by Jordan Lee & Spencer Suk
Although there is no blueprint for winning an NBA championship, we have encountered only a few strategies that have resulted in league success. For example, Danny Ainge revitalized the 'Big Three' Strategy by adding Kevin Garnett and Ray Allen to Paul Pierce's Celtics. This blueprint was famously followed in the 2010 by the Heat, when Lebron James, Chris Bosh, and Dwyane Wade teamed up in Miami. While these triumvirates dominated the media's attention, they depended upon a strong group of role players to complete a championship roster--Ainge's Celtics would not have defeated Kobe and Pau's Lakers without stringy point guard Rajon Rondo or even Glen "Big Baby" Davis, and Miami’s “Big Three” could not have won consecutive titles without timely contributions from the likes of Mike Miller, Shane Battier, and Udonis Haslem.
But signing superstars leaves little money to fill out the rest of the roster. Teams have met this challenge by completing their rosters with efficient role players who demand lesser contracts. Teams like the Heat have achieved this by adding veterans like Ray Allen who have been willing to play for less than market value to play for a contender. While well-known veterans taking pay cuts grab the headlines, the contributions of young players on rookie contracts have proven invaluable to teams looking for contributions at a bargain. This article focuses on the latter group, one that is often overlooked when discussing team building.
It’s no secret that a budding superstar on a rookie contract is one of the league’s best bargains. LeBron James was paid just over $4.6 million during the 2005-2006 season, a season in which he led the Cavs to the second round of the playoffs while garnering All-NBA first team honors. But teams could not enjoy this type of cheap, effective contribution before 1995. During the 1994 draft, the Milwaukee Bucks selected Glenn Robinson with the first overall pick. After public arguments with the team, (which included a pre-season holdout for an unprecedented 13-year $100 million dollar contract) the Big Dog signed a 10-year $68 million deal. This public dispute between rookie and team provoked change within David Stern’s NBA, leading Stern to implement the scaled rookie contract system that is still in effect today.
According to the payroll scale established after the 1995 draft, each first round draft pick can sign a guaranteed two-year contract with a two-year team option. This contract pays a base amount determined by where a player is selected within his draft class. Players may then enter negotiations with the team that selects them, allowing players to negotiate within 20% of the base amount. After the initial two years, the team may choose to exercise a team option - extending the next two years of the initial rookie contract.
With this payroll system in place, it would seem as though the first pick would be far more valuable than the 30th pick, but is this really the case? In order to find the answer, we compared each draft pick’s salary to their on court production. Win shares are used to represent the number of wins that each player can be considered accountable for throughout a season. To keep track of the average production for each pick, we used win share data from all players drafted in the first round from 1995-2013. Because players salaries have increased over the past decade, we could not use direct salary numbers; rather, the wages of players are represented here as a percentage of the average first-round draft pick’s salary.
The graphs show that most lottery picks are actually, on average, overpaid. One explanation for this can be attributed to the quality of the teams drafting in the lottery. Few teams in the lottery have a win now mentality, so if they do miss out on the first pick, which clearly produces far more win-shares than any other pick, many teams decide to draft players based on potential. The immediate impact that some older, more mature rookies (who, because of their advanced age, are thought to have less upside) could provide is not as attractive to a rebuilding team--a player with more upside, though perhaps unable to contribute right away, could provide greater long term dividends.
On the other side of the spectrum, teams selecting later in the draft are often looking for immediate production rather than potential. They scout NBA-ready players that are able to step in and contribute to their championship runs immediately. As discussed earlier, these teams often have higher payrolls and are more in need of cheap, efficient contracts. If a team is able to find the right fit, a newly drafted player, playing alongside established stars, can step into a defined role and produce win shares. That being said, there are teams like the Thunder, who have recently been willing to draft players with huge potential who have slipped.
As you can see, the NBA has actually done a great job developing a scaling payroll based on rookie-scale production (win shares). The graphs above indicate that each pick is, on average, paid proportionately to the average output at that draft spot. But the graphs only show the rookies’ value relative to their draft class. Below, the predetermined salary of the first overall pick is compared to the average NBA salary over time. In making this comparison, it becomes clear how rookies are getting paid in comparison to more seasoned players.
Now, we want to inspect how rookies are getting paid compared to their veteran counterparts. We graphed the predetermined salary of the first overall draft pick and compared it to the league-wide average salary over time.
