NBA HD: Market Rate Update

In last week’s post, I calculated the going rate for free agents this summer by applying the dollars-per-win method that others have used in the past.  If wins were a known commodity (which they aren’t), then this would represent the price.  To be sure, not all teams value wins at the same rate.  Some teams have an easier time swallowing risk or ignoring risks altogether.  But aggregating the talent and dollars gives us a good window into the pricing climate.

I found that teams were paying about $2.23 million per win according to Kevin Pelton’s WARP system.  Since then, Kevin has kindly pointed out that he made an updated version of WARP (referred to as WARP2) and they haven’t been published yet on the Basketball Prospectus player cards just yet.  Being the helpful gent that he is, I was sent the WARP2 numbers for last season (denoted 10WARP2) and those numbers are reflected below.

You’ll notice I have cited two prices here.  The $1.69 million pricetag reflects the entire free agency lot with the max guys included.  However, several high-end players had their salaries artificially capped due to the CBA rules that restrict the max salary to about $20million annually if resigned by their former club.  Moreover, we witnessed a rare circumstance where players took paycuts below their max cap (LeBron James, Dwyane Wade, and Chris Bosh) so that the team could have more money to fill out the roster. Consider that Joe Johnson will get paid more than James despite only being half the player James is.

There isn’t a perfect way to handle this designed deflation but I chose to ignore the players fulfilled the following qualifiers a) received the max allowable contract AND b) produced at least 10 WARP2.  This takes out Dirk Nowitzki, Bosh, James, and Wade —  all of which would almost undoubtedly receive bigger contracts if the CBA gave them that right.  It’s arguable whether someone would have paid higher than the max for Johnson, Stoudemire, and Rudy Gay, but their included in the Total w/o “max” price.

So, with that in mind, it seems as though the market rate has slid from $2.23 million per win to $2.01 million per win (or just $2 million) over the past week.  As I mentioned in my previous post, the 2009 summer going rate was approximately $1.49 million which means NBA teams a whole are paying about half a million dollars more for each win.

You could interpret this finding in a number of ways.  An argument can be made that agents are simply getting better at selling the product but that’s probably not something that happens collectively overnight.  It could also be a sign that front offices are desperate to pacify their anxious fans and thus, will use their enormous cap space to land someone of name-value.  Remember, fans have been promised the moon in the Summer of 2010 TM and that demand has pushed up the price.  But it’s also very possible that the impending lockout has caused more players to enter the free agency market to secure a long term contract.  In turn, the supply has been raised as well, but maybe not as much.

It’s also worth noting that the $1.49m price from 2009 was derived with the original version of WARP and thus, the price could change slightly.  However, I don’t have any reason to believe it would change the price significantly as the system adjustment was merely a minor tweak to allocate more credit to 3-point shooters for floor-spacing.

So the $750,000 premium we saw last week has been reduced down to a not-too-shabby $500,000.  The players will take it — while they can.

Seth Carstens