Small Markets Scrap For Success

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HANG TIME SOUTHWEST – When a couple small-market Western Conference teams battled for seven grueling games in the semifinals of the playoffs two years ago, who could have foreseen that they would meet again this postseason — after each was forced to deal with the inescapable repercussions of the new Collective Bargaining Agreement?

Rudy Gay was injured and out of that postseason two years ago. But at only 24 and locked into a lucrative contract, the No. 8 pick of the 2006 NBA Draft was a central figure for the fast-rising Memphis Grizzlies. Yet on Jan. 30, 2013, Gay, the team’s leading scorer, was traded to Toronto.

In Oklahoma City, the Thunder were coming off a loss to the Miami Heat in the 2012 NBA Finals when, days before this season began, Thunder general manager Sam Presti dealt former No. 3 pick James Harden, just 23 and an integral part of the team’s success, to Houston.

In a postseason marked by a surprising domination of small-market teams — all four teams remaining in the playoffs are in the bottom half of the league in market size — the second-round showdown between the Grizzlies and Thunder (won by the Grizzlies in five games) demonstrated just what many teams have to do to thrive in the era of the still-new CBA.

“With the rules set up the way they are, there’s minimal room for error,” said Jason Levien, the first-year CEO of the Grizzlies under a new ownership group led by one of the world’s youngest tech billionaires, Robert Pera. “You’ve got to be very thoughtful in your approach to how you build your team, how you build a roster, and you’ve got to keep the cap and the tax in mind.”

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Avoiding the taxes

Cap and tax are at the forefront of the strategy the Oklahoma City management team is using under the ownership of billionaire energy mogul Clay Bennett. Presti, who has managed to re-sign superstars Kevin Durant and Russell Westbrook, plus emerging power forward Serge Ibaka, to long-term deals that fit within the team’s cap structure, chose to hold firm to a policy of not commenting on matters related to the CBA.

In Memphis, where the Grizzlies will look to start digging out of a 2-0 hole against the San Antonio Spurs in Saturday’s Game 3 of the West finals (9 p.m., ESPN), Levien has defended the trade of Gay (for veteran small forward Tayshaun Prince and youngsters Ed Davis and Austin Daye) as being made to improve the team.

While that might be true — Memphis won a franchise-best 56 games after a strong start with Gay — the Grizzlies also got out of the $37.2 million owed to Gay over the next two seasons. Memphis will pay Prince, Davis and Daye a combined $26 million over that span ($22 million if Daye is not retained beyond next season). With Zach RandolphMarc Gasol and Mike Conley owed a combined $40.9 million next season, keeping Gay and a payroll under the tax line (this season it was $70.3 million) would have been a near-impossibility.

Whatever happens during this deepest playoff run in franchise history, the Grizzlies’ front office work is only just beginning. Memphis has almost $60 million locked into salaries for next season. Defensive whiz and fan favorite Tony Allen will be an unrestricted free agent. Is Randolph ($34.3 million over the next two seasons and an All-Star this season) an amnesty candidate this summer or next? What if key reserve Jerryd Bayless opts out of his $3.1 million contract to seek a bigger payday? Do they make a $4.1-million qualifying offer to Daye?

“We believe we have a fighting a chance to win here consistently,” Levien said. “People talk about analytics in evaluating players, but there’s a lot of analytics around the salary cap. How much should we spend for a player at a certain position and what role he’s going to play? So that’s a lot of what we’ve done and are working on, is salary-cap analytics, being thoughtful about how we structure our roster and how we can get the best bang for our buck.”

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Cap rules affect NBA’s big boys, too

One of the goals of the CBA, with its salary limits and taxes for those who choose to go over those limits, is to create competitive balance across market sizes. Next season, luxury-tax penalties will increase incrementally for every $5 million over the cap. A team salary $10 million over the tax line this season will pay a dollar-for-dollar tax, a $10 million payment. Next season the penalty will balloon to $16.25 million.

Also new to the CBA is the looming hammer of the repeater tax (an additional tax levied for luxury taxpayers in three of four years). That’s designed to curb chronic overspending by the big-market teams that reap millions from TV deals and sponsorships and arena signage, millions of dollars that smaller markets cannot produce. The New York Knicks, according to Forbes, took in a league-high $243 million in revenue for the 2011-12 season (compared to Memphis’ $96 million). The Los Angeles Lakers this season entered into a 20-year, $3.6 billion TV deal with Time Warner Cable.