The graph starts in 1995, the year in which a new CBA was implemented. Interestingly enough, the average NBA salary matched up salaries afforded number one picks. It seems as though the league initially intended to make the first pick’s salary equivalent to the league average salary. Over time, however, rookie salaries have been depressed when compared to those of veteran players, which represents an immense opportunity for NBA franchises.
As the growth of the average NBA player’s salary outpaces the growth of rookie-scale salaries, on-court production from rookie-contract players is becoming more and more valuable. This makes draft-night decisions even more important, as each pick represents a chance for teams to not only draft possible contributors, but to do so at a bargain. Although The Oklahoma City Thunder and San Antonio Spurs have been on opposite ends of the draft in the last 10 years, they have both been able to take advantage of cheap and lengthy 4-year rookie contracts to create perennial contenders. The fact is, drafting well gives your team an advantage - no matter what pick.
The Oklahoma City Thunder (previously the Seattle Supersonics) were given three consecutive top-4 picks in the 2007, 2008 and 2009 drafts. They drafted their superstar, Kevin Durant, with the 2nd pick in 2007, and allowed him to develop as a leader as the Thunder continued to gain assets in the draft. In 2008, the Thunder drafted Russell Westbrook with the 4th pick (considered a reach at the time) and also drafted the raw, but athletic power forward, Serge Ibaka. Though they both needed to develop, it was clear that Westbrook and Ibaka had high ceilings due to their freakish athleticism. Westbrook was considered a risk since he was never able to gain traction in his one year at UCLA under Coach Ben Howland. The rookie duo had solid but unspectacular rookie seasons, giving the Thunder the chance at another high pick in the 2009 draft (used on James Harden) as they continued to develop.
Although the Thunder have been among a small handful of legitimate championship contenders for the past few years, their only Finals appearance came in the 2011-2012 season. Logically this makes sense as Kevin Durant, Russell Westbrook, and Serge Ibaka all signed max, or near max contracts, by 2011. Their young players had developed into legitimate superstars and were getting paid accordingly. 2012 was the last year they could take advantage of Harden’s rookie contract. Rather than going after veterans in free agency, the Thunder have largely continued filling out their team with young players via the draft. In recent years they’ve drafted Reggie Jackson, Jeremy Lamb, Perry Jones III and Steven Adams, players who have contributed during the regular season and playoff runs. As mentioned earlier, the Thunder have surprisingly continued drafting on potential. This is highlighted by the Perry Jones III pick in 2012, as the Thunder selected Jones based on potential, rather than the Michigan State senior, Draymond Green. Draymond Green was clearly the more NBA-ready player, playing four years under Tom Izzo, and becoming a defensive specialist. Let’s compare these later draft picks to the San Antonio Spurs, who seem to take full advantage of their late round picks year after year.
In 1996, David Robinson got hurt and, with the help of some effective tanking, the Spurs were able to win the draft lottery for Tim Duncan, the draft class’ consensus best player. Duncan has since become the cornerstone of what has become an unlikely dynasty, winning five championships over a fifteen year span (98-99, 02-03, 04-05, 06-07, 13-14). Though the Spurs have been contenders for the better part of two decades (meaning that they’ve had to settle for late picks), they’ve continued to prove the value of rookie-scale players. San Antonio has benefited from significant contributions by a rookie contract player in four out of their five championships: Duncan in 98-99, Parker and Ginobili in 02-03 and 04-05 (respectively), and Kawhi Leonard during their most recent title run. The Spurs have drafted so well that they’ve had 3 players win Finals MVP while still on their rookie contracts. For more about the Spurs, read our earlier article on their improbable championship season.
Since its 1994 inception, the rookie payroll system has benefited NBA owners greatly, not only because there is now a cap to how much a rookie can leverage for, but also because the system allows teams to re-evaluate their investments after the first two years (Imagine the contract LeBron James would have signed in his 3rd year, after averaging 27 points, 7 assists, and 7 rebounds a game en route to becoming the league’s youngest All-NBA selection).
The fact is, the reason why these rookie contract players are so valuable to championship teams is because the artificial cap on rookie earnings means a lot of talented young players are vastly underpaid. As a result, NBA Finals MVP Kawhi Leonard may never be more valuable (to the Spurs franchise) than he is right now: a very skilled player on a rookie-scale salary of under $2 million. When his rookie deal is over, you can bet he will be paid what he is actually worth, ending his reign as one of the biggest bargains in the NBA.
Of course, teams don't always capitalize on the full advantage they are provided by skilled players on rookie contracts. You can read here about Houston's decision to decline the final year of Chandler Parson's rookie contract, valued at only $963,000.