While it is still only in its incubation stages, the threat of a mass defection of NBA talent into Europe is extremely real. Already, significant players (Josh Childress, Carlos Arroyo) have gone to Europe for bigger pay days. To understand the appeal, it's absolutely imperative to understand the financial game that is being played by the GMs, owners, players, and agents.
The first question we have to ask ourselves is this: Will the USD remain weak compared to foreign currencies (specifically the Euro) for an extended period of time (at least until 2010's heralded FA class)? If you know the answer to this question, you ought to be trading on Wall Street, but the general feeling is that we are in a bear market and that the US economy will be taking a beating for quite some time (at least until the housing market corrects). The general prediction is that the housing market will take ~2 years to recover, which takes us right into the free agency of 2010. Will the dollar remain where it is compared to the Euro?
Likely - since the dollar is so cheap, US companies are actually benefitting from the increased exports, giving the US economy a slight boost, plus, the Fed doesn't want to raise interest rates and hurt the availability of capital in a time when the financial system of the country is at risk of failing. So yes, it looks like the 2010 Free Agents can look forward to a persistently weak dollar.
The second question is: Will the NBA re-examine its CBA? The salary cap, luxury tax, and max contract figures are the key elements. In Europe, there is no such thing as a salary cap, which is why people say that Lebron would be willing to go to Europe for $50mm a year (who wouldn't?). This figure is not possible in the NBA. Do NBA folks truly believe that their brand is worth so much to Lebron James, Dwyane Wade, Kobe Bryant, and the rest of the 2009/2010 FA crew that they would pass up 25 million dollars a year just to play in the NBA (the max salary in the NBA is around 25mil, so 50-25=25)? And that's just the gross figure. If we count taxes, playing in the NBA would require the player to forfeit more than half of that salary in taxes, so they're really only getting around 12mil. In Europe, they can get this money tax free. 50-12 = 38 million reasons to go overseas.
Also, considering that Childress has written into his contract that he can return to the NBA after each season, we can assume that any future NBA player who goes to Europe will have a similar clause, and there's really no opportunity cost to the player. We might consider publicity and sponsorships an opportunity cost, but really, in the NBA outside of the top tier of superstars, there really aren't many sponsorships out there.
David Stern and company must act quickly. The NBA is the best brand in basketball, and being the best buys them some leeway in getting players to play for less money - but at the rate its going, we might need to start getting familiar with CSKA Moscow, Maccabi Tel Aviv and Olympiakos.
- 2009 Unrestricted Free Agents: Kobe Bryant, Carlos Boozer, Allen Iverson, Ron Artest, Richard Hamilton, Jason Kidd, Shawn Marion, Andre Miller, Lamar Odom and Rasheed Wallace
- 2010 Unrestricted Free Agents: Lebron James, Dwyane Wade, Chris Bosh, Amare Stoudemire, Ray Allen, Tyson Chandler, Manu Ginobili, Richard Jefferson, Joe Johnson, Tracy McGrady, Yao Ming, Steve Nash, Dirk Nowitzki and Michael Redd
We already had one solid NBA player go. If any of the names from the 2009/2010 FA class bolt for Europe, the reverberations will be far more shocking than the reaction to Childress' move.
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