Australia Markets open in 59 mins

A guide to valuing contracts in the NBA's burgeoning cap era

Conduct a search for the worst NBA contracts of all time, and many of the same names litter every list: Penny Hardaway, Vin Baker, Allan Houston, Eddy Curry, Gilbert Arenas, everyone signed in 2016, etc.

Contracts signed a decade or two ago seem like chump change compared to those we see today. The average annual value (AAV) of the seven-year, $86 million deal Hardaway signed with the Phoenix Suns in 1999, two years removed from a devastating knee injury, is comparable to the mid-level exception in 2019. The length now stands out more than the price tag, and collective bargaining agreements have since curbed the ability of general managers to butcher their teams’ salary caps for more than five years.

We understand that NBA salaries have corresponded with increased income and inflation, but perhaps not to what degree. The salary cap for this season ($109,140,000) is 3.21 times what it was 20 years ago ($34,000,000), and even deals signed a handful of years ago already seem reasonable by comparison. Twenty six members of this past summer’s free-agency class will make more this season than Josh Smith did in the first season of the four-year, $56 million deal he inked with the Detroit Pistons in 2013.

The reverse is also true. We have a hard time getting that the $40 million deal DeAndre Jordan signed with the Brooklyn Nets this past July is the equivalent of $23 million in 2014 and $12.5 million in 1999.

The 34.5 percent salary cap jump in 2016 threw us for a loop, and it has leaped another 16 percent since three years ago. Our frame of reference for comparing contract values was thrown out of whack as a result. So, I set out to determine how deals we criticize today compare to the worst of the last 20 years.

Max contracts hold steady

It is important to remember that max contracts have remained consistent in terms of their percentage of the salary cap. Players coming off their rookie contracts can sign for up to 25 percent of the cap, as was the case in 1999 (save for the few who who since 2017 can qualify for the supermax). That figure has bumped to 30 percent for players with seven to nine years in the league and 35 percent for 10-year vets.

  • 1999-00: $8,500,000 (25%) | $10,200,000 (30%) | $11,900,000 (35%)

  • 2004-05: $10,967,500 (25%) | $13,200,000 (30%) | $15,354,500 (35%)

  • 2009-10: $14,425,000 (25%) | $17,310,000 (30%) | $20,195,000 (35%)

  • 2014-15: $15,766,250 (25%) | $18,919,500 (30%) | $22,072,750 (35%)

  • 2019-20: $27,285,000 (25%) | $32,742,000 (30%) | $38,199,000 (35%)

In other words, the much-maligned max contract Allan Houston signed in 2001 — a deal that turned out so bad for the New York Knicks that the amnesty clause it inspired in the next CBA was nicknamed the “Allan Houston rule” (although the Knicks somehow still failed to waive him) — is roughly the equivalent of the five-year, $180 million deal Tobias Harris signed with the Philadelphia 76ers this past summer.

The only difference is that annual raises on contracts have decreased in the last two CBAs. If teams were also still allowed to dole out seven-year deals, Hardaway’s max deal would be worth $278 million today — or $70 million more than John Wall will earn in the seven years after he signed his supermax extension in 2017. (Wait, is Wall right to question whether his is “the worst contract in NBA history?”)

Keep in mind that injuries can turn any max contract into an albatross, as they did for Hardaway, Houston, Wall and countless others. It makes more sense to argue whether someone like Khris Middleton is worth a max contract (or close to it), although such deals often depend on a number of other circumstances. We are here instead to focus more on how we value bad contracts over time.

John Wall might have the NBA's most untradable contract. (Reuters)

The rising mid-level contracts

The percentage of the cap dedicated to max deals has held firm since 1999, but it has dipped slightly for entry-level and minimum salaries and risen for mid-level exceptions (MLEs) from 5.9 percent in 1999 to 8.5 percent in 2019 (fluctuating north of 10 percent before CBAs signed in 2005 and 2011). The starting salary allocations for the No. 1 pick, MLE and the seven-year veteran minimum over the years:

1999-00: $2,813,300 (rookie) | $2,000,000 (MLE) | $697,500 (7-year vet)

2004-05: $3,483,100 (rookie) | $4,903,000 (MLE) | $932,546 (7-year vet)

2009-10: $4,152,900 (rookie) | $5,854,000 (MLE) | $1,107,572 (7-year vet)

2014-15: $4,592,200 (rookie) | $5,305,000 (MLE) | $1,227,985 (7-year vet)

2019-20: $8,131,200 (rookie) | $9,258,000 (MLE) | $2,174,318 (7-year vet)

Free agents working on mid-tier salaries are reaping the benefits. The contract that immediately jumps to mind is the three-year, $58 million sign-and-trade deal the Charlotte Hornets made for Terry Rozier. If we consider that an overpay, how does it compare to the 2016 spending spree or other past mistakes?

Adjusting for percentages, Rozier’s deal is the equivalent of $50 million in 2016, $30 million a decade ago and $18 million two decades ago. Rozier’s adjusted average annual value falls between the dubious 2015 deals that Matthew Delladevoda and DeMarre Carroll just completed, and the Hornets signed him for one fewer year. Suddenly, the worst-case scenario for Rozier does not seem so bad. If he was the bottom of the barrel this past summer, we should all feel better about the state of NBA front offices.

