How the Thunder's bizarre finances are a direct result of the NBA's new CBA

Kevin Durant - USA TODAY Sports

In its desire to "maximize revenue" the NBA's grand scheme to bring competitive balance has effectively limited the ability for small market teams to get better. There's no better example than the Nuggets Northwest Division rival the Oklahoma City Thunder.

The crowing that went on after the NBA Lockout was concluded in November of 2011 was pretty interesting, I felt.

"Look at our shiny new CBA!" The owners proudly shouted.

"Competitive balance is here! Hooray for a new era of NBA basketball."

In a sick, and rather twisted consequence of making the Luxury Tax (a mechanism that allows a team to exceed the soft salary cap with a financial penalty) extra punitive (luxury tax penalties were increased in the 2011 CBA and trade restrictions were placed on tax paying teams) the NBA and NBPA (player's union) have prevented small market teams such as the Oklahoma City Thunder from taking that next step to make their team better while "inconveniencing" large market teams.

There are two issues I'd like to tackle in this missive that point to the lunacy that is the NBA since 2011. This centers around the NBA's poster boy for small market teams, the Thunder. Their recent financial issues are but a microcosm of what the League brought on itself when they ushered in the new era of "competitive balance" utopia.

James Harden, the Thunder and a contract refund

There was always an element of "too good to be true" about the Thunder. Not in the circumstances of their controversial relocation and birth, mind you, but the way they were formed and their incredible good fortune in having three top 15 players on their roster at the same time. In Kevin Durant (drafted in 2007), Russel Westbrook (drafted in 2008) and James Harden (drafted in 2009) you had what was very nearly an unbeatable trio of players to lead a team. They came up just short in 2012 against the Miami Heat and LeBron James in the Finals, but you could tell that they had the goods to win it all.

In one fell swoop, the "realities" of small market life in the new CBA came to light. Right before the 2012-13 season, Harden (who had been in protracted contract negotiations with Thunder GM Sam Presti) was suddenly traded to the Houston Rockets for, essentially, Kevin Martin and Jeremy Lamb. The Thunder offered Harden less than what he was looking for but not much less. After granting Serge Ibaka a contract extension for $12 million per year (4 years, $48 million), the Thunder's hands were tied. This offseason Martin signed with the Minnesota Timberwolves, thus leaving Lamb as the primary asset in the Harden trade.

The extent of the Thunder financial issues wasn't fully known (though it was speculated when principal owner Aubrey McClendon lost much of his fortune in 2008) until late July, when the NBA refunded the team a portion of Kevin Durant's max salary contract. This is a strange and convoluted situation that requires an explanation from Zach Lowe of Grantland:

The league's Board of Governors, in a bizarre and controversial turnaround, voted in Las Vegas during Summer League to repay the Thunder part of the difference between what Kevin Durant would have earned under the old collective bargaining agreement and what he actually earns now. Durant signed his five-year maximum extension under the old CBA, but it didn't take effect until after the unbearable lockout. In one of many bits of chaotic last-minute wrangling, the players' union, with help from several agents, convinced the league that Durant should receive the "new" max salary instead of the older (lower) one, per several sources familiar with the process. Those sources disagree over whether the Thunder mounted a protest at the time, but some say the Thunder did so very quickly and have continued agitating since. The difference amounts to about $3 million per season, or about $15 million over the life of Durant's megadeal. The league is repaying a portion of that $15 million, a signal that at least a majority of team owners — and perhaps the league office — agree they screwed the Thunder on that magical Thanksgiving weekend in which the lockout ended and basketball began again.

Essentially this "big payback" is the result of the League feeling guilty about retroactively (relative to the lockout) giving KD the "Derrick Rose Rule" max salary provision. What this signals more than anything else is the precarious financial situation that the Thunder and maybe all small market teams are in if they dare to venture into the tax. The moves made by the Thunder are all purely financial, and signal that the new punitive luxury tax has made them make decisions they would not have in, say, 2010. Included in this is the Thunder's decision to pay first round draft pick Andre Roberson 80% of his actual rookie scale. The decision to not amnesty Kendrick Perkins raises the point even further that the Thunder would rather have Perkins on the roster, than pay him to go away.

