The NBA Should Abolish Maximum Contracts

Kevin Durant (right) during an NBA playoff game in May. (Soobum Im/USA Today Sports/Reuters)
If the NBA wants to promote competitive balance, it should open up its market.

Kevin Durant is one of the best three basketball players in the world. The six-foot-ten wing, lithe as Gumby, once led the NBA in scoring four times over a five-year span; the year he didn’t, he joined the 50–40–90 club (that’s shooting percentage for field goals, three-pointers, and free throws, respectively), an achievement that only six other players have ever matched. On Monday, Durant announced that he will sign a two-year, $54 million contract with the dizzyingly efficient Golden State Warriors, a team keyed by fellow top-three player Stephen Curry. Durant is desperate to win his first championship, so this decision displays the same opportunism that characterizes his relentless on-court attack. With the signing, and notwithstanding the Warriors’ historic disintegration in the just-completed Finals, what is perhaps the least combatable offense in basketball history adds one of the best offensive players in basketball history. Westward the course of empire takes its way.

The Durant signing casts an unforgiving light on the league’s competitive imbalance, but it was hardly the catalyst: Now three teams are legitimate title competitors rather than four. Approximately ten more teams are competent, but the reward for their competence will surely not exceed an exit in the second round of the playoffs and a mediocre draft pick. And the rest of the league — about half — is an uncompetitive morass, with some younger teams having designs of future success and others consistently wallowing in the mire of futility. The NBA is still entertaining, but this competitive imbalance may dismay fans of local, uncompetitive teams and casual fans looking for drama before the very end of the playoffs.

Whence the problem? Why is the Durant signing even possible? How can a team with three top-15 players add a fourth? The short answer is, unintended consequences of the league’s collectively bargained regulations incentivize multiple top players to join forces.

Determined through a long and arduous negotiation process between team owners and the players’ union, the NBA’s collective-bargaining agreement (CBA) governs league affairs. A number of measures are in place to encourage parity between teams. These include a salary cap, a revenue-sharing system, rookie-contract constraints, and several other rules. They are there to ensure that large-market clubs like the New York Knicks, Chicago Bulls, and Los Angeles Lakers cannot simply use their comparatively high revenue to swallow up all of the talented players. And many of these rules are both justified and effective. Sure, the Knicks might make more money than the Milwaukee Bucks, but their making money is predicated upon membership in a well-run league with an array of competitive teams. Ideally, these rules strike a balance between helping team owners and helping players. The revenue-sharing model ensures that the Bucks’ owner isn’t operating at a consistent loss; the salary cap is tied to league revenue, so that market pressures will keep player salaries high.

But while many of these rules provide for competitive balance between large- and small-market teams, the evidence suggests that such a dichotomy is outdated. The Knicks, Bulls, and Lakers are three of the least attractive destinations for free agents. None of them is run by a particularly competent front office. And the league’s three dominant teams are from comparatively small markets: the Warriors, Cleveland Cavaliers, and San Antonio Spurs. As this transformation unfolds, the league’s competitive imbalance is becoming more severe. Conventional wisdom around the league dictates that a team needs a superstar to have even a chance at winning a title; teams around the league are internalizing this lesson and intentionally fielding weak rosters in an effort to land such a player in the draft (teams with poor records have a better chance of getting high picks). Truly elite players are clustering together: LeBron James joined forces with two other all-stars in Miami back in 2011; he returned to the Cavaliers only when a plan was in place to surround him with superstar talent. The Durant signing creates another super-team that only one or two others will be able to truly compete with.

One of the league’s regulations in particular is responsible for the growing competitive imbalance: the maximum-contract rule. Instead of regulating the amount of money that teams can spend on the roster as a whole, this rule limits the amount of money that teams can spend on individual players. The league caps maximum salaries at 25 percent, 30 percent, or 35 percent of the salary cap, depending on conditions such as a player’s time spent in the league or which team is offering the contract. Because of this, the best NBA players don’t operate in a free-market economy, in which players like James or Durant would command salaries equal to their value. Instead, the amount they can earn is constrained. The absurdity of the max-contract rule is illustrated quite amply by comparing Durant’s situation with that of Timofey Mozgov, a little-used center. Mozgov this summer inked a four-year, $64 million contract with the Lakers. Last year, he was responsible for 3.7 win shares, a statistic that roughly determines a player’s contribution to his team’s performance. This means that, each year, Mozgov is getting paid $4,324,324 per win share. Were Durant’s salary tied to his basketball value the same way as Mozgov’s, he would be earning more than $62 million per year for his 14.5 win shares. Instead, he’s making less than half that.

When players like Durant are forbidden from earning what they are worth, other incentives naturally take money’s place: namely, winning. Durant, despite his overwhelming skill, had ceaselessly failed to surmount the league’s best teams during his time with the Oklahoma City Thunder. One gets the sense that enough was enough. Signing with the Warriors was essentially a concession. Durant is finished trying to beat super-teams on his own; it’s just been too much of a burden for his deceptively skinny frame to bear, even when the personified ferocity of Russell Westbrook was there to help shoulder it. So he’ll join one. This is possible only because of the max-contract rule, since the Warriors, in a truly free market, would be unable to pay their multiple all-stars without exceeding the salary cap. Quite simply, the max-contract rule incentivizes great players to cluster together, in turn creating a feedback loop where the only way to defeat a cluster is to form your own.

This is an economic absurdity. As my friend Sam Liebman put it: “What other profession limits the salaries of top performers?” Sports provides a profound example of the stupidity involved here, because the performance of Durant and his ilk is available for all to witness. The ostensible justification for the max-contract rule — that elite players do not deserve inordinate credit for the performance of the league’s general body of players — collapses when one takes a look at the state of the sport. It is not up for debate in the modern NBA: Top players do have an inordinate effect on their teams’ performance and fan interest in the league. They should be compensated accordingly. Right now, 27 or so NBA teams are looking ahead to the upcoming season knowing their efforts will be futile, but the handful of superstars are subsidizing the outsized contracts for the mediocre players on these teams. Timofey Mozgov is not carrying the Lakers anywhere.

That is an utter corruption of the league, for both owners and players. The max-contract rule has produced these unintended, and undesirable, consequences. But the rule itself is from the CBA. The players’ union negotiated this rule on behalf of its general body. It is denying the undeniable skill of its best representatives and placating its rank and file. The owners, on the other hand, may want to avoid devoting most of their resources to such uncertain assets. But they have sacrificed the goal of competitive balance.

Sure, maybe some of the league’s mediocre teams have designs of future greatness. But the competition for such greatness will be anything but open . . . unless and until the NBA and the players’ union come together to abolish max contracts. Freeing the market for top players, while keeping many of its other rules in place, would help the league restore its competitive balance and allow the truly elite to earn what they deserve. It would allow great players like Kevin Durant to earn their deserved $62 million, while putting the team that signs him in a difficult bind. It would encourage other teams to find a different path, and discourage the anti-competitive tanking that has taken hold among many bottom-dwelling squads. Simply acquiring superstars would no longer constitute a strategy. The art of building a team, developing a game plan, and playing according to that plan, thereby integrating front office, coaching, and players, would come back to the forefront. And having multiple top-ten players would no longer be a necessary condition to winning it all.

Otherwise, fans can look forward to the Finals. But not much else.