The NBA is entering a salary cap hangover. What does it mean for the Golden State Warriors?

The 2018 NBA All-Star Weekend was in Klay Thompson’s hometown of Los Angeles, bringing plenty of questions about his free agency in just over a year’s time.

Thompson himself addressed the issue in a typically entertaining interview on the Woj Pod, reiterating his desire to stay with the Warriors for his whole career and preparedness to take a discount.

Yet the chatter persists. Part of that is just about the way the NBA operates now. But the main reason is the continued speculation about the big numbers that the Warriors will have to shell out when they hit the repeater tax and Thompson and Draymond Green come up for new contracts.

However, they are not alone. Last week, ESPN reported that if LeBron James were to re-sign in Cleveland, the Cavaliers would be facing a total salary and tax bill of around $300 million.

Earlier in the year a similar number was posited for the notoriously thrifty Oklahoma City Thunder should they re-sign Russell Westbrook (done), and Paul George (definitely more likely than it was when he was traded there), and Carmelo Anthony opts into the last year of his mega-max deal (is the Pope a Catholic?).

In the Warriors’ case, I outlined earlier in the year that they will have to breach the $300 million mark to keep everyone together, but with some smart choices and slight discounts they can steer well clear of the eye-popping figures others have posited.

Are we entering the end times?

Does that mean we’re going to see this wonderful world-beating super-team broken up before their time, like so many speculate/ hope?

No, not necessarily. As I went into a couple of months ago the new league-wide TV deal massively increases the resources available, and therefore resources spent.

However, it’s now widely recognized that a big mistake was made in not smoothing the cap increase from that deal. Essentially a proposal was rather half-heartedly suggested to increase the cap incrementally to avoid a massive distortion from one, or two, significant jumps in the cap and ensure all players got a share of the loot. This was rejected by the player’s union, leading to a bonanza that benefited a small percentage of the players - those who would become free agents in 2016.

Currently, the NBA is dealing with that mega-splurge in the summer of 2016 that led to some really bad contracts, as the league assumed the cap would continue to rise. Instead the cap increases leveled off, leaving teams holding seemingly immovable objects.

As Bobby Marks set out recently, we’re entering a bit of a league-wide financial crunch the next couple of years.

”The luxury tax was not designed for this many teams to pay it,” a league executive said. “Many of those owners probably didn’t think they’d be paying it. Quite a few of those teams are probably going to take steps to get out of the tax or limit new spending.”

This also means there are far fewer teams with cap space to snag free agents.

Right now, there are just seven teams expected to have significant cap space next summer. Last year, 10 teams had significant space. In 2016, more than 25 teams had at least $10 million in room.

This has already effected the amount restricted free agents are able to get, and has led to a premium on first round draft picks as cost-controlled contracts become like gold dust.

Come the summer of 2020 when many of those contracts start off the books, will the merry-go-round start again? The cap is projected to jump again, albeit less dramatically. Will NBA teams learn? Or is it boom and bust until the next chance to reopen the Collective Bargaining Agreement in 2024?

What does it mean for the Warriors?

For the Warriors, whatever they do they’re going to be among the big money teams. In the short term, this cap crunch likely helps them with Patrick McCaw and Jordan Bell up for contracts the next couple of years. They’ll both be restricted free agents, limited by the Arenas provision. Combined with the overall bleak picture for free agents, it could help the Warriors retain both on team-friendly contracts.

They’ve also got all their first rounders moving forward, giving them opportunities to add young talent that’s locked in for four years, or attach one to a contract that they need to move (Andre Iguodala’s final year is the prime candidate here).

In the longer term, what really kills you is whether you’re deriving on-court value for the contracts you’re paying out. The popular refrain is that the Warriors were incredibly lucky that the massive spike in the cap came in the year Kevin Durant was a free agent. However it should be noted they had positioned themselves to create room to sign him if the cap was lower by trading Iguodala and Shaun Livingston.

The real boon comes from the fact that in a salary-capped league, megastars like Durant probably produce far more value on court than the value of their contracts. The Warriors were further helped by having to create the space to sign him, thereby ducking under the cap and not being a luxury tax team, postponing the dreaded repeater tax.

Danny Leroux outlined the mechanics of the repeater tax earlier in the year for the Athletic.

The threshold for becoming a repeater taxpayer is very high under the current Collective Bargaining Agreement. A team must be taxed that season and have paid the luxury tax in at least three of the previous four years. Put a different way, the season in question must be at least the fourth time in the last five years (including that season) that the franchise has paid the luxury tax.

In Golden State’s case, that stringent standard helps slow down their escalating costs. Because they needed to clear salary cap space to sign Kevin Durant, the Warriors have been a taxpayer in only one of the last three seasons: 2015-16.

To hammer the point home, consider the alternative timeline: Harrison Barnes on a $100 million contract, remaining over the luxury tax, and hitting the repeater tax next year.

Ouch.

The Warriors have positioned themselves well

What does all this mean going forward?

Well, the big numbers are here to stay, so the real issue is whether the contracts deliver value. It’s tough to pin that down exactly, but the latest Forbes estimate in franchise value gives a good indication.

Warriors owners Joe Lacob and Peter Guber bought the team for $450 million. In 2017 it was valued at $2.6 billion. The franchise is now worth $3.1 billion. That’s an increase in value larger than the price paid for the team just from June 2017 to February 2018!

The summers of 2019 and 2020 will be when many of these questions get answered, from Thompson and Green’s contracts, to the repeater tax, to crazy trades for megastars like Anthony Davis.

But with a new arena complex in the offing, plus other irons in the fire such as a new local TV deal that will likely outstrip anything seen outside of the mega-markets of New York and Los Angeles, the owners aren’t going to be short of cash to pay the bills.

In the end, if the Warriors players want to stick together, then what they really need to do is what they do best — win basketball games.