There is some trepidation that the more burdensome taxes won’t curb the big boys from spending and will completely discourage smaller markets. But built into the CBA are restrictions on tax-paying teams that make it difficult to alter rosters as a means of controlling costs. Starting this summer, teams above the “tax apron” — $4 million over the tax line — can no longer take back a player in a sign-and-trade and will have access only to a reduced mid-level exception player and no bi-annual exception.

Taxpayers such as the Knicks, Heat, Nets and Lakers — who hope to re-sign Dwight Howard to a max deal — will be hard-pressed to make significant roster changes this summer.

It’s way too early to make judgments on the overall effectiveness of the CBA, re-worked before the lockout-shortened 2011-12 season. Defending champion Miami, 16th among NBA teams on Nielsen’s January 2013 market-size rankings, is a favorite to win the title this season. But owner Micky Arison faces a coming dilemma with the Heat’s Big Three of LeBron James, Dwyane Wade and Chris Bosh. If all three stars opt out of their contracts after the 2013-14 season, Arison will have to decide whether to let one or two of the Big Three walk — breaking up what might be a dynasty in the making — or keep them and pay unprecedented millions in luxury tax and repeater taxes on top of salary over the next four or five years.

Aside from concerns about the tax will not be an effective deterrent to big spenders, there’s a notion that big-market teams can conceivably fix “mistakes” more easily and reboot faster once contracts expire and cap space becomes available. The belief is that impact players are more likely to sign with a big-market team.

Mavericks owner Mark Cuban would seem to be a believer. The CBA convinced Cuban to whittle down payroll and create cap space for the first time in his dozen years as owner, and to do it at a fan-sensitive juncture, just after winning the 2011 championship. Now, flush with cap space, the Mavs plan to chase max-level free agents (like Howard) and engage in trades and/or sign-and-trades to obtain a star. Cuban has said going over the luxury tax is a definite option if he believes it’s a move that will boost the team back into contention.

“I’m not here telling you we’re only going to do it [rebuild] via the Draft. I’m not here telling you we’re going to stick with our young guys and grow them,” Cuban said after the Mavs were eliminated from the playoffs for the first time in 13 seasons. “I’m not here telling you I won’t take back a lot more money in a trade if it gets us where we want to go. It’s all a matter of approach.”

The secret for small-market success

Memphis general manager Chris Wallace said the key for small-market sustainability is to draft well and then sign those players to extensions. It certainly helps when a small-market team drafts a superstar-to-be that is content to remain in a small market. That’s what’s happened with Durant in Oklahoma City and with San Antonio’s Big Three of Tim Duncan,Tony Parker and Manu Ginobili, who have helped to make San Antonio the model small-market franchise for two decades.

In Memphis, where the Grizzlies have struggled at times to fill the FedExForum over its dozen seasons there, a downturn after several years of winning could be disastrous.

“Whenever I get a chance to talk to the owners or anybody in management, I tell them if there’s a way we can keep it together, try the best that you can to do that,” said Memphis point guard Mike Conley, who helped the Grizzlies by signing an extension that will pay him less than $10 million a season through 2015-16. “I’ve seen both ends of it. We were terrible and the support was pretty bad, and now we’ve seen it hit an all-time high and I don’t want to go back to what it was before. Trust me.”

Levien said he doesn’t think fans want to digest the guts of the CBA, but they do want to know management has a plan. He is in the process of personally calling every season-ticket holder “explaining our vision for the team, explaining that we’re committed to winning.”

“We want a plan that is going to allow us to be competitive for years to come,” Levien said. “Part of that is balancing the salary cap and making sure we have opportunity. We want that flexibility because we want to keep adding value and talent to our roster. So that’s what we’re thinking. We’re thinking about next year, the year after, being able to add more value and continue to grow as a team, and you have to be able to articulate that to fans.”

3 Comments

  1. CWD says:

    How is it that both the NBA and the NFL continue to call the 7th largest city in the nation a ‘small market’? San Antonio continues to support the Spurs as well as several minor league franchises. Why can’t we get an NFL team? The answer is league politics. Jerry Jones has been instrumental in preventing NFL expansion or relocation to San Antonio. God forbid he lose a little marketing $$ from his precious Cowboys.

    Frustrated in SA.

  2. Mr Wonder says:

    i prefer a salary cap of $5m per player. No player should make more than that except Kobe, LeBron, Duncan, Durant, Chris Paul, Blake Griffin etc.
    Derrick Rose should give some of his money back to the club as he chose not to play a full season even though he was healthy at a point. That is “stealing” money

  3. Bryan says:

    this is a pretty good blog, and i believe any team can shine……. that is once Stern leaves the NBA.