CapTalk: The Lakers and The Luxury Tax

In the NBA, it is common knowledge (and common sense) that some markets are just bigger than others. According to Forbes, the LA Lakers are valued at $560 million, ranked 2nd in the NBA in terms of franchise value (behind the ailing NY Knicks) in 2007. "Good for the them, they still didn't win the championship last year," you may say. This is true. However, having such a high market value gives the Lakers a noticeable advantage over other teams: their tolerancy level with regard to the luxury tax. As I explained in my last post, the luxury tax is calculated as such:

Total Team Salary - Luxury Tax Level = Luxury Tax Payment

Thus, for each dollar a team is over the luxury tax level, they pay two dollars, one which is already going to their players and one to the League, which then distributes the money to all the franchises that are under the luxury tax (a great boon for teams such as San Antonio, which classically enjoy running their team as just below salary cap level, thus giving them a several million dollar swing in overall revenue).

During the 2007-08 season, the luxury tax level was set at $67,865,000 (TrueHoop), with the Lakers being over the cap by $5,131,757. One might think that this is a lot of money, but the Lakers payment was almost one-fourth that of the NY Knicks and the Dallas Mavericks (both around $19 million). Looking ahead, the NBA announced that the salary cap for the 2008-09 season will be $71,150,000, with the Lakers salary (assuming they make no roster cuts) will be $82,305,701, giving them a luxury tax payment of around $11 million, a huge increase from last year. This is mostly due to a full-year of Pau Gasol and the new contract received by Sasha Vujacic.

However, there are two large variables that may affect these numbers in the coming years. First is whether the Lakers wish to retain Lamar Odom, who is currently making a cool $14 mil as the Lakers 4th best player, and the second is how large of an extension they give to Andrew Bynum.

Purely from a basketball stand-point, if someone were to ask, "do you want to keep Lamar Odom," I'm pretty sure Lakers GM Mitch Kupchak would say, "hell yeah," or something along those lines (maybe a more business-like line, such as "why yes!") However, with the twin towers of Bynum and Gasol taking up the power forward and center spots in the lineup, Lamar Odom is relegated to either starting at small forward or coming off the bench as either a center or PF.

Both of these propositions come with negatives. If Lamar starts at small forward, his best qualities become nullified: he has excellent speed and ball-handling skills for a guy who's 6'10", and he's an excellent rebounder. Starting at small forward would cause Lamar to be guarded by a smaller player, negating his speed and slashing ability, and take him further away from the basket, where most of the rebounds will be gobbled up by Bynum or Gasol. If Lamar comes off the bench as center or PF (most likely PF), he will have to be focused and ready to come into the game cold and contribute immediately (something which he has had problems with in the past). Plus, Lamar is making far too much money to be on the bench playing only 20-25 minutes a game (which will be all he gets with Bynum and Gasol ahead of him).

I have a tendency to lean towards the second option, with Lamar playing some sort of point forward role. Given that his contract expires this year, and he comes back at a discount (somewhat unlikely, but possible), which let's say will be around $12 mil, it will lessen the blow the Lakers take in terms of luxury tax. However, I do think shedding Lamar's contract in a trade or free agency will be a mistake, considering how well Lamar played last year.

Next is the contract extension of Andrew Bynum. Bynum will be making a little less than $3 mil this year, obviously way below his market value (with last year's averages of 13 pts, 10 rbs, and 2 blocks per game). Given that Elton Brand just signed a new contract that tops at $18 mil a year and Emeka Okafor signed an extension that tops at $14 mil a year, you can expect Bynum to be somewhere between there. Let's assume a round $15 mil per year over 5 years for Bynum as an extension. This will put the Lakers at somewhere around $30-$35 mil over the cap next year. Needless to say, this is a massive amount of money.

Honestly, I do not think the Lakers will be able to keep Odom long-term unless he takes a massive pay-cut. They are just too far over the salary cap, and their only short-term source of relief will be when Odom's contract expires next summer. An interesting point of intrigue comes in the form of Kobe Bryant's player option after next year. Bryant can choose to opt-out of his current contract and sign a new deal after next year. If Bryant were to take a marginal pay-cut (say $5-$8 mil), this would go a long way toward keeping Odom. Yet, there's really no end in sight for the Lakers.

