Why is the NBA reimbursing the Oklahoma City Thunder for part of Kevin Durant’s max contract?
The 2011 lockout occurred to benefit the NBA's small-market franchise, creating conditions in which many of the league's premier franchises (e.g. the New York Knicks and the Los Angeles Lakers) could not outspend their rivals to gain a competitive advantage. (Cutting players' salaries was but a happy byproduct for owners.) While the Brooklyn Nets have proven that there still is a way to get value for gobs of cash, the system seems to be working to minimize risk and keep most big teams from piling up expensive players.
Oddly enough, though, the biggest victim of the new rules has been the Oklahoma City Thunder, a small-market team lucky enough to have added three superstar talents via the draft lottery. When the Thunder were faced with a future luxury tax payment to keep the trio intact, they opted to keep Kevin Durant and Russell Westbrook and trade James Harden to the Houston Rockets, inadvertently creating a potential contender within their own division. The aftermath has been rough: the Thunder crashed out of this past postseason when Westbrook suffered a season-ending knee injury and have no clear path to adding another impact player to approximate Harden's value.
However, OKC did get some good financial news on Thursday at the NBA's Board of Governors meeting — the league will reimburse them for part of Kevin Durant's max-level contract extension. From Darnell Mayberry for The Oklahoman:
The NBA's Board of Governors on Thursday voted to reimburse the Thunder for a portion of the contract extension it signed Kevin Durant to in 2010. [...]
The reimbursement, The Oklahoman has learned, has no bearing on the Thunder's team salary. Durant's larger-than-expected extension will continue to count against both the cap and the team's tax computations.
Although the exact amount of the reimbursement is unclear, a league source with knowledge of the situation said it is not the full amount of the roughly $15 million in additional salary that Durant received.
Durant signed a five-year extension worth approximately $89 million in July 2010. But the league didn't ratify its collective bargaining agreement until December 2011, and Durant was grandfathered in. Oklahoma City in 2011 protested Durant's inclusion to no avail.
The rule that was written into the 2011 collective bargaining agreement allowed players entering their fifth seasons to receive a contract extension for up to 30 percent of the salary cap if they met certain criteria. The provision, widely known as the “Derrick Rose Rule,” was introduced to adequately compensate players like Durant and Rose who outperformed their budget-friendly rookie contracts. Under the old labor agreement, such players were eligible only for 25 percent of the salary cap.
The timeline here is complicated, but the basic situation is that Durant signed his extension in 2010 to begin in 2011-12, at a time when the salary-cap level for post-lockout seasons had not yet been set. As such, the exact parameters of his salary could not be set, and both parties agreed simply that he would be paid the maximum allowable salary in each season of the deal. When the new rules were enacted, Durant's representatives petitioned to get him this designation so that he could make more money than he would have earned under the prior collective bargaining agreement. So, in essence, the Thunder are being reimbursed because Durant ended up getting more money in his deal than he thought he'd signed for.
There are several issues with this decision, but none is so glaring as a technical problem regarding Durant's eligibility to earn this money. As explained by Tom Ziller at SB Nation, the "Derrick Rose Rule" — in which the extended athlete is called a Designated Player — does not allow teams to sign another player to a five-year extension if they already have a Designated Player on their roster. Yet, if Durant held that status, then the team never should have been able to sign Russell Westbrook to his five-year extension in January 2012. The NBA either forgot its own rules, failed to designate Durant in the proper way, or — I admit this is extremely unlikely — deliberately obfuscated the situation to help the Thunder. Either way, something is wrong here, and handing the Thunder a $15 million rebate as determined by an official vote doesn't seem to address anything other than the possibility of a protracted, messy argument regarding the fairness and enforcement of the NBA's salary cap and revenue sharing rules. The reimbursement itself does not affect the Thunder's cap figures, but we should not discount the impact of $15 million, particularly if the Thunder are still in the position that made paying the Harden-related luxury tax so distasteful.
While the particulars of this case are rare and bizarre, the broader issues are all too familiar. As we saw in the battle for the Sacramento Kings, the NBA's home office executives and owners have a tendency to decide upon rules, agree to them officially, and then bend the terms as far as possible or disregard them entirely whenever it becomes convenient do so. In this situation, the Thunder agreed to abide by the same collective bargaining deal as everyone else, suffered because of it, petitioned to avoid that penalty, and then got a verdict from the NBA that effectively disregarded those rules (and failed to clarify them) in a way that promises a more uncertain future. It's as if the NBA enacted a system they never had any intention of following.
It's possible that this ruling will inspire other teams to claim similar damages in need of reimbursement, but it's somewhat unlikely given the confluence of factors at play in this case. It's an open question, though, as to what message this sends about the kind of league the NBA wants to create. Collective bargaining exists to create a mutually agreed upon relationship between all involved parties. If the NBA is willing to look past certain rules — alternately, to not ensure they're following them at all times — then it's fair to ask whether the league believes in the system as constructed, or if it just considers the CBA as a rubric for getting what it wants.
Ultimately, everything comes back to the reasons for the lockout. The rules exist to help small-market teams make more money, and yet this particular Designated Player rule took $15 million from the Thunder. The Board of Governors' not-unanimous vote — we can only hypothesize which teams did not support the decision — solved the problem by circumventing those same rules, holding to the spirit of the lockout without actually respecting its resolution. All of which is to say that, two years after the lockout, the same inter-market tensions that were its cause show few signs of dissipating any time soon.
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