Thursday, October 11, 2007

Does High Payroll Lead to Success?

Rick Karcher of "Sports Law Blog" posted his "2007 MLB Team Payroll Report Card" on Tuesday.

Karcher writes:

"At the end of each regular baseball season, I compare the payrolls of all the teams to see what kind of impact payroll disparity had on overall team performance for the year. [See my 2005 annual report card and 2006 annual report card.] This year's report card, once again, reveals that high payroll simply does not equal success. For purposes of this report, I measure success by which teams make the playoffs because I truly believe that each playoff team has an equal chance of winning the World Series. Once you get to the playoffs, it becomes a matter of timing, luck, molecular attraction and star alignment (in support of this proposition I cite to Annie Savoy from Bull Durham)."

At the end of his post, Karcher sums up his thoughts:

"I walk away with the same conclusion each year. The $50-$70 million range seems to make the most business sense. Looking at the salary data on an aggregate basis, only four of the eight teams in the playoffs are in the top 1/3 in payroll (more than $90M). And three of the eight teams actually fall in the bottom 1/3 in payroll (less than $70M)."

Wednesday, October 10, 2007

Cleveland's Restricted Free Agent Quandry

"Cavs at forefront of NBA restraint"
Brian Windhorst
Published on Tuesday, Oct 09, 2007

There are a lot of eyes on the Cavaliers' front office these days, and it's not fans wondering when Anderson Varejao and Sasha Pavlovic are going to get signed.

Right now, the Cavs are serving as a giant test case a precedent setter for the way business is going to be handled in the NBA, and other organizations are watching carefully. The stakes are high.

Let's see if we can make this simple without launching into a deep economic diatribe. The summers of 2004, 2005 and 2006 featured record spending in the NBA. Part of it was due to a new collective bargaining agreement in 2005 that bolstered the salary cap.

Lots of max contracts were given out, numerous teams had, and used, giant amounts of cap space; lots of teams used their entire mid-level exceptions to sign mid-level players to contracts worth more than $35 million; and lots of restricted free agents got huge deals without having to get legitimate offers elsewhere.

That was the flow, now is the ebb.

With the luxury tax now known before the season and after three years of big spending, there is a recession in the NBA.

Only one team this summer, the Toronto Raptors, used its full mid-level exception on one player. Only two free agents, Rashard Lewis and Darko Milicic, changed teams for more than the mid-level exception. There were no sign-and-trade deals of significance. The market is different, and the Cavs and everybody else know it.

So here come Varejao and Pavlovic, guys coming off career seasons and looking around at their peers who got paid the past three summers. That includes their teammates. Larry Hughes, Damon Jones and Donyell Marshall all got big contracts from the Cavs in 2005, when more than a half-dozen teams had a load of cap space.

Varejao and Pavlovic want their piece of the pie, and who could blame them? Except, the pie has changed.

Varejao and Pavlovic and their agents seem to be in denial about it. Which is why they are getting so radical by attempting unprecedented holdouts to apply pressure to the Cavs. It's their attempt to buck the market.

The Cavs, looking around the league and at their highest payroll ever this season, are standing firm and refusing to pay more than the market dictates. In 2005, it dictated that a guard with Jones' track record was worth four years and $16 million. He got it. It was a market-value deal at the time.

In 2007, not a single team can offer Varejao a deal starting at more than $5.3 million this season. So why would the Cavs pay him the $9 million he wants? Varejao's side is betting the Cavs will fold under the pressure of his absence. Most of the league is watching, but shares the Cavs' viewpoint.

Here's the other factor: As things stand today, next summer appears to be just as tight. There will be a couple more teams with salary-cap space than this summer, but the free-agent class is much deeper. Being a free agent again, as Varejao and Pavlovic could've been if they took one-year qualifying offers, might not be a smart move.

However, in 2009 and probably again in 2010, many of those contracts signed between 2004-06 will expire. It appears as if the league again will be awash in available cash. That's when you want to be a free agent. Not now.

This is what Varejao and Pavlovic should focus on: getting paid for a few years and taking another bite when the money is flowing again. The offers the Cavs put on the table would've given both players huge raises for the next few years. In Varejao's case, he easily can make five times more in the next two years than he did in his first three seasons combined.

Instead, they appear to be waiting to hit that home run. Here's the rub: Nobody in the league right now is pitching.