Timberwolves

How the NBA's Work Stoppage Will Change the Summer for the Timberwolves

Mandatory Credit: Jeff Swinger-USA TODAY Sports

Winning in the NBA is full of games within games. Competing for an NBA championship is a Russian nesting doll of scaling competitions. While at its core, the NBA is about 82 individual basketball games, the surrounding layers of games have a cascading impact on who ultimately finds success.

A critical layer in that calculus is the NBA’s salary cap.

In the wake of the suspension of NBA games in response to COVID-19, The Athletic reported that the remainder of the regular season being played without fans — or the altogether cancelation of the remaining games — would cause over $500 million of revenue to be lost. In the grand scheme of economic issues percolating in these times, the NBA losing revenue is small potatoes.

But as we search for basketball conversations in times without games, that number is relevant. And that is because the league taking a $500 million hit would cause the salary cap to drop by $8 million per team next season — down from a projected $115 million to $107 million.

Let’s walk through this, touching on how missed games will impact the league’s salary structure at large and in turn how this would impact the Minnesota Timberwolves specifically. If the salary cap changes, the whole game changes.

Impact on Basketball-Related Income

All 30 teams’ salary cap number is shaped by the revenue earned in the previous season. The sum of all of the league’s revenue is called basketball-related income (BRI). BRI is then functionally split in half between the owners and players. After that, the player’s half is divided by 30 to come up with what the team-by-team salary-cap figure is.

Because we know the salary cap for the 2019-20 season is $109.14 million, some simple math tells us that the player portion of BRI for salary cap purposes was $3.274 billion. A lot was poured into that multi-billion-dollar pot, but at its core are three major elements: sponsorships, television rights and ticket sales.

Sponsorships

Because this has been a year that just can’t seem to go right, we have an anecdotal example of how the loss of sponsorship money impacts the salary cap. After Houston Rockets general manager Daryl Morey tweeted in support of fighting for freedom in Hong Kong, $200 million in sponsorships were pulled by Chinese businesses. Because that money came out of BRI, there was a ripple effect that caused the 2020-21 salary cap to drop its projection from $116 million per team to $115 million.

Television Rights

The NBA is in the midst of a nine-year, $24 billion television deal with Turner Sports (TNT) and Disney (ESPN and ABC). This deal is signed, meaning for salary cap purposes that there will not be an impact on BRI for next season. (At least that’s where we currently stand.)

Television ratings had already become a serious issue around the league prior to the stoppage of play. Obviously, no games doesn’t help. For now, though, that is a separate issue.

Ticket Sales

It is here where the salary cap ramifications are most profound. The $500 million in losses would come from each team, on average, missing out on $2 million per game at the gates (each team has around nine home games left on their schedule). Through the wash, this would cause the salary cap projection to drop by $8 million per team for next season. Again, the projection prior to the stoppage of play was $115 million, so we would be looking at a cap of $107 million for next season. That number provided in The Athletic’s report is just a projection from the limited information currently available. It does, however, help to paint a picture of what the impact could be.

Impact on Player Salaries

A $115 million salary cap for next season would have meant a 5.4% increase from this season’s $109.14 million figure. With the number dropping to $107 million, the decrease would be 2%. There are four types of NBA contracts directly tied to the increase or decrease of the salary cap: a maximum contract, a mid-level exception contract, a rookie scale contract and a minimum contract.

Maximum Contracts

Players who have six-or-fewer years of NBA experience can sign a maximum contract for 25% of the salary cap. With between seven and nine years of experience, players can sign for a max of 30% of the salary cap. And players who have been in the league for 10-plus years can sign for 35% of the cap.

The Minnesota Timberwolves don’t have any players who were going to reasonably be seeking a maximum contract this summer. They also do not have the necessary cap space — even before the drop — to enter the conversation for negotiating a max deal with another team’s free agent. So the shift in maximum salary costs will only impact Minnesota indirectly (market shifts affect everything to a degree).