With the contracts of Trevor Ariza, Jordan Farmar, and Chris Mihm expiring in the near future, the Lakers will have to extend deals to these key role players as well, probably pushing them further over the luxury tax level. However, without any financial ramifications, the Lakers are built to win, right now. If they want a championship, though, they may have to hurry. Those luxury tax bills will add up quickly, even for the Lakers.

The main problem children for the Lakers are the contracts of Vladimir Radmanovich (VladRad, as I like to call him) making a cool $6 mil a year to shoot three's, give up lay-ups, and sit on the bench in crunch time, and Luke Walton (or SonofBill, as he is often called on Forum Blue and Gold, the most insightful Lakers blog I've found), who signed a lucrative 6-year, $30 mil deal and promptly decided to start sucking again. The worst part is that both of their contracts are untradeable; they're too long and too costly for such little return in play.

For all their salary cap problems, the Lakers are still possibly the best positioned team in the NBA to be successful for the foreseeable future (the other being the Portland Trailblazers....*sniff*, I smell another blog post coming soon). But, championship teams have been derailed by the salary cap before, and it wouldn't be surprising if the salary cap cut the Lakers contention window a little short.

CapTalk: My Dream Job

Edit: I've decided to turn this post into a new running column, "Cap Talk," dedicated to the finances of the NBA.

Another Edit: I had to correct some mathematical errors and errors in describing the cap. This was before I had done enough reading to truly understand some nuances of the cap. Please forgive the errors.

For those of you who know me, you know that I have few very strong passions in life. These (in no particular order) are: anime, finance, mathematics, irrational thoughts, high-fructose corn-syrup, racist jokes, and basketball. The past couple weeks have really been a large mish-mash of all of those put together: catching up on my anime, applying to full time jobs, working as a math CA/starting math classes, trying to get one of my friend's laid instead of myself, eating various overly-sweetened snack products, managing to insult four ethnic minorities in the span of ten seconds, and spending a lot of excess time looking at the salaries for various NBA teams as the off-season winds down.

The first few seem pretty reasonable for me in any given week. However, the last one is seemingly a little off; most of the off-season's trading action in the NBA is over, and the regular season isn't starting for a few weeks. That's when I realized that all effort I have exhibited towards getting full-time employment in Financial Company X has been completely misguided. I've thought all along that I wanted to go into finance, into business, the corporate world, thinking that once I got there I would know what I truly wanted. Yet the more I think about it, I realize that even my greatest financial dream (running my own billion dollar hedge fund), does not even come close (both in feasibility and enjoyment) to what I would truly love to do: be an NBA Business Analyst.

"WTF is that?" you may ask. Well an NBA team is the same as any other business, they have compensation and operating costs as well as massive profits. They just happen to do it selling basketball paraphernalia and tickets to sporting events involving (mostly black) men throwing a rubber ball around a hardwood floor. Having interned at Legg Mason last summer where all I did was expense analysis, I find that this would be an amazing outlet for my skills and experience.

Even though I know I would inevitably have to start out analyzing the cost-to-benefit ratio of Kobe Bryant jerseys vs. Kobe Bryant hats, my dream would be to one day be able to focus on what I truly enjoy: analyzing the NBA trade possibilities with respect to the salary cap.

Those of you who don't know the NBA, it has a soft-cap, meaning that any team that spends over a league-set amount on player salaries has to pay the difference between what they are paying their team and the luxury tax level. This is called the luxury tax. In other words, they have to pay:

Player Salaries - Luxury Tax Level = Luxury Tax Payment

The repercussions of this is that they are effectively paying two dollars for every one dollar they are over the cap. Some teams (Lakers, Knicks, Celtics) can afford to do this because of their excessive profit margins. However, teams in smaller markets (ie Grizzlies, Timberwolves, Sonics... er, Thunder) will be unable to pay such a penalty. This naturally gives teams from larger markets an advantage. However, there are several benefits to being below the salary cap: You can sign free agents (those that make you go over the salary cap) without impunity, you can take on extra salary when trading for players, and the most obvious, you save money. But the true skill to manipulating the cap is being able to maximize the amount of talent on your team for the amount of salary you're paying.

