Why teams overpay some good (but not elite) players?

December 13, 2016 by J.H. Yeh

In the summer of 2014, many fans were confused and upset when Carmelo Anthony signed a $129 million contract with the Knicks because they believe Anthony, who is financially secured and satisfied, should take less money so the Knicks, who was in the midst of a transition period, could sign better players in order to compete for the future seasons.

At the same time, Rudy Gay, who was enmeshed and upset at his situation with the Sacramento Kings, announced he would exercise the final year of his 5-year contract with the struggling franchise, which would pay him $19 million–well over his market value. This move also upset many fans as they saw Gay’s decision to be greedy because he could have played elsewhere for a contender and not let his huge contract eats up the team’s salary.

In that very same summer, Chandler Parsons made the news by signing a 3-year contract with the Dallas Mavericks that would pay him about $15 millions annually. This was considered a bold move and big gamble. And now two years later, Parsons renounced his final year after two unsuccessful years at Dallas and signed a new 4-year max deal with the Grizzlies.

So why? Why are some teams willing to overpay decent players (Gay and Parsons)? And why some established elite players are being overpaid by a mediocre team whereas he could have played for a better team? Especially for the established elite veterans, for them, money is not an issue.

Attached below is a table of the players and their respective contracts.

Player Year Signed Team Length Contract
Carmelo Anthony 2014 NY Knicks 5 years ~$129 mil
*Rudy Gay 2010 Memphis Grizzlies 5 years ~$82 mil
Chandler Parsons 2014 Dallas Mavericks 3 years ~$46 mil
Chandler Parsons 2016 Memphis Grizzlies 4 years ~$94 mil
Anderson Varejao 2014 Cleveland Cavaliers 3 years ~30 mil

*Gay originally signed a 5-year $89 million contract with the Grizzlies in 2010 summer, with a player option on the fifth year. Gay was traded from the Grizzlies to the Raptors on January 30, 2013. And then he was traded to the Kings on December 9, 2013. In the summer of 2014, Gay announced he was exercising the fifth and final year of his contract, which would pay him $19 million in the 2014-15 season.

There is always a cost for doing something–in this case, it’s building a team or creating an identity. All three teams were in the midst of roster upheaval (especially the Kings!) and are looking for stability. If you dig a little deeper or look at such business transaction from a  different standpoint, it’s very likely that the GM and the teams aggressively convinced the players to sign huge contracts with them. In the case of Rudy Gay, despite against his initial wishes, it is very likely that the Kings persuaded Gay to exercise his final year of the contract that overpaid him instead of letting him leave his contract and sign elsewhere with a contender. And the similar for Carmelo Anthony and the Knicks (except he was under more scrutiny due to his super star status). We can also say the same for Chandler Parsons.

In the aforementioned article, there is always a cost for doing something. Rudy Gay’s contract situation with the Kings is a quintessential example. In this instance, the cost for the Kings to be competitive is to overpay Gay. This is the premium–or the cost–the Kings have to pay in order to convince a decent, high scoring (albeit inefficient) player to stay with the tumultuous franchise in order to attract other good players to join the team in the future (since Sacramento is historically an unattractive destination for many NBA players).

The same can also be applied to the Mavericks, who was going through many free agency failures since winning the championship in 2011. The team overpaid Parsons (with the money Dirk didn’t take) in hopes of creating some stability so other free agents are willing to join the Mavericks. And again, this is the price the Mavericks have to pay in order to make them an attractive team to play despite their aging roster. Now fast forward to this past summer, again, this is the price the Grizzlies have to pay in order to ensure their long time core that features Marc Gasol and Mike Conley will stay put with the small market franchise for the next few years and not opting out (or push the team for a trade).

Both the Kings and the Mavericks feature similar, although different, situations. For the Kings, the (probably) convinced Gay to exercise his option with the team in order to create stability and attraction. Whereas, for the Grizzlies, the overpaid the injury prone but talented Parsons in order to ensure the team can prolong its stability. Now this is the hidden costs many teams have to pay in order to ensure the team can content and attract good players. Both the Kings and the Mavericks illustrate similar dilemma in two different spectrum.

Now here comes the interesting situation with Anthony and the Knicks. Certainly Anthony was not happy with his situation with the Knicks in the summer of 2014. The Knicks did not see major (and immediate) progress during his stay there and this was definitely not a position he wanted to be at the prime age of 30 after the blockbuster trade in spring of 2011. Anthony was mired in an awkward situation where he would face harsh criticism and scrutiny  (like Dwight Howard did when he left the Lakers in summer 2013) for leaving a struggling franchise that traded for him. With that said, seeing an urgency to quickly turn the team around, the Knicks gave Anthony a huge, long term contract (but not max) in hopes he would stay in the Big Apple so the team can attract talents around him within the next two years. Fortunately, the Knicks were able to add Joakim Noah, Courtney Lee, and Derrick Rose in the 2016 offseason and are competitive again.

Additionally, there is also the interesting case with Anderson Varejao, who is known for his friendship with LeBron James and hustle. Varejao, an injury prone big man who was overpaid two summers ago in order to keep LeBron James, who just returned to the Cleveland Cavaliers, with the franchise for the long haul (and perhaps to keep him happy). Varejao played very little to have an impact between October 2014 to his eventual trade in February 2016. The signing of Varejao shows that certain costs are also related to personal level.

Now here presents the question: Is the cost worth it? The answer is mixed. It all depends–and I know this is not the ideal answer. We have seen the success with the Knicks (14-10) and the Grizzlies (17-8), records are as of December 13, 2016. We have also seen the failures with the Mavericks (6-18) and the Kings (9-15). Not to mention the Mavericks continued their dubious streak of first round exists and the Kings’ own streak of consecutive playoff misses. Of course there are many reasons that influence the outcome. Part of the Knicks’ resurgence can be credited to Anthony’s super star presence and the big market in the New York. However, Grizzlies’ success tells a different story as the team is a very small market team with no elite super star presence.

There are many signings in the league that entail such hidden cost, which don’t reflect the perceived value of the player’s worth. Conclusively, teams sometimes overpay decent players because of the hidden cost–which is the premium the team has to pay for the players to either attract better players to join or to maintain the continued success of the team.

 

–J.H. Yeh

(all graphs are created by me, and all sources of information are courtesy of NBA.com and BasketballReference.com as of December 13, 2016)

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