Noah Brier | November 24, 2020

Why is this interesting? - The Designated Player Edition

On talent, the NBA, and the supermax contract

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Noah here. Giannis Antetokounmpo is one of the most amazing stories in the history of the NBA. Giannis, as most call him, is a 25-year-old 6’11” NBA phenom. He’s won back-to-back Most Valuable Player awards and can dominate NBA games in a way few in history have. (For what it’s worth, he also seems like an incredibly likable human being.) Unlike most MVPs of the past, Giannis didn’t dominate in college or have his high school games broadcast on ESPN. Instead, he played in a semi-pro league in Greece, where his parents had immigrated a few years before he was born. He was drafted 15th in the 2013 NBA draft by the Milwaukee Bucks. Only two players in history have won an MVP after being drafted that low: Antetokounmpo and Steve Nash, who won two while playing for the Phoenix Suns and now coaches the Brooklyn Nets.

While players across the NBA sign new contracts in anticipation of the season’s start in late-December, the most significant signature is the one that hasn’t come yet. The NBA world is waiting to see whether Giannis will sign a $220+ million “designated player extension” contract (aka a “supermax”) that would keep him in Milwaukee for another five years. He’s currently in Greece and has another month to make his decision. Still, until teams know the answer, a number of them will continue to manage their rosters to allow for the flexibility to pay Antetokounmpo as much as permitted under the salary cap rules should he be looking for a new team in 2021.

Why is this interesting?

The NBA operates with what’s called a salary cap. I won’t get too deep into the details, but essentially it sets the total amount a team can spend on its players and caps the total amount an individual player can be paid. The cap exists in theory to keep some competitive balance: in some sports leagues, like English soccer, wealthy owners can come in and spend whatever they want to field a championship-winning team. Large markets like New York and Los Angeles have a significant advantage over smaller ones like Orlando or Oklahoma City because the broadcast rights to their games are worth so much more and because their locations present a much more appealing living situation for an incredibly rich 20-something-year-old man.

The “supermax” contract was an attempt to introduce some more balance between the big markets and everyone else. The NBA operates with a draft, which allows teams to select young players 1+ years removed from high school and retain their rights for four years at a pre-determined salary between roughly $2 million for the 30th pick and around $10 million for the first. After that first contract, a player becomes a restricted free agent, which essentially gives the team the first right of refusal on any deal the player is offered. For most superstars, this means that they have to wait almost a decade to have real free agency. (If this doesn’t sound fair, there are many who agree.) 

After that second restricted free agent contract, an NBA player (now in his mid-to-late twenties) finally gets to decide where he wants to work. In 2016, NBA superstar and former MVP Kevin Durant chose to move from Oklahoma to California to play for the Golden State Warriors, where he won two NBA titles. The move upset a lot of people for a lot of reasons. One of the aggrieved groups was the owners and management of “small market” teams like Oklahoma City (Durant’s former team). These teams complained that they were finding it increasingly difficult to hold onto their “homegrown” superstars, particularly because the amount they were allowed to pay them under the salary cap wasn’t significantly different than any other team. For players like Durant, who make as much (if not more) money off endorsements as their playing contract, the difference in outside income from the exposure in a big market could more than make up for anything left on the table with their team.

And so was born the “supermax.” The new contract type allowed teams to pay superstars they originally drafted a good amount more than anything any other team could offer. “The provision, which allows teams to sign a qualifying player to a whopping 35 percent of the salary cap,” explained Haley O'Shaughnessy in 2019, “was meant to do three things: help the best players get more money, give small-market teams a leg up on re-signing their superstars, and disincentivize the creation of superteams in the interest of parity.” 

This decision, especially when combined with a previous push by owners to cut the maximum contract length down to five years, didn’t work out as intended. Since its introduction, five players have signed a “supermax”: Stephen Curry, James Harden, Russell Westbrook, John Wall, and Damian Lillard. Of those, two (Westbrook and Wall) are considered amongst the worst contracts in the league, and three (Westbrook, Wall, and Harden) have reportedly requested a trade from their current team in the last few weeks.

The worry with Giannis isn’t that he will be a bad contract, though. Instead, the concern is over what happens if he turns it down. To be eligible to receive a deal like this requires reaching some huge milestones: MVP awards, all-NBA teams, or defensive player of the year in various periods before their contract year. A few players who have reached those milestones have either not been offered the contract, which soured them on their current team or turned it down, indicating to the organization that even an extra $30 million over five years wasn’t enough to keep them.

There is one player in the latter group, and he represents the worst-case scenario for the Bucks. Anthony Davis, who just won a championship with Lebron James and the Los Angeles Lakers. The team drafted him and paid him the maximum allowed on his second contract. It then reportedly offered him a “supermax” for $230 million over five years, which would have represented the largest NBA contract in history at that time. He decided not to sign and demanded to be traded to LA, which eventually happened. Sometime in the next few weeks, Davis will likely sign a contract for something in the realm of $35 million per year, a full $10 million less than New Orleans offered. 

While the Lakers couldn’t make up for the dollar difference, they offered two things he felt he didn’t have in New Orleans: a chance to compete for a championship and the exposure of being in one of the two biggest media markets in the United States. Giannis plays for a better team than Davis did at the time, but we will have to wait and see how he feels about those two questions. (NRB)

Recommendation of the Day:

From WITI contributor Reilly Brennan: How to get a high-res Zoom setup for under $200. (NRB)

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Thanks for reading,

Noah (NRB) & Colin (CJN)

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