Now players are coming and going non-stop, but this isn't half the problem. Most of the problem comes from players demanding pay-raises/contract extensions. The poster-child for this dilemma shall be the Summer of 2010, when LeBron James, Dwyane Wade, Chris Bosh, Carmelo Anthony, and a multitude of other superstars will be opting out of their rookie extension contracts and entering the free agent market. This coming season, Lebron James shall make approximately $14 million. However, given his level of talent, he is obviously worth more than that, probably upwards of $20-25 million per year. In case you didn't know, there is a very large difference between $14 million and $25 million. Cleveland's total salary for next season will be somewhere around $85 million, which will be something like $20-$25 million above the projected cap. Their dilemma lies in how much they are willing to pay in luxury taxes in order to keep James.

God, just writing about this stuff makes me cream my pants. All right, not quite, but it's close. Very close. I have a feeling it will be extremely difficult, but if this whole finance thing doesn't pan out/interest me enough, I will most definitely turn toward my new-found passion: using my math/finance knowledge on my favorite sport, basketball.

Evolution 2008 Part 5

Well, since JK is back, then so am I. As you may have noticed I haven't written anything for a while since when JK stops writing, I do too. Most people probably don't come across this anyway, so it's usually JK and Matt who reads this. I'll start the new season of writing by finishing something I started a while ago. My Evolution 2008 articles.

I originally was going to have two more parts, one covering Tekken 5: Dark Ressurection, and the other covering Super Smash Bros. Brawl. But I got lazy, and since then Evo has come and gone. So I'm going to combine the two and briefly touch on each game. I will not go into the history of the games, since both are recent enough that most people have a good idea of the games' respective origins (especially for Brawl).

Tekken 5: Dark Ressurection is an update to Tekken 5. Aside from tweaking the balance it adds three characters. One is a returning character, Armor King, the Jaguar Masked wrestler who trained King (although the AK in this game may not be the original). The other two are brand new. They are Sergei Dragunov, a Russian government agent who uses combat sambo, and Lili, a wealthy young girl who uses a unique fighting style.

T5:DR is not the most recent game, since Tekken 6 is out for arcades. But Evo is a console tournament, and there is no console version yet. Also, this year's tournament had low numbers for the game. T5:DR can be purchased for download from the Playstation Network.

Super Smash Bros. Brawl had a lot of controversy surrounding it this year, since Evolution adopted a new rules set that was uncommon for the game. Traditionally, Smash is played with no items. However, a number of players who played Brawl said that many of the items were good for competition. The tournament organizers then charged the players on both sides to test the items and provide video proof as to whether items were broken or not broken. The "pro-items" players tested items extensivly, and found that most items could be countered effectivly, including poke' balls, assist trophies, and final smashes. Most "anti-items" players merely objected to the ruleset and took no effort to test the items. Instead they opted not to show up. Despite the "boycott" (I'm using quotes like crazy) there was still a large turnout for the game.

One other thing to note, was this year's tourney had four games that are coming out soon, and gave players a chance to ....well play them. They were Super Street Fighter 2 Turbo: HD Remix (It got pushed back, so the tournament used the original ST), Street Fighter 4, Tatsunoko vs. Capcom, and Blazblue. From what I have heard, it was great this year.

There is another blog, by a mister James Chen, that writes about Evolution. It's a good article, mainly because he was actually there. I reccomend reading it, since it shows what the community is all about.

I'll end this article with a video, the Evolution 2008 mini-trailer, also made by James Chen. Look out for a new column that I'm going to start called Comix Zone, where I review comics, graphic novels, and manga. And yes, I did name it after the Genesis game.

Later.