So, how does the AAV of other oft-criticized 2019 deals compare to the past, adjusted for NBA inflation?

  • Terrence Ross ($14M) = 2016 Austin Rivers ($12M) = 2009 Charlie Villanueva ($8M) = 1999 Rick Fox ($4M)

  • Ricky Rubio ($17M) = 2016 J.R. Smith ($14) = 2009 Ben Gordon ($10M) = 1999 Charlie Ward ($5.6M)

  • Harrison Barnes ($21M) = 2016 Luol Deng ($18M) = 2009 Hedo Turkoglu ($11M) = 1999 Christian Laettner ($6M)

  • Nikola Vucevic ($25M) = 2016 Ryan Anderson ($20M) = 2009 Carlos Boozer ($14M) = 1999 Theo Ratliff ($9M)

At worst, the AAV of the Ross, Rubio, Barnes and Vucevic deals respectively become the NBA inflation-adjusted equivalent of terrible mid-2000s deals for Jerome James (five years, $30 million), Adonal Foyle (six years, $42 million), Eddy Curry (six years, $56 million) and Erick Dampier (seven years, $73 million), only with fewer years on the back end. And nobody expects any of those current deals to turn out so poorly.

The evolving CBA rules now prevent GMs from making truly catastrophic mid-tier signings. More often than not, the most disastrous deals nowadays are the max contracts given to aging stars (i.e., Chris Paul). Middling contracts can and should still be criticized, because the margin for error gets slimmer as more front offices get smarter. The aforementioned 2016 deals for Rivers, Smith, Deng and Anderson are all the recent evidence you need. But even then the soaring salary cap figure can be a saving grace.

The contract for injury-plagued Gilbert Arenas became an albatross. (Getty Images)

The ever-increasing value of NBA contracts

We are only 10 years removed from an offseason in which the salary cap declined by nearly $1 million. This decade began with three straight seasons at the same cap figure, before an incremental increase, and then the league’s income exploded with the announcement of a nine-year, $24 billion TV rights deal in 2014.

As his salary increased and his production decreased with each passing season on the six-year, $111 million deal he signed in 2008, Gilbert Arenas was eating a greater percentage of the cap every time the calendar turned. He signed with the Washington Wizards for the 25 percent max, and he accounted for 30.5 percent of the Orlando Magic’s salary cap before being amnestied in 2011. Had the Magic not been spared by the CBA, his salary in the final year of his deal would have taken up 38 percent of the cap.

In six of the past seven seasons, the cap increase has exceeded the NBA’s customary 5 percent raises and approached the 8 percent raises for players with Bird rights. Teams have also gotten wiser to structuring contracts in order to maximize salary-cap space based on the league’s annual projections.

Take the Arenas contract and flip the percentages for the $124 million deal Carmelo Anthony signed in 2014. Despite annual raises, Anthony’s 35 percent max contract would have been down to 27 percent by the final year of the deal had the Atlanta Hawks not used the stretch provision on him last season. The cap is rising at such a rate that the Hawks also welcomed 2016 benefactors Allen Crabbe and Evan Turner, acquiring draft picks in exchange for taking on three of the league’s worst deals in a year’s time.

What at first glance seemed like a wild overpay for Zach LaVine last summer is increasingly more palatable by the year. His $19.5 million annual salary was 19.1 percent of the Chicago Bulls’ salary cap last season, and if the NBA’s cap projections hold true, that figure will be down to 15.6 percent by 2021.

After signing a massive extension in New York, Stephon Marbury resurrected his career in his 30s ... in China. (Getty Images)

Are contracts ever really untradable?

The cap is projected to jump from $109 million this season to $116 million next year and $125 million in 2021, although we will see what impact the NBA’s rocky relationship with China has on those numbers. RealGM further projects the cap to jump $6 million-8 million annually to $167.5 million by 2027. Middleton’s deal might not look so great when the Milwaukee Bucks are searching for help to bolster Giannis Antetokounmpo’s free-agency pitch in 2021, but at least it is not getting significantly worse by the year.

The real question is whether Wall’s contract will hit a tipping point. His is considered the league’s toughest to trade, if only because the other two candidates (Paul and Russell Westbrook) were dealt for each other this past summer. Wall is earning 35 percent of Washington’s cap this season to rest his torn Achilles at home, and he is scheduled to make $47.4 million in 2022-23, when he is still projected to make 36 percent of the cap.

The only NBA inflation-adjusted albatross from the past 20 years that even approaches the average annual value of Wall’s supermax extension is the four-year, $76 million extension the Knicks gave Stephon Marbury through 2009. It is always the Knicks, and even they will not be touching Wall. Yet.

– – – – – – –

Ben Rohrbach is a staff writer for Yahoo Sports. Have a tip? Email him at rohrbach_ben@yahoo.com or follow him on Twitter! Follow @brohrbach