This situation leads me to wonder: Would the Thunder be in this situation if we didn't have the current luxury tax? Or rather, would the Thunder be in this same predicament if they were still located in Seattle?

The deceptive illusion of the luxury tax and "competitive balance"

The Indiana Pacers team president Larry Bird let it be known during the first week of free agency that they will not go into the luxury tax "for any reason". While this statement is taken as a bold harbinger of things to come for all teams in the NBA, it likely has only reinforced the notion that the NBA has put itself on a tiered system of haves and have-nots.

The new luxury tax is certainly more punitive than it was before, coupled with the extra tax penalty for staying in the tax for multiple years and trade restrictions on tax paying teams. Yet, those who point at teams like the Lakers and the Heat "saving" money by either dipping out of the tax all together, or saving some extra tax money by eliminating players are missing something very vital. While these large and luxury market teams may be afraid of the repeater tax, it hasn't stopped their desire to enter the tax. Small market's have been completely priced out of paying the luxury tax. You see the difference?

If the crazy antics of Brooklyn Nets owners Mikhail Prokhorov has told us anything, it's that you can incur an enormous luxury tax bill (roughly $187 million in total payroll including tax) as a Russian billionaire and not blink an eye. While it remains to be seen if Prokhorov wants to incur the repeater tax, it can be said that his brazen flouting of the luxury tax has raised more than a few eyebrows around the league. Particularly among players who respect that bold kind of play.

The Nuggets have been unwilling to go into the tax since they traded Marcus Camby and Allen Iverson in 2008. They are unlikely to ever enter tax waters again. The same can't be said for the Lakers, Nets, Heat, Celtics and maybe even the Mavericks (despite Mark Cuban's protests to the contrary) and Warriors.

I have said repeatedly since 2011 that the NBA lockout had less to do with competitive balance than it did extracting a bit more money from the NBPA. While it is harder for super teams, such as the one in Miami to form (due to the new trade restrictions for tax paying teams) it doesn't prevent large market teams who are willing to pay a bit more than they did before to bring a good team together. The luxury tax won't prevent large market teams from going in to the tax threshold, they just have to be slightly more creative than before.

The final, odd, contradiction

I raised the point above, but it's worth elaborating on in conclusion. If the Thunder had remained in Seattle, and say Howard Schultz had sold the team to Chris Hansen and Microsoft magnate Steve Ballmer, would the NBA revenue structure/sharing be in a better situation? To extrapolate even further, if the Hornets had remained in Charlotte instead of relocating to ultra small market New Orleans in 2002 would the NBA revenue structure be better? We cannot totally know this answer, but I suspect the answer would be yes. David Stern's small market master-plan has an enormous financial flaw. Teams that can't afford to play ball, but want to be in the major leagues.

Matt Yglesias of Slate made the observation that, maybe the Thunder wouldn't be in this situation if they just stayed in Seattle? just throwing that out there? It would stand to reason a larger market could absorb more of the financial hit to the body that the Thunder paid (it must be pointed out that, indeed, the Thunder paid into the revenue sharing system and didn't benefit from it ... compounding the need to exit the tax threshold)

Ultimate competitive balance, as the NFL has shown us, flows from ultimate revenue sharing. Where every team essentially makes the same amount of money and shares the same pot. Unfortunately this is not possible due to the lack of national television package that could even rival the NFL's (due to every NFL game being broadcast by either CBS, ESPN, FOX or NFL Network). The NBA can invoke whatever punitive luxury tax they want, but the fact remains that those who can afford it will pay, those who can't will not. The divide remains between these two groups, and it has been made worse under the guise of competitive balance.

What an absurd contradiction.

***

Twitter: @jmorton78

mortonagency@juno.com

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