Writing on FiveThirtyEight.com earlier this year, former Baseball Prospectus author Nate Silver broke down the nature of payroll in sports more simply and eloquently than anyone I've ever seen.
The economics of the N.B.A. dictate that there are only two ways to build an elite team:
1. Acquire players who produce above-average value relative to the salaries they are making.
2.Exploit the loopholes in the salary cap so that you spend more money than other teams.
This is not merely a rule of thumb; it's a mathematical axiom. At least one of these two things absolutely must be true for a team to be better than its competition.
The second method is easy enough to track, but at Basketball Prospectus our interest lies more in the first one. To measure payroll efficiency, I've borrowed a measure invented by the late Doug Pappas for our baseball sister site: marginal dollars per marginal win. Marginal dollars per marginal win calculates how much teams are spending above the NBA's salary floor (75 percent of the cap) for each win above what a replacement-level team could muster (which we estimate at 10 wins).
Here is this year's complete list, using payroll data from ShamSports.com and also including each team's rank for 2008-09 and 2009-10:
Team Win% Payroll M$/MW 0809 0910
Sacramento .299 $44,738,743 $ 83,192 29 18
Chicago .740 $55,121,441 $ 228,563 11 8
Oklahoma City .662 $55,987,488 $ 281,066 25 1
L.A. Clippers .397 $53,197,065 $ 427,808 26 7
Miami .701 $66,519,875 $ 483,868 12 16
San Antonio .756 $69,188,983 $ 493,141 2 22
Denver .610 $67,096,513 $ 588,324 5 15
New Orleans .571 $68,173,590 $ 668,543 4 14
Memphis .564 $69,541,935 $ 717,361 6 3
New York .506 $66,576,486 $ 730,786 30 28
Team Win% Payroll M$/MW 0809 0910
Atlanta .564 $70,140,069 $ 733,858 7 4
Phoenix .481 $66,209,049 $ 771,226 20 13
Philadelphia .513 $68,437,454 $ 777,019 10 19
Indiana .449 $65,102,289 $ 804,978 17 17
Boston .701 $75,527,599 $ 831,718 16 25
Charlotte .416 $65,992,687 $ 932,792 8 6
Golden State .436 $68,242,564 $ 959,834 21 23
Houston .526 $71,759,254 $ 965,947 13 10
New Jersey .312 $58,644,182 $ 971,253 9 30
Portland .577 $74,518,573 $1,004,993 19 2
Team Win% Payroll M$/MW 0809 0910
Milwaukee .408 $68,765,715 $1,076,143 18 5
Washington .273 $58,580,338 $1,217,064 28 24
Minnesota .218 $54,170,606 $1,351,357 23 29
Detroit .338 $65,020,029 $1,214,759 15 9
Dallas .688 $83,753,319 $1,205,030 27 26
Cleveland .208 $54,062,028 $1,495,821 22 21
Utah .474 $75,214,732 $1,345,665 3 12
L.A. Lakers .714 $90,381,756 $1,425,124 14 27
Orlando .628 $89,898,145 $1,644,145 1 20
Toronto .273 $70,148,649 $2,152,736 24 11
Starting this year, I've made a slight tweak to the method to incorporate luxury-tax payments. Teams are charged for the amount they are projected to pay in tax and credited if they will be among the non-tax payers who share in the amount collected by the league.
Including past rankings illustrates just how difficult it is to consistently be efficient in the NBA. So much of a team's ability to manage payroll is tied up in players on cap-friendly rookie contracts. When they expire, salaries go up in a hurry. Only one team--the Memphis Grizzlies--has managed to rank in the top 10 each of the last three years, and with Mike Conley set to begin a contract extension next season and Marc Gasol a restricted free agent, the Grizzlies will have to surge into the West's upper echelon to remain so effective with their money.
With that caveat, this measure can tell us about which teams are doing the best job of utilizing their financial resources. Let's take a look at the five best and worst teams.
1. Sacramento Kings ($83,192 M$/MW)
The Kings famously had to trade for Marquis Daniels at the deadline just to avoid falling below the league's salary floor. Given that their payroll is historically low, it's impressive that Sacramento has been better than four other teams. Since adding Marcus Thornton in a trade with the New Orleans Hornets, the Kings have been downright feisty, going 9-14 with wins over multiple teams either in the playoffs or still fighting for a spot in the postseason. Thornton, a restricted free agent this summer, has caused his price tag to go up with his strong play.
