how can the league justify LeBron James making just $30 million a year? Jordan made $33 million when the league cap was $24 million. Moreover, the league agreed to a ridiculous, nine-year, $24 billion TV contract that commenced in 2015. Where is this money going? More importantly, why isn’t the money distributed to the league’s most profitable assets?

Hate me if you want, but I’m telling you, these are the guys that are underpaid. Players that put people in seats and single-handedly revolutionize the surrounding city. I’m talking LeBron James, Kevin Durant, Anthony Davis, Kawhi Leonard, Chris Paul, and probably even Damien Lillard.

Brace yourself old timers: what I’m telling you is that these NBA players are not overpaid; conversely, the superstars you love to despise are significantly underpaid in the league’s current economic landscape. So how does the NBA avoid giving their most prized employees a fair salary?

They introduced an individual cap, whereas a player can only make a certain percent of the team salary cap.

Basketball Insiders’ Eric Pincus stipulated the restrictions for the 2016-2017 seasons:

Experience (0-6) – $22,116,750

Experience (7-9) – $26,540,100

Experience (10+) – $30,963,450

For this season, the rule decrees that one player’s salary cannot exceed 35% of the salary cap.  This is the key here. In the absence of this statue, a player like Michael Jordan was paid appropriately relative to the revenue he generated for the organization.

Let’s say Kevin Durant opts out this summer to renegotiate his contract– he has that option. If the cap rise to $102 million, the maximum Durant could earn is roughly $35.7 million, which could only happen if he soaks up all 35% of his individual cap. If he wants Golden State to acquire a better supporting cast, signing for that much won’t be a feasible option.

FiveThirtyEight broke down Durant’s value via their CARMELO Projections. The site accumulated data and made calculated projections based off previous career arcs. Furthermore, they ignored the 25%-35% band and correlated player production with monetary value.

“Durant is a bargain at any price. Like other top players, his value on the court far exceeds the max salary. Last season, he played at a rate equal to $54 million annual salary on the open market; over the next five seasons, CARMELO projects that he will be worth $268 million in production,” according to Kyle Wagner FiveThirtyEight.

In short, not only will Durant’s ability to manifest revenue for his employer not be recognized financially, but his statistical production will never correlate with money earned. Presuming the average NBA player is compensated fairly, and if one’s salary is relative to basketball production, Durant deserves a 60% increase in pay. It’s ridiculous.

Look, I’m not asking you to sympathize with NBA superstars. Endorsements and bonuses can make the Association’s greediness quite forgettable. They make plenty of money, but let’s not be appalled when Patty Mills makes $15 million next season.

The business side of professional sports is unique, to say the least. The entire draft process, where young men line up and have no choice as to where they work is ludicrous. Nowhere in our economic spectrum does this exist. Maybe in the military, but even that isn’t as brash as the NBA draft in New York City.

In addition, the ability to improve financially and obtain crucial pay raises is based almost exclusively off age and longevity in the league – not performance. There are bonuses for awards and All-NBA selections – most of which is determined by outsiders like the media.

Even if a star earns that big payday from their organization, it’s hardly reflective of production, nor is it respondent to the money they generate for the business. Meanwhile, the NBA re-ups with ESPN and Turner Sports for $24 billion and the individual max is still stuck in that 25%-35% range. It’s criminal.

My point is that the NBA is prohibiting their most critical employees from earning a fair share. Massive endorsements make it a tolerable transgression, but let’s embrace the truth that sports superstars are the most undervalued millionaires in the world.

(photo credit via Basketball Streaming)

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