FanPost

What Drives Salaries?

Here's a story about Charley Finley, who was the eccentric owner of the KC and Oakland A's in the 1960s and 70s.  He built a 3 time champion in Oakland in the early 70s, before economics caught up with him and he proceeded to sell off his players in protest of the new economic realities of the game.  He was never taken seriously; he was sort of a less successful and wealthy Mark Cuban of his time.  He had, however, one brilliant idea that was completely ignored by the other owners.  When it became clear during the mid-1970s that free agency was going to become a reality in major league baseball, and the owners were preparing to negotiate with the players association, Finley told his fellow owners that they should offer total free agency: every player should be a free agent every season.  The other owners scoffed at that idea, and of course we can never know how it would have played out, but it's not hard to imagine that it would have significantly held down salaries.

 

Players in all leagues are too sophisticated to accept such an offer today, but the story is instructive: salaries, like most things, are driven at least in part by scarcity.  The more players available to you, the less any one of them is worth.  But when your options are severely limited, you are almost forced to overpay. 

This brings me to the point I want to make: one of major things that drives salaries in the NBA, and creates many of the contracts that we blanch at, is the existence of the soft salary cap.  A lot of the bad contracts in the league are re-signings.  We all know why: so many teams are at or over the cap that they cannot sign other team's free agents.  When their own players' contracts expire, they can either use Bird rights to sign them, or lose them for nothing and still lack the cap space to replace them.  Take an example from the Wolves' illustrious history: Wally Szczerbiak.  He was overpaid the minute he signed his extension; he was also the Wolves 2nd best player.  They were in an impossible bind--they were over the cap and needed more talent, not less, so they overpaid the one player they had access to. 

The question, therefore, is this: do the advantages of the soft cap outweigh the disadvantages?  And if the disadvantages are greater, should the league move toward a hard cap or away from a salary cap altogether?  One of the things that the soft cap (and other rules--longer contracts for your own players), are designed to do is to encourage players to stay with their teams.  I wonder if this is a good thing.  Would the league be better with more player movement? 

Let's imagine a world in which there was no cap, but more free agency (shorter contracts), with better revenue sharing (and let's throw in a luxury tax as well).  One thing that might happen is that the best players would congregate on a small number of markets and the distance between the haves and have-nots would be even worse and more durable.  (Of course, the NBA already has that--how many teams have won titles in the past 30 years? I think 7: Celtics, Lakers, 76ers, Pistons, Bulls, Rockets, and Spurs).  On the other hand, more freedom of player movement and acquisitions might allow more teams to make runs at greatness, and more players on the market every year might help limit salaries.

Now let's imagine a world with a hard salary cap.  I myself am not a fan of this because I think it artificially limits the earning power of players, who are the product, and I'm a believer in labor reaping the benefits of their work.  However, ignoring my preferences, what would happen?  I do think you would see a ton of player movement in free agency, since teams wouldn't be able to keep players at all.  In football, you cut 15 guys, its less than a third of your roster, a bunch of them are marginal, and the NFL is primarily anonymous.  In the NBA, I think it would be very hard to build anything with a hard cap, because you would have to be finding cheaper options virtually all the time. 

So how do you imagine either of these scenarios playing out?  Do you think either is better than the soft cap?  Are the advantages of the soft cap worth living with the downside?   What say you? Would a Finley-esque system work in the NBA?

 

 

 


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