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Free Agency Extravaganza: Why Big Market Teams Have Struggled During Free Agency

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The NBA Free Agency period this summer taught us a few important things: 1) The Spurs and Cavs will be gunning for the Warriors next season, 2) The difference between verbal and contractual agreements is worth approximately one DeAndre, 3) Sacramento will be a safe haven for mentally unstable NBAers, and 4) Playing in big market cities is not as attractive of an option as it used to be.

While the first three items on the list are all intriguing topics, I’m going to examine the fourth. Recent free agency periods have demonstrated that New York, Los Angeles, Boston, and Chicago are NOT the most desirable destinations for free agents. You’d think they would be since those cities have so much to offer: wonderful areas to settle down, nightlife, endless marketing and investing opportunities, high levels of diversity, and the opportunities to pursue other business ventures. Not to mention, the basketball teams in big market cities tend to have more financial resources than others, which should in theory help when it comes to building rosters (through player development, signing free agents, etc.).

With all the benefits of playing in a big market city, why do the Knicks, Lakers, Celtics, and Bulls have difficulty luring free agents? The teams haven’t landed a “major” (i.e. superstar) free agent in quite some time. Pau Gasol signed with the Bulls in 2014, but other than that, the powerhouse organizations have come up empty as of late (especially the Lakers who picked up the scraps this off-season, acquiring Lou Williams, Brendan Bass, and Roy Hibbert).

The Knicks and Lakers strongly pursued big man Greg Monroe this off-season, and were even the frontrunners to acquire him at one point. However, Monroe ended up signing a max deal (three years, $50 million) with the Milwaukee Bucks.

Why didn’t Monroe and Love choose New York or L.A.? How come Milwaukee and Cleveland were the more appealing options?

There are two crucial factors that likely influenced Monroe’s decisions: money and marketing opportunities.

The Collective Bargaining Agreements over the past decade or so have attempted to level the playing field across the NBA. The CBA establishes a salary cap and a luxury tax fee each season that seek to limit how much a team can spend on their players. While teams can legally exceed the salary cap, they cannot cross the luxury tax threshold without having to pay a significant fine. It places big market teams, who may have billions of dollars at their disposals, in a similar financial position to smaller market teams. In principle, they both have the same amount of money to spend on free agents due to the salary cap and luxury tax.

Side-note: Of course, big market teams like the Knicks may still have an advantage since their financial resources are greater than say, Minnesota. The Knicks can afford to dip into luxury tax land and pay the hefty fine, but the T-wolves may not.

What does this mean for Greg Monroe and the Milwaukee Bucks? Basically, the Bucks were able to offer Monroe the exact same amount of money as the Knicks and Lakers could have. He signed a maximum deal, meaning that he couldn’t be signed for more money by any team given the duration of the contract. In other words, no team could have signed him for more money per season.

The Knicks, Lakers, and Bucks could offer Monroe the max of $50 million over three years—no more than that—so no team had a financial advantage.

But it’s more than just big market teams and small market teams having the same amount of money to work with. Marketing and branding are crucial to NBA players.

For a while, big market cities gave players a better platform to attract the attention of major companies, like Nike or Reebok. But with the omnipresence of social media, even players on smaller market teams can gain national fame. This makes them very perfect spokespeople for huge corporations, which is why landing endorsement deals seems to be just as easy for players on a small market team.

Last summer, Kevin Durant was offered a $265 million endorsement deal with Under Armour. Durant plays for the Oklahoma City Thunder, a notorious small market team (see James Harden trade). Despite this, Durant has gained incredible popularity and companies realize he can make them a lot of money. That’s why Nike ended up paying the Durantula $300 million so that he’d be in their commercials for the next ten years.

NBAers can elect to play in smaller cities like Oklahoma City and still be able to build their brand. New York and L.A. are no longer required for players to rack up the endorsement deals.

Because similar financial and marketing opportunities exist in NBA cities all over the country, a new factor now influences players’ decisions when signing—championship potential. Free agents wish to join organizations that can (or already have) put together winning teams. I believe this is a significant reason why Monroe chose Milwaukee over New York and L.A. The Bucks are in a much better position to win now. It’s why Kevin Love chose the Cavs instead of the Celtics or Lakers. The Cavs are primed to win now and for years to come.

The one big market team that has shown the unique ability to consistently reel in free agents is the Miami Heat. Since the summer of 2010, they’ve signed LeBron James, Dwyane Wade (twice), Chris Bosh (twice), Ray Allen, Luol Deng, Josh McRoberts, and Goran Dragic. They’ve even acquired guys like Amar’e Stoudemire and Gerald Green this off-season for significant discounts.

That’s a huge list of star free agents! But why are the Heat so adept at signing the big name guys? Two reasons: first, they are a world-class organization that has proved time and time again they know how to win. Pat Riley and Mickey Arison are wizards when it comes to putting together a successful roster.

And second, there is no state income tax in Florida. In New York, L.A., Boston, and Chicago, there are hefty state income taxes. This means that players who sign with the Heat instead of the Bulls get to keep a greater portion of their yearly salary.

In 2014, Carmelo Anthony signed a five-year, $124 million contract extension with the Knicks. Due to New York’s state income tax (8.82% state tax rate, plus an additional 3.88 NYC tax), Melo will earn about $13-$14 million less than he could have had he inked the same deal with a team in a state without an income tax (i.e. Florida, Texas, etc.). That’s a significant difference—a difference that would surely affect any player who’s not as financially well off as Carmelo (see Trevor Ariza deal in 2014).

Teams like the Knicks, Lakers, Celtics, and Bulls can no longer rely on their big market status to sign free agents. Instead, they should focus most of their attention on drafting well and developing young talent in order to help them put together championship rosters. Trading and free agent signings should be secondary concerns that they can look to once they’ve established strong foundations.

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