For the players on other teams expecting the max this summer, instead of entering a market with a salary cap that has escalated by 5.4%, they would be negotiating under a cap that has dropped by 2%. As an example, let’s pretend Karl-Anthony Towns was up for a 30% max contract this summer (as he will be in the summer of 2024). The maximum Year 1 salary he could have gotten this summer would have been $34.5 million under a $115 million cap and would dip to $32.1 million under a $107 million cap.

Keep in mind that max salaries escalate year-over-year (by 8% for players with Bird Rights, like Towns), making the two realities differentiate by $14 million. With a five-year contract, it’d be the difference between $200 million and $186 million. That would be an important difference for Towns individually, of course, but also for Minnesota’s spending elsewhere. (Again, this is purely hypothetical — Towns is locked up for the next four years.)

Mid-Level Exception Contracts

The mid-level exception (MLE) is an exception in the league’s collective bargaining agreement that allows each team to exceed the salary cap by a number that is supposed to line up with the median salary in the league. For the 2019-20 season, the MLE was worth $9.258 million. Next season’s MLE will increase or decrease by the amount as the cap increases or decreases.

Meaning:

  • Under a $115 million cap, the MLE would have been $9.76 million this summer
  • Under a $107 million cap, the MLE would be $9.08 million this summer

A sum of $700k may not seem like a big difference, but it impacts the market. When you consider that many teams historically do dip into the mid-level when over the cap — and that 23 of the 30 teams in the league were already projected to be over the (higher) $115 million cap — that impact could be real. Even without a salary cap decrease, given the dearth of teams that were projected to have cap space, this was already trending toward becoming “The Summer of the MLE.” If the cap drops by $8 million, it definitely will be. Lopping off $700k from each team’s spending power in this sub-market will have an impact on spending within that market.

Malik Beasley‘s restricted free agency will very likely leave him working above the MLE threshold, and thus out of the constraints of this market. But Juancho Hernangomez restricted free agency will almost definitely operate within this range. Obviously, there are many constraining factors here, but a lower cap on the MLE would mean more teams working in that market place and thus, more likely that Hernangomez is snatched away from Minnesota.

Rookie Contracts

If there are no more regular-season games played, the Timberwolves will finish with the third-worst record in the league. The third-worst record comes with the following lottery odds:

  • 1st pick: 14.0%
  • 2nd pick: 13.4%
  • 3rd pick: 12.7%
  • 4th pick: 12.0%
  • 5th pick: 14.8%
  • 6th pick: 26.0%
  • 7th pick: 7.0%

Similar to the midlevel exception and a maximum contract, rookie scale contracts are tied to the increase or decrease of the salary cap. Given how the lottery works, Minnesota’s most likely spot to draft is not third overall. But given that they have the third-worst record, that’s the pick we’re going to use for this exercise.

In the 2019 Draft, RJ Barrett was selected third overall by the New York Knicks and his Year 1 salary is $7.84 million. Meaning:

  • Under a $115 million cap, the Year 1 salary of the third pick would be $8.27 million
  • Under a $107 million cap, the Year 1 salary of the third pick would be $7.68 million

Being as rookie scale deals also escalate annually (exponentially in their case), the difference in the four-year rookie scale deal under the two realities would be about $4 million over the four-year life of the deal. This could actually be viewed as a positive externality of a decreasing cap for a team with a top pick, like Minnesota.

Minimum Contracts

Minimum contracts are also tied to the cap, meaning they would also drop by 2% from this season rather than increasing by the previously projected 5.4% increase.

Take Timberwolves backup point guard Jordan McLaughlin for example. McLaughlin is playing on a two-way contract this season and many would argue his performance has earned consideration for an actual NBA contract next season. For the 2019-20 season, the minimum salary for a player with one year of NBA experience is $1,445,697. McLaughlin will have one year of experience after this season, meaning with a 5.4% increase in the cap that his salary next season (if signed for the minimum) would have been $1,523,765. Instead, that number would dip to $1,416,783 if the cap were to drop to $107 million. (A difference of about $107k.)

