Expensive Air: A New TV Deal and the Utah Jazz

October 7th, 2014 | by Dan Clayton

 

How do Hayward and Favors fit into the salary structure of a contender?(Getty Images)

How do Hayward and Favors fit into the salary structure of a contender?(Getty Images)

Don’t touch that dial. Things are about to get interesting.

ESPN and TNT are making it rain in the NBA world, with a nine-year $24 billion TV deal that could change the NBA’s economic landscape forever. This influx of cash into the NBA machine is going to make for an interesting three years as the stakeholders adjust to the impacts of a $1.8 billion annual increase in basketball revenues, which of course set the tables for everything else — team salary caps, individual player salaries, etc.

There’s no crystal ball for figuring out exactly how this influx of cash will impact the nuanced business of roster-building, but here is the initial good news and bad news as far as the Utah Jazz are concerned.

The good news – salary construct

The best spin on this news from a Jazz perspective is that it will add cap room to the operation right as the post-rookie salaries all converge for the current mob of young talent. It’s still important that the Jazz don’t blatantly overspend on a guy, but the payroll structure is about to change in a way that makes the math a lot more favorable vis-à-vis extensions and new contracts for guys — including the ones who have already signed.

You’ve undoubtedly heard people saying that the new financial reality of the NBA makes Gordon Hayward’s max contract extension more palatable from the Jazz’s perspective. On a certain level, that’s not entirely true. $14.7 million is still $14.7 million, and the withdrawal from the Miller family checking account doesn’t get literally smaller. But here’s what those people mean.

I talk a lot about “salary construct” when looking at deals, rather than asking myself questions about absolute value. Absolute value questions — “Can they afford that?” or “Did they overpay by a couple million?” — are wonky questions anyway. We’re talking about billionaires here, so yes, they can afford it. And whether or not someone overpaid is a subjective question the depends on imperfect player comparisons and hard-to-measure market factors. Instead, I tend to ask myself how a particular player fits into a team’s hypothetical title push, and whether they can sign him into a particular salary slot and still have the ability to assemble a roster that can compete for rings. If a guy is best suited to be a bench enforcer and he gets starter money, that’s more worrisome than if a guy that maybe should get $58 million over five years gets $63 instead.

So again, think about it in terms of salary slots, at least roughly. Teams that content tend to have similar salary breakdowns. Here are the last 15 NBA champions, along with their top 10 earners from their championship season.1

salary construct

Salary sheets for last 15 title teams

For the most part2, these teams each had a couple of stars making max or near-max money, somewhere between 20% and 35% of the salary cap.  They had, on average, a third guy making another 20% or so of the cap, followed by a few role players making 5-10%. It helped when a team got star-level play out of someone still on a rookie deal3 or a discount veteran free agent4, but for the most part this paints a picture of how title teams fit the required star power on one salary sheet. We could broaden the parameters to include the 3-4 top contenders each year, and we’d see something similar.

This obviously doesn’t mean if you pay a guy $17 million and the next two guys $10 to 12 million and then $6 million on down that you will contend. You have to find guys that are worthy of those salary slots. This just sort of represents a loose framework for roughly how title teams have figured out what they can afford to pay each guy within that construct once they’ve figured out who their #1 guy is, their #2 guy, etc.5 The Jazz undoubtedly have done their own math, which may or may not be based on these 15 teams’ precedents, and I’m sure their calculations on salary structure inform how they negotiate.

If all the TV deal does is bring with it an $86 million cap that bumps everybody’s salary up proportionally, the numbers in that exercise change dramatically.

salary construct 86m

Title team salary construct applied to 86M salary cap

Since the Jazz aren’t likely to be in contention before the new cap kicks in, this gives them a lot more breathing room. in figuring out how to pay a competitive roster. Sure, Hayward and Derrick Favors will combine to earn roughly 45% of this year’s salary cap. But by 2017, they’ll be making about 31.5% of the cap, meaning they fit nicely into the construct of 3rd and 4th best, leaving the Jazz plenty of room to continue building around them.

Of course, that doesn’t answer the question of who will actually lead the Jazz into contention in that first slot or two. Maybe it’s young standout Dante Exum after he’s learned a thing or two about NBA basketball. Maybe he gets help from a retooled lottery system in the form of another potential star. Or maybe somebody steps up into that role.