2. Chicago Bulls ($228,563 M$/MW)
Last summer, Pat Riley for Executive of the Year looked like the biggest lock in awards history. Now, it's not so clear that Riley deserves the honor over the Bulls' Gar Forman (with John Paxson playing a key role). Despite a payroll below the salary cap, Chicago is likely to claim the top spot in the Eastern Conference. Having an MVP candidate in Derrick Rose making just $5.5 million helps in that process, sure, but the Bulls did an excellent job of shopping for value in free agency to build a deep rotation that has proven more effective than the Miami Heat's star-studded core during the regular season.
3. Oklahoma City Thunder ($281,066 M$/MW)
Oklahoma City's salary efficiency is probably more impressive than this number indicates because of how general manager Sam Presti has used cap space to extend the contracts of Nick Collison and Kendrick Perkins, saving some money down the road while getting the players more cash up front. Kevin Durant begins his extension next season and Russell Westbrook will be in line for one the following season, so the Thunder's payroll will go up substantially in a hurry. Oklahoma City will gladly trade a high ranking on this list for a chance to contend in the West.
4. Los Angeles Clippers ($427,808 M$/MW)
The trend here, except for Sacramento, is having one of the league's best players on a rookie contract (two in the Thunder's case). Given his immense marketing value as well as his play on the court, Blake Griffin has been one of the NBA's top bargains. The Clippers' front office deserves more credit for unearthing DeAndre Jordan in the second round of the draft and has done an excellent job of managing the cap to have flexibility in coming years.
5. Miami Heat ($483,868 M$/MW)
Besides rookie contracts, the other best value under the current NBA Collective Bargaining Agreement is players worth more than the maximum salary. Silver estimated that LeBron James and Dwyane Wade together were on pace to create $87 million in value this season while getting paid less than $29 million. That's why, no matter how weak the supporting cast around them, the stars guarantee that Miami will make the most of its payroll
At the other end of the spectrum ... .
30. Toronto Raptors ($2,152,736 M$/MW)
The Raptors have the league's eighth-highest payroll and have had little success to show for it on the court this season. Things don't figure to get all that much better in years to come. Toronto will likely have some cap space after shedding Peja Stojakovic's contract, but Andrea Bargnani and Jose Calderon are locked in to lucrative deals through 2014-15 and 2012-13, respectively. It is increasingly clear that Bargnani and Calderon do not form the foundation of a playoff team.
29. Orlando Magic ($1,644,145 M$/MW)
Within two years, the Magic has nearly gone from the top by this measure to the bottom. As Orlando's payroll has escalated, the team's performance has stagnated. The Magic has the league's second-highest salary total, which should imply a team competing for championships. Right now, Orlando isn't playing at that level.
28. Los Angles Lakers ($1,425,124 M$/MW)
The one team with a higher payroll than the Magic? That would be the Lakers, who cracked the $90 million mark for the second consecutive season. The money was no object when the Lakers won the championship. This year's team is somewhat less certain to do so despite a dominant 16-1 post-All-Star stretch (before this week's three losses in a row). Actually, given the TV deal the Lakers just signed, the money is probably still not an issue, but the Lakers certainly have not been especially efficient with their spending, which has failed to produce a deep bench.
27. Utah Jazz ($1,345,665 M$/MW)
Over the years, the Jazz has been one of the league's best franchises in terms of managing the cap. That fell apart this season, as Utah's inability to get contributions from players on rookie contracts came back to haunt the team. Before the Deron Williams trade, Gordon Hayward was the only first-round pick on the roster still on his rookie deal. Pressure from the luxury tax forced the Jazz to give up Eric Maynor last year and kept Utah from re-signing Wesley Matthews over the summer. The Jazz was unable to paper over the losses in free agency, forcing the team to rebuild.
26. Cleveland Cavaliers ($1,495,821 M$/MW)
Following James' departure, the Cavaliers were left slightly over the salary cap by virtue of adding Antawn Jamison at the 2010 trade deadline. That left Cleveland relatively little flexibility to add pieces to a core of role players built around James. Though the Cavaliers' salary is not especially high, they still have gotten poor bang for their buck because the team has played so poorly.
Kevin Pelton is an author of Basketball Prospectus.
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