Mandatory Credit: Chuck Cook-USA TODAY Sports
Impact on Timberwolves Salary Cap

At the end of the day, a salary cap is just that: a cap. Yes, the NBA has a soft cap — one that can be exceeded. But cutting $8 million off the top literally limits the usage of, you know, cap space.

Currently, Minnesota has eight players under guaranteed contracts for the 2020-21 season, totaling $90.4 million in salary.

That makes it appear that the Wolves would have $16.6 million in cap space under a $107 million cap. But that $90.4 million total does not include draft picks, non-guaranteed contracts or free agents.

Draft Picks

Again, the Wolves have the third-worst record in the NBA. If we assume Minnesota selects third overall in the 2020 draft, that pick will come with a $7.7 million cap hit. They also have Brooklyn’s 2020 first (acquired in the Robert Covington trade). Brooklyn is currently slotted in the 15th slot in the draft. The 15th overall pick would come with a $3.5 million cap hit.

Add the price of those two picks to the team salary and $11.2 million is added onto the previous $90.4 million. We’re up to $101.6 million for 10 players ($5.4 million below the $107 million cap).

Non-guaranteed Contracts

Jarred Vanderbilt ($1,663,861), Naz Reid ($1,517,981) and Jaylen Nowell ($1,517,981) all have contracts that are non-guaranteed for next season. Those are all functionally minimum contracts and can thus be viewed as valuable if Vanderbilt, Reid and Nowell are seen to be intriguing developmental pieces.

If those three deals were guaranteed, that’s another $4.7 million on the books. That’s now 13 players for $106.3 million ($700k below the $107 million cap).

But wait! Don’t forget about the waived and stretched Cole Aldrich contract from the 2017-18 season that still carries a $700k cap hit. See ya, cap space!

Free Agents

Even with a $115 million salary cap, it was unlikely that Minnesota was going to operate as an under the cap team. That’s because of the impending restricted free agencies of Beasley and Hernangomez.

The order of operations can be moved around here when the summer’s moratorium happens (whenever that is), but if we put Minnesota at $107 million in committed salaries before the free agencies of Beasley and Hernangomez, the next marker to look at is the luxury tax line. Under a $115 million cap, the projected luxury tax line was $139 million. With $8 million cut off the cap in this hypothetical, the luxury tax line would drop by the same amount, down to $131 million. That would leave $24 million to re-sign free agents, which, in addition to Beasley and Hernangomez, also include McLaughlin and Kelan Martin (and Evan Turner, technically).

What exactly the market of Beasley and Hernangomez will be can’t be known. That said, staying under $24 million for the pair seems reasonable. Still, if that’s the entirety of the team’s wiggle room, it could be viewed as uncomfortable to live pinned up against the tax wall. (With Minnesota currently over the tax line for this season, it’s increasingly unlikely that they again go into the tax next season.)

If we learned anything about this new Minnesota front office at the deadline, it was that they crave maneuverability. For example: Before entering the trade market, Minnesota was well under the luxury tax line, and used that space to be able to coordinate a sequence of deals that provided financial relief to the other teams they were working with. In the Andrew Wiggins trade, Minnesota only sent out $27.5 million (Wiggins’s salary) but took back $31.1 million from Golden State. The Warriors obviously saw value in having Wiggins instead of Russell ($27.3 million), but they also used the trade as an opportunity to shed the salaries of Evans ($1.926 million) and Spellman ($1.898 million).

Because trade rules only require the outgoing salary to be within 125% of incoming salary, this trade allowed Golden State to duck the luxury tax this season — affording them the opportunity to avoid repeater luxury tax penalties next season. Minnesota taking back more money in that trade afforded Golden State that opportunity.