My New Favorite Show: Burn Notice

Ah, that new school year smell...something between alcohol, perfume, textbooks, and dusty classrooms. Well, I had the best of intentions coming into this year to start great new things for my beautiful little blog here, but that seems to be derailed by the fact that I am going to be applying to somewhere between 20 and 30 jobs over the next month or so. However, as a start, I would like to introduce a new running column of mine: My New Favorite Show. As whoever reads this blog will know, I have a couple running columns already (Cannot Catharsize and Motion Picture Magic). Cannot Catharsize was always more about anime than anything else, considering the structure of Japanese television is such that one can actually engage in the storyline, as opposed to American television which are one-hour drama pills. And Motion Picture Magic is more about movies, which are a completely different art-form than television shows or anime. Thus, to fill the void, I have created My New Favorite Show, or MNFS, for short.

Title selection (and word selection) goes a long way for me, and to be honest, I went the exact opposite with this one and went with what first came to mind. However, I do believe that this title fulfills all the necessary objectives I want it to: it's simple, it's ambiguous, and it really showcases the fact that I have fickle television tastes that change every so very often. With that comes my first entry: Burn Notice.

Burn Notice seems like a fairly unassuming show at first: it's a spy drama/comedy about some guy who gets in trouble with the government and has to find his way out of it. However, the best part of the show is not the plot. It is the characters. As USA so blatantly writes/says in all of its commercials, "Characters Welcome." The first is Michael Westen, the main character played by Jeffrey Donovan, who plays an ex-spy who was "burned" by the government. The story goes that when a spy is fired, they can't just be let out into civilian life, not with all the skills/knowledge they possess. So instead, the government burns them, which basically amounts to taking away their spy privileges, freezing all their assets, and dumping them in a town that they're not allowed to leave. Luckily for Michael, he happens to be dumped in Miami (better than Detroit, right?). Michael has an extremely dry sense of humor, but also possesses Macgyver-like talents (he often uses duct tape and plastic ties instead of guns). He's really what makes the show tick, as everything revolves around him

Then there's Fiona, Michael's ex-IRA, ex-girlfriend, played by Gabrielle Anwar. She has a trigger-happy personality (she loves to start fights, as well as fire guns), but plays an excellent foil to Michael's non-violence oriented personality. Did I mention she's ridiculously hot? (check the pic above; that'd rate about a 4 on the Fiona's sexy clothing scale). Being a good actress doesn't hurt, as she makes her part both believable and engaging at the same time.

Supporting Michael in his effort to find those who burned him is Sam Axe, played by the immortal Bruce Campbell, (Anybody up for some Army of Darkness?), an ex-Navy Seal who survives as a playboy for rich, older women in Miami. Needless to say, Campbell is perfect for the part, since the character of Sam could easily be Ash Williams in his older years, minus the shotgun and chainsaw stump hand.

I've just finished catching up on season 1 and now am fully caught up on season 2. Burn Notice is great because its a show that you can just jump into, but one that is also extra-rewarding for being a loyal viewer. For anyone who likes House, MacGyver, or James Bond, this a great combination of all three. Even if you aren't interested in plot or characters, there is always the eye-candy (I'm talking about Fiona and the requisite bikini-butt shots that just so happen to pop into every episode). Trust me, it'll be worth your time, no matter who you are. Till next time...

Back With A Vengeance

And so it begins...again. A new school year means the return of SCO full-time. I hope to be able to expand on what I did last semester, as well as getting renewed focus. Of course I'll be extremely busy (last year of classes, studying for GMAT's, applying for jobs, working my THREE jobs, etc.), but I hope to be able to have at least a little time every couple days to devote to my writing. I'm still running through ideas, but I hope to be able to focus the blog on something, and not just have me and my friends writing about random stuff. It'll probably be about dork-stuff (video games, movies, anime, card games *coughmtgcough*), but I may also throw in some other things, like music reviews, and of course, my favorite, basketball. I hope to maintain the same casual environment, while still remaining as introspective and self-reflective as I can be. After all, if I'm just reporting on other people's ideas, it's not really writing is it. Till next time (soon hopefully).