An Embarrassment of Riches

The limits of parity in a salary-capped world
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Michael Jordan starred—or more specifically co-starred with Marvin the Martian—in “Space Jam,” which was natural for the dominant performer in a league that skews vertical. Shortly after the movie came out, Michael Jordan made $33 million per season. LeBron James, the league’s current avatar of excellence and probably the most dominant player since Jordan, makes about half that now, part of it by choice, most of it by design. His Miami Heat are a good pick to win their second straight NBA title, and it’s the cap on his pay that keeps his team solidly in the stratosphere. LeBron knows as much, and seems cooler with it than you might expect. But this doesn't change the fact that, historically and in terms of the value he generates, LeBron James is grossly underpaid.

There are those—in comments sections, in newspaper columns—who think athletes don’t deserve multi-million dollar salaries, and thus that it’s impossible for the multimillionaire MVP to be underpaid. I’d argue the exact opposite: that it would be nearly impossible for athletes, or anyone else, to be overpaid, if we had a sane tax code. LeBron’s job isn’t to rewrite the tax code, of course; it’s to rewrite record books and the faces of his opponents. He does this for $19 million per year, a roughly $26 million cut from his actual value. When LeBron signed with the Heat, the NBA’s salary cap system was so generous to the lottery winners on South Beach that Dwyane Wade’s $19 million salary effectively became free, thanks to LeBron’s generous spillover. There was even some room left over for role players willing to take their own pay cuts. This was the salary cap at work, then: not creating parity but destroying it.

This is how the league wants it. The NBA's owners made clear during their negotiations over the last collective bargaining agreement that they believe that a landed upper class, a churning middle class, and a desperate lower class is the best way to present the league as a whole, and creates the most profitable situation for those in the owners' suites. They have made the decision that it is better to have a few great teams effectively break the scale and let the rest of the league do its best at a rigged game.

In no sport is the scale broken more often than in the NBA, where eight franchises have won the last 30 NBA titles. To some extent, this is the nature of a sport with a limited pool of athletes—a select few can and will dominate, and teams with the various advantages (managerial, geographic, whatever) of the NBA's more advantaged teams can continue to leverage those advantages.

Structurally, the NBA’s salary cap does much to codify this status quo, and make it inevitable going forward. Advantaged teams are playing with house money, which breeds real money, which, as we’ve learned over the last decade, generally breeds both more real money and a system tilted to preserve that hierarchy. In this sense, the NBA is the quintessentially American sports league: It looks for all the world as if a bootstrapping innovator can beat the system. The reality is the opposite.

***

Daryl Morey is trying to beat the system in Houston. Some think he’s doing it, and he will be received as a hero at this weekend's Sloan Sports Analytics Conference in Boston for his efforts to do so. This is not quite the same thing as actually beating the system.

The Rockets added James Harden at a very reasonable price, and have improved both in the short term and probably in the long term as well. I think Morey’s buy-low, sell-high strategy is altogether sound and correct. It’s the move he didn’t make that was most impressive, clearing the decks for a Dwight Howard trade that never came, which included using the league's amnesty clause on the incredibly generous Luis Scola contract. Morey understood that it was not whether or not Howard would provide the excess value of James or Kevin Durant—this season, he decidedly hasn't—but that Howard is one of the few players even capable of providing it, and that value is the sine qua non of winning a championship. Morey's consolation prize, the wonderfully weird and talented Harden, is pretty valuable in his own right; he could, in just the right circumstances, lead Houston to a title. I don’t think Morey is betting on it.

Why do owners of non-advantaged teams—the 22 that haven't won a title in the last 30 years—sign up for such a rigged system? In part because NBA teams are generally profitable, and in part because of all the other reasons that lead rich people to buy teams. But I think we make a mistake in thinking sports owners are rational, when really owners are financially reckless and irresponsible basically by definition. There are, after all, better ways to make money than owning a franchise. There are certainly better ways to spend it than on, say, a long-term deal for Tyrus Thomas.

Owners are basically playing a game of poker with a $300 million buy-in, and any game of poker needs its fish to survive. The teams with the best seats at the table—those from Los Angeles, Miami, Chicago, Boston, New York—have inherent advantages. Many of the others have been enticed to play, with perks including new arenas and free chips. Over time, the big fish eat the little ones, but occasionally a team like San Antonio or Oklahoma City grabs a hold of a pair of aces and rides them to victory. It’s not that the smaller teams can’t win. It’s just that they won’t, most of the time.

The same way the salary cap system confers distinct temporary advantages on the team that has the league’s best player locked up for what's invariably far below his actual market value, it confers permanent advantages on teams in a desirable location, with a strong winning tradition, or both. And the fact is that while a small market team can nab a title here and there, or even a few of them, the odds are stacked against them. In the long run, they exist to feed victories to the big-market teams that play the game at least semi-competently—so, not the Knicks or the Clippers, for the last couple decades. The rules meant to prevent this are the very ones that make it so.

Should we want a different system? The era of various Big Threes has shown that talent attracts talent even when you have to bend the salary structure to make it happen. LeBron James found it rational to leave Cleveland, where he would have made a higher base salary, for Miami, where he does not even make the league maximum. This is utterly rational, and every dollar he’s short of a maximum contract helps the Heat stay atop the league.

From a purely logical standpoint, it’s heartening to see a player of LeBron’s caliber take less money to ensure victory; we ask this of athletes all the time. But from the standpoint of a fan of another team, especially one in the Eastern Conference, it effectively ends the season before it begins; having LeBron is enough of an edge, but having him at an additional discount is too much. The Heat may eventually have to blow up its Big Three for cap reasons, perhaps sooner than later, but for the time being their various advantages are crushing.

LeBron could have stayed in Cleveland and taken the maximum, and maybe the landscape would have been different; maybe it would have been harder to attract role players, or maybe it would have been just as easy, and the Cavs would be gearing up for a second title run right now. In either case, a team like Houston, scraping by, making money at the margins, would still be screwed. Daryl Morey’s a smart guy. He knows the math, and has figured out how to use it to his advantage. He also knows that he can’t beat it. He can only try to make his own luck. You can build a rocket, but you still need someone capable of igniting it. There aren’t many who can do this. It would be hard to pay that person enough.


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