The NBA’s Supermax Contract Conundrum
Submitted as sample essay for graduate school application on February 6, 2021.
ON DECEMBER 15, 2020, a week before the beginning of the ‘20–21 COVID-shortened NBA season, Giannis Antetokounmpo inked a five-year, $228 million-dollar contract extension with the Milwaukee Bucks. Locking in a two-time MVP for another lustrum was a massive win for the Bucks organization since they avoided (or at least delayed) losing their superstar; This is a predicament that has halted the upward trajectory of other small market teams in the past. But even the NBA itself is breathing a little bit easier after one of its best players decided to extend his stay in a small market organization located in Milwaukee, Wisconsin. In 2010, LeBron James’ infamous ‘The Decision’ empowered plenty of the league’s top players to bolt from the teams that drafted them to go towards greener pastures. That greenery is more often than not found in bigger markets, tilting the odds even more in favor of franchises that have spending power and geographical allure.
On the surface, this doesn’t jump off the page as a big business issue for the NBA. What sports league wouldn’t want its most marketable stars playing in its biggest markets and most popular franchises? In fact, the 2017 NBA Finals — the first for the Golden State Warriors after Kevin Durant moved from the Oklahoma City Thunder — was the most-watched NBA Finals series since 1998. The following regular season also saw a four-year high in television viewership for the NBA. However, achieving parity, or at least the semblance of such, across a thirty-team league is essential in maintaining local interest in smaller markets and, consequently, content team owners.
In order to counter the trend of bolting superstars, the NBA and the National Basketball Player’s Association (NBPA) created the Designated Veteran Player contract extension — or what is more commonly known as the supermax — in 2017. If a player met a certain criteria, they would be eligible for a contract worth 35% of a team’s salary cap for up to five seasons. Maximum contracts worth 35% of a team’s cap space can generally be granted to players with 10+ years of NBA experience, but eligible players can sign the supermax with as little as seven playing years as long as they are rostered by the team that signed them to their designated rookie extension. The league and the NBPA’s hope was that if a player’s original team had license to pay them tens of millions more than any other organization, said player would be enticed to take the monetary green over the proverbial greener pastures.
However, that hasn’t necessarily been the case. Paul George, Kawhi Leonard, and Anthony Davis all forced their way out of the teams that drafted them despite their team’s ability to offer the supermax. All three now find themselves on L.A. teams, who are two of the league’s top 6 most valued organizations in 2020, according to Forbes. Among the original teams of those three stars, only the San Antonio Spurs (14th) rank in the upper half of the league in valuation as of 2020. Giannis’ decision to stay with the Bucks — ranked 19th on Forbes’ list, but growing 3% faster than league average — helped the NBA avoid a media circus around the supermax’s inability to do what it was created for. But it should not be a reason to turn a blind eye toward the fact that it still isn’t.
The helpful effect of a supermax contract was not supposed to end when pen was put to paper; The extension of a star player was a way to keep their teams competitive. But an added layer to the supermax conundrum is that organizations who have successfully used the provision have not necessarily benefited as the legislators may have imagined. Of the five players that had signed the supermax contract prior to Antetokounmpo, three have already been traded from their teams, including two for each other after Russell Westbrook and John Wall were swapped prior to the beginning of the ongoing NBA season. Only Stephen Curry and Damian Lillard remain with their original teams, with the former as the only member of the list to even make the NBA Finals since signing the extension. Although Curry’s case is not very strong in favor of the supermax either since the Golden State Warriors are one of the biggest markets in the league (3rd) and benefited from a superstar bolting from a small market franchise.
The Washington Wizards, who traded Wall for Westbrook, is the case study for a failed supermax. Wall’s extension took effect in the 2019–20 season, but due to major injuries, he did not play a single game with the Wizards from the point the extension kicked in. The Wizards ability to add additional talent was also hampered by the cap stranglehold from the supermax deal as they had negative cap room in the ‘19–20 season. The D.C.-based franchise has missed the playoffs for two years in a row, and has not won a playoff series since Wall signed the contract.
This is not to say that the supermax must be obliterated when the NBA and NBPA work on a new Collective Bargaining Agreement (CBA), which could be as soon as the 2023 offseason. The notion that there will be an absolute resolution to stars leaving small markets is impossible; Players can and should still have the option to leave their original teams by the end of their contract, and organizations are still responsible for convincing their players to re-sign within the parameters of the CBA. The fact that 6 of a possible 11 players have signed the supermax contract over the last four years does indicate that it can provide staying power for some organizations. But there is still room to make the supermax more enticing for a player to stay that will be helpful for organizations that are a step or two behind the big market franchises. Likewise, improvements could be made in order for the contract to be less crippling to a team’s salary cap.
Take the case of Rudy Gobert and the Utah Jazz. Gobert, as a two-time defensive player of the year and three-time All-NBA selection, was eligible for the supermax this past offseason. He instead signed for $23M dollars less than supermax in order to give the Jazz additional financial flexibility to improve the roster around him. Not every eligible supermax player will be as generous as Gobert, but the NBA can simply allow for a percentage of the supermax to not be charged onto a team’s cap in order to achieve the same effect. The player will still be paid the same amount (35% of a team’s cap), but the team’s salary will only shoulder a contract that is somewhere within 25–30% of the salary cap. The CBA can enforce this rule, and may even allow teams to pay above the 35% threshold and set a higher supermax limit so the monetary benefits could be more attractive for supermax-eligible players. Based on the 2020–21 salary cap, the effect of an additional 5–10% of salary space equates to about $5.5M to $10.9M per year savings for each team. Most teams could parlay that savings into signing another player or two to bolster their roster, or to offer bigger contracts to free agents they wish to re-sign.
For the Washington Wizards, who were $22M dollars over the cap in 2019, an additional $5–10M dollars may have not provided much recourse. But another potential solution would be for the CBA to provide an additional salary cap exception — similar to a mid-level exception — to teams using the supermax. Salary cap exceptions allow teams already above the salary cap to still sign additional players. The mid-level exception from last offseason amounted to either $5.7M or $9.2M, depending on whether the team was over the luxury tax limit, which is right around the range of 5–10% of the salary cap. For instance, the mid-level exception is what the Los Angeles Clippers used to sign Serge Ibaka to a two-year, $19M contract during the most recent offseason despite the fact that the team was over the cap limit. Teams using the supermax can be provided an additional, one-time only mid-level exception and the effect would be similar to the first solution.
These potential actions are by no means surefire solutions to solve one of the big problems the NBA has to face after the COVID issues blow over and it’s forced to stare down a potential lockout in 2023. The juggling act to achieve parity among sports teams is a problem that will more than likely continue to exist, and will probably seep into the next CBA as well. This problem is more about finding the most optimal compromise rather than a surefire solution.