If the front office again craves that maneuverability next season, it would make sense that they would want to have some breathing room beneath next year’s tax line. Again, under a cap that has dipped by $8 million next season, bringing back both Beasley and Hernangomez could come with greater restrictions. Would it preclude either player from being brought back? Probably not. But a lower cap would certainly tighten the screws in Minnesota’s big picture free agency pursuit.

Impact on League-Wide Cap Space

Every team in the league will feel the pinch of a lower cap however that plays out. For many teams, the squeeze could be far more painful than it will be for Minnesota.

Take the Portland Trailblazers for example. The summer of 2020 was supposed to be a summer that finally shed them from the chains of the salary cap hell they had been living in since the summer of 2016. Only Damian Lillard, CJ McCollum and Jusuf Nurkic are on the books for over $10 million in salary next season. This left Portland looking like they could be a player in the cap space game this summer under a $115 million cap. Their cap space projection was $14.0 million under the $115 million cap. Lop off $8 million from that number and the Blazers are left toiling in the same waters as other teams who have the ($9 million) mid-level exception at their disposal.

That’s a serious spending power shift.

Outside of the $14 million in space Portland was projected to have, six other teams combined with Portland to make up $218 million in total projected cap space for this summer. Cut $56 million off that pot by subtracting $8 million from all seven of those cap space teams and that’s 26% of the previously projected pile of money gone.

This is relevant for teams, like Minnesota, who are trying to retain their own free agents. Instead of entering a market flush with $218 million of available cap space, a player like Beasley would be left to fight for the remaining $162 million. Now, Beasley could be acquired by a non-cap space team in some sort of sign-and-trade — much like Russell was acquired by Golden State last summer — but the most direct path to receiving a sizable offer for Beasley is on the open market. That is, from a team with cap space. Less cap space available should theoretically lead to a depressed market for Beasley. In a logic vacuum, the lower Beasley’s market value, the more likely he is to stay put in Minnesota.

Illustrated by the fact that only two players remain on the roster that Gersson Rosas inherited from the Tom Thibodeau regime — Towns and Okogie — it’s been clear since Day 1 that this new front office laid out a plan for reconstructing this roster. That plan was tied to the salary cap. It’s safe to assume that when this front office poured out the Russian nesting doll that is the Minnesota Timberwolves, they took special care in examining the shell that is the salary cap. And that shape will have shrunk — to some degree — when basketball resumes.

The question becomes: How will that all fit back together?

Again, this game theory challenge isn’t limited to Minnesota. One of the games within the game for all teams will have changed in a major way in the absence of this revenue. To an extent, this is similar to the unforeseen cap spike prior to the summer of 2016 — when the league signed that $24 billion television deal. Remember how critical that shift in revenue was? It may not have seemed like it at the moment, but that boost shifted the pieces on the chessboard that is the market — because that rearrangement afforded teams $24 million in additional cap space. It changed everything.

A lot of that change had to do with where teams sat financially before the spike. To a degree, it was about luck. When the market shifted, teams who had cap space got unlucky when they were then forced to overpay to secure their man. New York paying up to $72 million for Joakim Noah being the infamous example there. And that, in turn, set the market for centers, forcing teams like Minnesota to pay up for a player like Gorgui Dieng, who received a $64 million contract extension that same offseason. Other teams got lucky with the shift. The famous example there being Golden State. All of a sudden the Warriors were able to sign Kevin Durant.

Again, when the market changed, everything changed.

We can’t know the extent of the change at this time. But even just a shift of $8 million from the rest of the regular season being lost would be meaningful. What if the playoffs can’t be played? What impact on revenue will that have? What is known is that the pieces on the chessboard will again shift in response to any stoppage of play. Just like in 2016, some teams will feel the positive externalities of a market shift while others will feel the burn.

It will also be about preparation; contingency plans that effectively project so as to not get completely caught off guard. Luck will be a factor, but certain teams will take advantage of the new game board. The game will change because when revenue changes the salary cap changes — and that changes the game.

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Mandatory Credit: Jeff Swinger-USA TODAY Sports

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