Tuesday, July 15, 2014
The math behind the Nets' moves
By Mike Mazzeo
In an effort to win at all costs, the Brooklyn Nets created a financial mess.
Now, they’re trying to get themselves out of it. They’re still going to spend. They just want to spend smarter.
Last season, the Nets paid out an NBA-record $90,570,781 in luxury taxes and $102,828,064 in player salaries, according to ShamSports.com .
Add those totals up, and you get $193,398,845. That’s a lot of money for a second-round playoff exit.
Also, as has been well-documented by now, Grantland reported that the Nets lost $144 million in basketball-related business in 2013-14 -- $131 million more than the next highest team. Again, a lot of money. Even if you take out the luxury taxes, the loss still comes to $53,429,219. Still, a lot of money even though, as Grantland pointed out, the figures above do not appear to do not appear to include benefits the Nets and owner Mikhail Prokhorov get from their ownership stake in Barclays Center.
By now, you may be asking yourself the following: Wait, according to Forbes, isn’t Prokhorov worth $10.9 billion? Sure, but losing money is losing money. And remember this: Privately, according to a league source, Prokhorov is open to listening to offers from potential buyers. Publicly, he told reporters in a statement that he has no interest in selling the team. But in light of Steve Ballmer’s pending $2 billion bid to purchase the Los Angeles Clippers, Prokhorov figured he’d at least get a gauge and see what his team is worth on the open market. That doesn’t necessarily mean he’ll definitely sell. It just means, at the very least, that he’s curious as to his team’s valuation.
After the Grantland report came out, the Nets issued a statement via Irina Pavlova, President of ONEXIM Sports and Entertainment, the entity that oversees the franchise.
“Nets ownership has said from day one that the main goal was putting together a championship caliber team, and that no effort would be spared to this end,” Pavlova said. “So, it should come as no surprise to anyone that significant investments have been made in the roster and in upgrading basketball operations on all fronts. We are certain that the team will become profitable in time, as planned.”
The Nets did invest $45 million to build a brand-new practice facility in Brooklyn, which is slated to open in 2015-16. And they will, in all likelihood, lead the league in payroll again in 2014-15. But their decision-making when it came to deciding whether to retain Paul Pierce deviated from how they handled business in the past.
“We have the ability to pay him more than everybody else, but we are going to be a little bit more financially responsible at this point in time,” GM Billy King said.
By now, you know what happened. The Nets decided to pass on Pierce, and he signed a two-year, $11 million contract with the Washington Wizards, which included a second-year player option.
Many, including myself, believed the Nets should’ve paid Pierce. Team brass, however, disagreed, determining that from both a basketball and a business perspective, according to league sources, it didn’t make sense. Pierce was turning 37 and the Nets felt like they were already set at power forward. They didn’t feel like they were going to win it all with him, and they wanted to give their younger players a chance. Pierce has yet to comment publicly. His take on the events that unfolded will be interesting.
Now let’s break down where the Nets are financially at this point. Here are their projected salary cap commitments in 2014-15.
The Nets currently have 12 players with guaranteed contracts. In our numbers in the chart on the right, we are assuming that Jorge Gutierrez’s non-guaranteed deal does become guaranteed and second-round pick Markel Brown signs. (The signings of Bojan Bogdanovic and Alan Anderson have yet to be made official by the team).
The tax line for 2014-15 was set at $76,829,000, meaning the Nets are over by $16,702,974, and must pay progressively on every dollar they exceed it (see ESPN salary cap guru Larry Coon’s blog and question 21 for more detailed information).
Total luxury taxes owed: $34,846,665.50
Total player salaries and luxury taxes: $128,378,639.50
Five years ago, when he first gained majority ownership of the Nets, Prokhorov said he wanted to win a championship by 2015. He was willing to do whatever it took to get there. Money wasn’t going to be an issue -- that is, until it became an issue.
Brooklyn’s ultimate plan is to have ample cap space in the summer of 2016, when the likes of Kevin Durant and Joakim Noah could become free agents. They would have to pay the repeater rate if they exceed the tax line in 2015-16, though they are unlikely to want to do that given they want to clear salary, not take money on.
Anyway, back to Pierce. Let’s say the Nets decided to pay him $6 million per season, bringing their total cap commitments up to $99,531,974. That would mean they would have to pay luxury taxes on $22,702,974, which means their total owed would be $55,386,152.50.
Add the player salaries and luxury taxes and you get $154,918,126.50.
So bringing back Pierce at $6 million would’ve cost the Nets an extra $26,539,487.
League sources told ESPNNewYork.com that the Nets have their eyes on the future, and don’t want their decision-making impacted by all the first-round picks they gave up in the blockbuster trade that brought Pierce and Garnett to Brooklyn. Letting Pierce walk, they ultimately felt, was the right decision.
Take $193,398,845, subtract $128,378,639.50 and the Nets are spending $65,020,205.50 less on this season’s roster. Whether you agree with their decision is another story. But that’s the math behind it.