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The True Cost of Guaranteed Contracts in the NBA

Would there be greater parity in the NBA if contracts, like those in the NFL, were not fully guaranteed?

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It’s been quite an eventful offseason for the National Football League. America’s most popular sport has captivated the interest of its fans even during the many months when their teams never step foot on the field.

Much of this offseason’s intrigue has centered on a dynamic free agency period, which has increased in intensity as a result of so many of the league’s star players being released from their current contracts. NFL teams can simply and easily part ways with virtually any player if they so choose. If they feel a player is no longer worthy of his contract (be it big or small) for whatever reason (performance on the field or attitude issues in the locker room), the lack of guaranteed contracts in the NFL allows general managers to pink slip even the highest paid players. If the team’s management feels it is in the best interest of the organization to cut loose a productive, but overpaid player, they have that option.

Much like the NBA, the NFL has a salary cap. However, unlike the NBA (or MLB and NHL, for that matter), NFL contracts are not fully guaranteed upon inception.

In the NBA and MLB, a player’s full contract is guaranteed for its entire duration the moment the deal is signed. This is not the case in the NFL. When an NFL player signs a contract, only a portion of the pay is guaranteed.

This results in far less guaranteed money being awarded to football players. In fact, no contract in NFL history has ever included more than $60 million in guaranteed money.

In contrast, there are often multiple NBA deals signed each July that guarantee basketball players in excess of $60 million. And it’s not just the elite superstars who sign deals worth more than even $100 million in guaranteed funds. For instance, the Atlanta Hawks inked Joe Johnson to a six-year, $119 million deal in 2010.

So, to put that in context, Johnson’s deal included more guaranteed money than Tom Brady and Calvin “Megatron” Johnson’s most recent contracts combined.

In July of 2008, the Washington Wizards signed Gilbert Arenas to a deal worth $111 million. Arenas collected every penny of the cool $111 million, despite the fact that he suffered multiple serious knee injuries during the infancy of the deal and was suspended for the majority of the 2009-10 season after he pleaded guilty to the felony of carrying an unlicensed pistol into the Wizards locker room.

In the five seasons immediately following the re-signing of Arenas to that huge contract, the Wizards won fewer than 30 games for every season, finishing a combined 117-277 (.296 winning percentage) from 2008 through 2013, never once even sniffing the playoffs. NBA organizations can be crippled by one mistake, as the cap ramifications are debilitating over the entire life of the contract.

Eventually, the Wizards traded Arenas to the Orlando Magic, but were forced to take back Rashard Lewis’ bloated contract (Lewis had signed a mind-boggling six-year, $118 million deal back in 2007).

Had Arenas played in the NFL, his team would have been able to escape from under the weight of that contract with relative ease.
Within the last month, NFL superstars Darrelle Revis, DeMarcus Ware, DeSean Jackson, Julius Peppers and Steve Smith were just a few of the top-tier players released by their respective teams.

Teams did not have to ride out these contracts. They didn’t have to trade them for other players being paid a similar salary. They were simply released. General managers decided that their cap space would be better spent elsewhere, so these former franchise cornerstones were sent packing.

It is astounding to think about how much more active and interesting the NBA offseason would be if teams could release players in a similar fashion.

Of the four major American sports, the NFL is considered to have the most parity from year-to-year. Instances of teams jumping from worst-to-first are far more common place in NFL. One of the primary reasons for football’s parity is because teams are not forced to keep paying for a mistake made years ago. The punitive penalty of a contract mistake does not linger nearly as long as it does in other sports.

If an NFL team signs a player to a five-year contract, but feels he is not worth the money he is set to earn in the final three years of the deal, they can cut him after that second season. Or if a player suffers a serious injury, the team can easily get out from contractual obligations. NFL teams and players also have the option of restructuring contracts, which is prohibited in the NBA.

The National Basketball Player’s Association would surely never allow the league to completely restructure the salary system to match the NFL, but it is fascinating to consider how much it would change the sport.

If NBA teams could cut players in the middle of their contract – and not owe the balance of the money to the player and have that money count against the cap – the NBA would be a far different place. If teams weren’t so harshly penalized by albatross contracts that can sink an organization, they would be able to bounce back and return to form far quicker.

Consider the New York Knicks’ current situation. There is a great deal of hope in New York right now because Phil Jackson has been hired to clean up James Dolan’s mess. Knicks fans are optimistic that Jackson will deliver on his promise of returning the Knicks to respectability.

However, Jackson has his hands tied for his full first year on job. Regardless of any move Jackson makes this offseason, New York will be way over the cap during the 2014-15 campaign.

Amar’e Stoudemire will earn $23.4 million next season. Tyson Chandler will take home $14.6 million. Andrea Bargnani will pocket $12 million in 2014-15. Despite disappointing play, on top of a drug suspension and knee surgery just days after re-signing with the Knicks, J.R. Smith has two years and $12.3 million left on his deal.

It is essentially impossible for Jackson to get under the cap prior to July of 2015. As a result, he will have to wait roughly 16 months before he can make a splash and actually put his imprint on his new franchise. He is being taxed for other people’s mistakes.

The Knicks will likely have to sit through a disastrous repeat of the terribly disappointing 2013-14 season next year. In addition, Carmelo Anthony has to decide this summer if he is content to essentially sacrifice a year of his prime in order to wait until July of 2015, when Jackson will finally have an opportunity to be active in free agency and possibly add another superstar to the roster.

What if Jackson could come in and clean house right away?

One thing is certain; the NBA landscape would look far different if salaries weren’t fully guaranteed upon signing.

Tommy Beer is a Senior NBA Analyst and the Fantasy Sports Editor of Basketball Insiders, having covered the NBA for the last nine seasons.

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