$200mm+ Contracts May Soon Be Undervalued in NBA

NBA free agency began last Sunday evening. Teams are now free to negotiate with free agents and can officially begin signing players on Saturday (July 6) at 12:01pm EST.?

Jayson Tatum (5 years, $314 million), Paul George (4 years, $212 million), Tyrese Maxey (5 years, $204 million), OG Anunoby (5 years, $212.5 million), and Scottie Barnes (5 years, $224.9 million) are among the players that have agreed to lucrative new contracts or extensions and are expected to sign on the dotted line over the holiday weekend.??

$200 million plus seems like a lot of money for players. However, these deals are likely to look like relative bargains when the league’s new national media rights agreements, worth a reported $6.9 billion in combined AAV, kick in at the start of the ‘25-‘26 season.?

That is because NBA players are?entitled to 51%?of ‘forecasted basketball related income’ and the number of them splitting it up will remain relatively consistent—even if ownership votes to add two expansion teams in the near future as expected. For context, the league’s expiring rights pacts generate a ‘paltry’ $2.7 billion annually.??

"It wouldn't surprise me, at all, if a?supermax contract in 2032-33 was [worth] $100mm/year," one former high-ranking NBA team executive said.?

That may sound like a staggering figure. It represents nearly a 100% increase from the league-high $51.9mm?Stephen Curry?collected this past season.?

But a supermax player is entitled to 35 percent of his team’s salary cap, and the cap is expected to rise from $141mm next season to $302mm by the time ’32-’33 rolls around.?

“We're talking nine years from now,” the former club executive reminded. “Going from $50mm to $100mm [over that period] is 8% annualized growth. [It is simply] the sign of a healthy business.”?

There is, however, a data-driven argument for paying at least some NBA players nine-figures annually much sooner than that.?

I came to this determination using my proprietary Revenue Above Replacement (RAR) model. The methodology was created to evaluate an individual player’s contributions to team success on and off the floor—including the number of wins that he is directly responsible for.?

You can read more about what?RAR means here.

It’s logical to wonder just how accurate the RAR model has proven to be.?

I determine each team’s expected win total for the season by summing their player’s collective contributions. The average difference between RAR’s projections and NBA clubs’ actual number of Ws during the ‘23-24 season was 0.55 (or a 1.34% difference).?

For example, RAR suggested the Celtics should have won 64 games during the ’23-’24 regular season based on their individual players’ aggregate performances. That is the exact number of times the team came up victorious this past season.??

The RAR model can also be used to help determine how much each player costs per team win delivered. This occurs by dividing the total a team pays out in salaries by the number of expected wins those players contributed to the team.??

Salary paid is the metric used given that many teams will exceed the cap.?

On average, teams paid $169.8mm in total player compensation and an average of $4.29 million per win during the 2023-24 season.??

The table below shows how much top players should cost based on the number of wins they helped to generate and the average cost per win last season. The figure is then extrapolated to future seasons using known (for the ‘24-’25 season) and projected (for the ‘25-’26 season) salary cap values.???

Nikola Joki? and Luka Don?i?’s salaries would have represented ~56% of their team’s payrolls this past season using this methodology. Keeping that percentage constant would mean?players competing at an MVP level could, at least in theory, be earning more than $100 million just two seasons from now with justification.??

Of course, that isn’t going to happen.?

The salary cap negotiated by the players through the Collective Bargaining Agreement (CBA) process limits the amount any one player can make. It is structured that way to ensure money is available to all players rather than concentrated amongst just a few.?

This approach helps to ensure the National Basketball Players Association has the support of its union members when negotiating with the NBA (a majority is needed to pass the CBA).?

But that does not mean the league’s stars are necessarily getting the short end of the stick.?

Having a recently ratified CBA allowed the league to go out and negotiate new, long-term media rights agreements (because its partners knew there would be labor peace through ‘29-30) that will substantially lift the annual salary cap. And that means more money for all players, including those at the top of the food chain.??

Remember, it is better to make 35% of a fast-growing salary cap than 36+% of a flat one.??

It is important to note the on-court performance of an NBA player does not fully represent his full value to the team. As previously?discussed, players can contribute to the organization in a multitude of ways.??

We know fans, media, and partners all appreciate —and will pay for— star power.?

But even without a deeper dive into player stardom, it seems safe to suggest that many of the players signing nine-figure contracts this weekend are going to be relative bargains in short order (and for the last few years of their respective deals).?

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