Finance Uncategorized

Carmelo opts out; CBA may bring end to ‘Big Three’

The NBA free agency frenzy has started, and Carmelo Anthony is the target for multiple teams.

Credit: Steve Mitchell-USA TODAY Sports
Credit: Steve Mitchell-USA TODAY Sports

Carmelo Anthony opted out of the final year of his contract with the New York Knicks, making the premier NBA scorer and now unrestricted free agent a priority for many suitors.

The Chicago Bulls, Miami Heat and Houston Rockets are rumored to be Anthony’s top choices if he decides to leave New York. While opting out of his contract delivered a strong message to the Knicks organization, there is still a possibility Anthony will remain in New York. In fact, from a financial standpoint, Anthony would benefit from staying with the Knicks.

In accordance with the NBA’s collective bargaining agreement (CBA), the maximum length of a player contract is five years with maximum annual increases in salary set at 7.5 percent for teams re-signing their own players. Teams attempting to lure away superstars such as Anthony can offer contracts of up to four years and a maximum salary increase of just 4.5 percent per year. No matter where Anthony chooses to sign, his contract can start at 105 percent of his previous year’s salary.

In simpler terms, the Knicks can offer Anthony a five-year $129 million contract, whereas other teams can offer just four-year deals worth $96 million. After state, federal and jock tax projections, as shown in the figure below, Anthony is left with 11.4 million reasons to stay in New York.

Carmelo Anthony's Projected Earnings

 

However, in an era where NBA titles are often valued more than individual statistics, teams like the Bulls, Heat and Rockets suddenly become more enticing options for the aging 30-year-old star.

While signing a player like Anthony clearly has its benefits, a player who requires such a large financial backing makes a deep cut into the roughly $58.7 million that teams are allowed to pay their players per season under the CBA. The Bulls, who would likely be forced to part ways with important role players like Jimmy Butler and Taj Gibson, would be left with a mere estimated $2.7 million to fill an entire bench. Anthony would be forced to settle for even less than the possible $96 million he could earn with the Heat in order to accommodate the contracts of Lebron James, Dwyane Wade and Chris Bosh. A similar situation, although to a lesser extent, exists in Houston where all-stars Dwight Howard and James Harden dominate the Rockets’ payroll.

The NBA has seen great success in the “Big Three” model that the Miami Heat, who have appeared in the last four NBA Finals, have made notorious. Other teams are attempting to adopt this seemingly successful strategy with their own rosters by adding Anthony, but not without the financial obstacles presented by the CBA, which through luxury taxes, lower salary caps and revised maximum contract limitations has made this a difficult feat. Even with this in mind, anything is possible, and NBA fans will be eagerly awaiting Carmelo Anthony’s decision this summer.

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