The Financial Impacts Of The NBA Draft Lottery

by May 14, 2019
Ja Morant of the Murray State Racers

The NBA Draft Lottery, held tonight at 8:30 pm, will impact the fate of several basketball franchises in more ways than one. Not only will teams find out if they’re in line to land the coveted top targets they’ve been dreaming of, they’ll get an idea of their latest financial commitments as they head into the offseason.

Rookie scale contracts are excellent bargains for teams that stumble into star talent in the draft but as the league gradually increases the size of rookie deals to keep up with skyrocketing salary cap figures, they’ve become a more significant cap hit than they have been over the course of the past few seasons.

While yes, that’s a cap hit teams are often happy to take on, there are circumstances where the amount and length of rookie contracts can be a factor down the road. Last season we saw the Philadelphia 76ers contemplate what to do with 2017 first-overall pick Markelle Fultz, ultimately opting to deal him to the Orlando Magic at the deadline.

Related: The all-new NBA lottery process for 2019.

Had the Sixers chose to keep Fultz and continue to be patient with his development, they would have been responsible for the $9.7 million he’ll earn in 2019-20. That’s a substantial amount of money invested in a project for a team with incentive to keep costs down in hopes of acquiring star talent and/or retaining their own big name free agents.

Worth noting is that Fultz’s cap hit was actually relatively small compared to what some players before and after him ended up earning because of a quirk in the previous collective bargaining agreement exposed by rising salary cap figures.

Obviously the amount that rookies are making is going up as the league’s salary cap increases but the proportion of the salary cap that rookies earn has increased, out of necessity, since 2017.

When the NBA scored a monumental TV deal back in 2014, league revenue rose and carried with it salary cap numbers tethered to basketball related income. This was great news for the league as a whole but bad news for rookies like Fultz, drafted after the cap spike and before the updated collective bargaining agreement.

For two years, first-rounders earned a predetermined amount that made sense prior to the cap increase but didn’t in the new NBA economy. As Dan Feldman of NBC Sports wrote at the time in an article about Jordan Mickey and R.J. Hunter, some second-round picks even out-earned late first-rounders.

After four years of incremental growth driven by an algorithm based on the 2017-18 rookie scale which Luke Adams of Hoops Rumors has documented, the rookie scale is starting to resemble what it looked like prior to the cap increase.

When the dust settles, Zion Williamson, the consensus top prospect in this year’s draft, figures to have a cap hit just shy of $10 million. That’s proportionately similar to what Andrew Wiggins was eligible for in 2014.

When you factor out the consideration that rookies are eligible to sign for 120% of the rookie scale, the numbers are clear. The projected rookie scale value for this year’s first-pick is $8.0 million versus a $109 million salary cap (7.3%), in contrast with Wiggins’ $4.6 million rookie-scale slot versus a $63.1 million salary cap (7.3%).

For comparison’s sake, Ben Simmons’ rookie-scale value was 5.7% of the 2016-17 salary cap and Fultz’ was 5.9% in 2017-18.

All told, rookie scale contracts will be the highest they’ve ever been in terms of overall value, but they’ll also be the highest they’ve been proportionately since the league’s latest collective bargaining agreement was ratified.

That may be inconsequential for whichever team lands Williamson or Ja Morant, as the four years of team control at sub-market value is something they’d sign up for any day of the week, but it could be a factor for whichever teams inevitably regret their lottery picks and look to shed them when possible.

In the past four seasons we’ve seen teams scramble to divest from once-coveted lottery picks like Jahlil Okafor, Mario Hezonja and Dragan Bender.

Absent of any crystal ball that could tell teams which players to target and which to avoid when the draft unfolds next month, the only things teams can do is prepare for the future with whatever information they have available. That’ll become ever more clear this evening when teams see where their much-anticipated lottery picks actually fall.

Here’s a breakdown of the projected rookie-scale values for the 2019 NBA Draft class. Note that these are only projections based on the cap figure currently forecast for the 2019-20 season and that rookies are likely to sign for 120% of the listed value.

Pick No. 1 (NY*): $8.0 million
Pick No. 2 (CLE*): $7.2 million
Pick No. 3 (PHX*): $6.5 million
Pick No. 4 (CHI*): $5.8 million
Pick No. 5 (ATL*): $5.3 million
Pick No. 6 (WAS*): $4.8 million
Pick No. 7 (NO*): $4.4 million
Pick No. 8 (MEM*): $4.0 million
Pick No. 9 (ATL*): $3.7 million
Pick No. 10 (MIN*): $3.5 million
Pick No. 11 (LAL*): $3.3 million
Pick No. 12 (CHA*): $3.1 million
Pick No. 13 (MIA*): $3.0 million
Pick No. 14 (BOS*): $2.9 million

See all subsequent picks (and subsequent years) at Basketball Insiders.

*Teams based on the latest lottery odds forecast at Tankathon.