If they’re going to find their title-winning alpha dog in one of those ways, they’re going to have to do it on the open market… and that’s where the less encouraging news comes in.

The bad news – competitive talent landscape

The Jazz will have more room to accommodate player growth and new signings, but here’s the rub: so will 29 other teams.

The confluence of higher caps and shorter deals are going to exaggerate the role free agency plays in dynasty-building, potentially making the super team route to contention more viable. Grantland’s Zach Lowe mused on Monday about a few possibilities, like a loaded Warriors team with a max slot open for someone like Kevin Durant, or teams with 2-3 stars already looking at max money in 2016.

That’s scary talk for the small market Jazz, who are unlikely to have that avenue open to them. For whatever reason — we talked about a few here — Utah has a hard enough time convincing any proven NBA stars to relocate to the Rockies, let alone a handful of them at once. Seriously, who’s the biggest free agent the Jazz have signed away from another team in 35 years in Utah? It’s probably Carlos Boozer.

Eventually, spending will catch up to the cap and things will normalize, but in the meantime, a higher cap helps out all 30 teams. It makes it a seller’s (read: player’s) market, and Utah is going to have to figure out ways to stand out in the bidding war.

CBA changes coming?

Of course, all of this is most relevant for the immediate future, through the 2016-17 season. At that point, it’s safe to assume that the owners and players will renegotiate the way that giant pile of dough gets divvied up.

Even if no change was made to the existing Collective Bargaining Agreement, the TV deal works to the players’ benefit: 51.15% of $2.6 billion is more than 51.15% of $930 million, so everybody’s getting a raise. The problem is, the players begrudgingly accepted that percentage of revenues as their share of the pie in 2011, based on the logic that teams were losing money and the economics of owning a franchise needed to be adjusted. That logic “will not fly with (the players) this time,” as LeBron James has said. So they’ll be looking for a bigger piece of the bigger pie.

If it just comes down to moving the line around and otherwise keeping the system mostly the same, the negotiations could be salvageable and we might avoid a lockout, as optimists like Larry Coon are hoping. Everybody’s getting richer, so maybe they will haggle over the exact amount of the players’ share, adjust the salary rules at the bottom (rookie, minimum and exception amount) to keep them proportional with movement at the top, and leave the other rules governing player compensation and movement as mostly business-as-usual.

But that’s not likely. The owners may use this as a lever to go for what they really wanted in 2011 — a hard cap. The players may put individual max salary on the table. If it gets into a debate on the fundamental realities of the league’s CBA, it could be an ugly battle. Either side might decide those are important enough battles to sacrifice games to get movement, but as Coon points out, the $2.6 billion only comes in if the TV’s on, so it would be unwise to “kill the goose that laid the golden egg.”

Another 16-game lockout would cost the sides over a billion in basketball-related income, so maybe — just maybe — they can avoid the temptation to go for broke in negotiations.

Otherwise, if there are wholesale changes to the rules around team-building, then the economic structure for contending might have to be thrown out and rewritten entirely.

Either way, an interesting 72 months lie ahead. Stay tuned. ESPN and TNT are most assuredly betting that you will.

Dan Clayton

Dan Clayton

Dan covered Utah Jazz basketball for more than 10 years, including as a radio analyst for the team’s Spanish-language broadcasts from 2010 to 2014. He now lives and works in New York City, but contributes regularly to Salt City Hoops and BBALLBreakdown.
Dan Clayton

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2 Comments

  1. It’s not as if the Millers are hurting for income, as some of the most fiscally responsible owners in sports. They were prepared to pay what they did regardless. And the value of their franchise just skyrocketed too!

  2. Mewko says:

    If we extend Alec Burks for 4 years/48 million, I would be happy. If Enes does well and we re-sign him for 3 years/34 million, I would be happy.

    Burke and Gobert can get extended fall 2016, or RFA summer 2017. So by the time they are extended they get paid their new contract the salary cap will be way higher. If both prove that they are good starters by then, and they jel in our system well, than I would slam down 14 mil/yr for both of them.

    Before this nba/media deal, I was envisioning Dante Exum to get extended 5 yrs/80 million, but since the cap is higher he could get a monster deal over 20 million/yr ! That’s a lot of money for a 23 year old man.

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