Predicting NBA Salaries Part 3 – Superstars Are Underpaid

My sources tell me there’s a big series going on in the NBA right now and a big game on tonight.  People may have forgotten but, even with the amazing level of talent on display in the NBA Finals, it does not include any of the three MVP candidates.  Regardless, I’ll make a bold statement and say that we’re seeing three of the top five players in the NBA in this series.  Obviously, I’m talking about Zaza Pachulia, Matt Barnes, and Iman Shumpert.

It’s no secret that the Cavaliers and Warriors have accumulated a lot of elite talent.  While these players are well paid, the salary restrictions that exist in the NBA due to the collective bargaining agreement constrain the amount of money superstars make, especially relative to their market value.  The method I used in Post 1 and Post 2 doesn’t estimate their actual market value, as it doesn’t remove the constraint of the salary cap, but it does estimate their value if we redistributed the available money.

Under this approach, we can predict what the current season team salaries for the Cavaliers and Warriors based on last year’s data.  All contract data are from  .  The tables below show the team salaries for the Cavs and Warriors this year along with the predicted salaries for each team based on my model.  Since rookies are not included in my model (they wouldn’t have 2015-16 data), the “predicted” salary is set equal to their actual salary.

The total salaries presented here won’t match the totals presented on basketball-reference since I am only including players currently on the active roster and including the total salary earned by each player this year.  For example, Deron Williams signed a 1 year $9M deal with the Mavericks who released him during the season.  The Cavs are only paying him $260k this year to soak up second quarter garbage minutes in the Finals.  Similarly, the Warriors are paying Matt Barnes $383k to sit at the end of the bench and celebrate each time Stephen Curry or Kevin Durant make an improbable 3.

My model uses 2015-16 stats to predict 2016-17 salary, which explains some of the unusual outputs here.  With the huge increase in the salary cap before this past season, league-average Deron Williams (14.6 PER is just below the league average 15.0) is still worth a lot of money, especially given his age.

And yes, Kyrie Irving is below Deron Williams.  Maybe the Cavs should bench him and start Deron?  If they’re going to win, they’re going to have to do some weird things but that is probably not the answer.  It’s also important to remember (I had forgotten) that Kyrie’s low total is primarily due to the fractured kneecap he suffered in the first Finals matchup between the Cavs-Warriors, leading him to play only 53 games in 2015-16.

LeBron Deserves More Money

If you haven’t watched any of the NBA Finals this year, you’ve missed Steph and Durant playing spectacularly and really good performances from LeBron James.  Admittedly, Steph schooling (though he double dribbled!) LeBron was the highlight of Game 2 (other than Durant beating up LeBron).  But even play that seems average from LeBron is outstanding because of his unparalleled consistency.

Just like LeBron, it’s sometimes hard to remember, mainly because these guys don’t play for national audiences every night, how good Steph and Durant are throughout the regular season.  What the tables above tell us is how good they are relative to what they are paid.

The top tier of players reach the max contract and plateau, salary-wise.  The max contract, and soon the super-max, are a direct response to the insane deals Kevin Garnett and Michael Jordan earned in the 90s.  Jordan deserved whatever salary he wanted (he made $30M in 1997 which is $46.9M in today’s dollars), but Garnett’s deal forced the Timberwolves to sign Joe Smith under the table and lose their next five first round picks.  The NBA was gracious enough to restore one of the first round picks but only on the condition that they draft a high school player who would never be good enough to play in the NBA.  That last part may not be true but I’m sticking to it.  It’s the only plausible reason to draft Ndudi Ebi.

Max contracts leave more money for the middle class veteran trying to pay his mortgage and send his kids to college.  In terms of building a winning team, those are significant cost savings that can be passed on to other players.  Having a player with a significant surplus value means that a GM can miss on a few other players and still compete.

I don’t want to give away too many surprises but only five people can play on the court at a time in basketball.  While LeBron is surrounded by two other stars in Kevin Love and Kyrie and Steph and Durant play in the best lineup ever, they are important to their teams.  Superstars at their level should make way more than what they currently make.  Based on their 2015-16 stats, LeBron’s salary should be $71.8M this year while Steph’s and Durant’s should be $65.8M and $63.4M, respectively.

Based on these savings, the Cavs and Warriors paid $2.7M and $1.6M, respectively, for each regular season win.  Using their predicted team salaries, they should have paid $3.8M and $3.5M, respectively, per regular season win.  That’s a significant surplus.

It helps that the Cavs and Warriors haven’t missed on many free agent signings or draft picks (though neither have had significant draft picks recently) and have owners willing to go above and beyond the salary cap.  The (soft) salary cap this past season was $94.1M meaning the Cavs and Warriors were almost $50M and $10M over the salary cap, respectively, without factoring in the hefty luxury tax bill.

What if there was no limit on salaries at all?  The Cavs and Warriors would be $100M and $140M over the salary cap.  Dan Gilbert and Joe Lacob have been willing to spend to win but I find it hard to imagine spending those numbers, unless these teams are more profitable than we are aware.  Also, imagine if the Warriors were spending $175M before Durant?  $63M on top of that would be a lot harder for the Warriors to stomach.  At $26.5M (the max), Durant is ridiculously undervalued.

Phil Jackson Should Retire

If you looked at these numbers and thought, does this model inflate everybody’s expected salary?  The short answer is that it does not since we are redistributing the salary that is currently in play.  Fortunately, the Knicks’ idiotic management gives me a great example to display this.  Below is the same table that I presented for the Cavs and Warriors, but for the Knicks.

The Knicks were $3M over the salary cap (before dead money) but the value on their roster was only worth $83.2M, $11M under the salary cap.  The Knicks paid more for each regular season win than the Cavs and Warriors, $3.1M, but should have paid less than both at $2.7M.

The drop in value on the roster from actual salary is driven by two players, Derrick Rose and Joakim Noah.  Sadly for Knicks fans, both of those players were signed in the offseason, meaning that Phil Jackson should not have acquired either of them in the first place.  Both were once elite level players but neither come even close to that level anymore.  It was evident in 2015-16, injuries notwithstanding, and even more evident this past season.  Sadly (and very lucky) for Timberwolves fans, Tom Thibodeau has shown interest in both Rose and Noah in the last year.

Carmelo Anthony, a player who used to be close to LeBron’s level, is nowhere near that anymore.  Funnily enough, he’s actually fairly paid now.  But in the NBA, it’s not about being fairly paid, it’s about driving value from underpaid assets, which still describes Kevin Durant, Steph Curry, and LeBron James.

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