The biggest addition to the new collective bargaining agreement (CBA) is the designated veteran provision.
The new rule allows teams to extend or re-sign certain superstar players for up to five years starting at 35 percent of the salary cap, while other teams will be limited to offering only 30 percent.
This summer, the Sacramento Kings will be able to extend DeMarcus Cousins' contract using the designated veteran extension, and the Golden State Warriors can use the designated veteran exception to re-sign Stephen Curry.
At first glance, the designated veteran rule is a huge win for owners, who now have a better chance of retaining their star players beyond their second contracts.
That victory comes at a price, literally. While truly elite superstars will still be undervalued even at 35 percent of the cap, second-tier stars like Cousins will no longer provide as much additional value.
How favorable will designated veteran contracts truly be from a team standpoint? Could the new rule trap teams into big mistakes?
Who would have been a designated veteran?
Let's start by getting a sense for the kind of players who would have been eligible based on the designated veteran criteria had it existed before the current CBA.
Players can qualify for an extension after their seventh or eighth seasons by being named All-NBA or being chosen Defensive Player of the Year that season or twice in the previous three years. Winning an MVP any time in the previous three years also works. They can qualify to re-sign using the designated veteran exception after their eighth or ninth seasons under the same criteria.
Here's a list of the qualifying players year by year, starting in 2006. Note that I'm ignoring the requirement that a player not change teams after his rookie contract because players are likely to respond to that incentive in a way they did not before it existed.
- 2006: Chauncey Billups, Elton Brand, Shawn Marion, Dirk Nowitzki
- 2007: Shawn Marion, Dirk Nowitzki
- 2008: Gilbert Arenas
- 2009: Pau Gasol, Yao Ming, Tony Parker, Amar'e Stoudemire
- 2010: Carmelo Anthony, Pau Gasol, LeBron James, Joe Johnson, Amar'e Stoudemire, Dwyane Wade, Yao Ming
- 2011: Carmelo Anthony, Manu Ginobili, Dwight Howard, LeBron James, Amar'e Stoudemire, Dwyane Wade
- 2012: Carmelo Anthony, Andrew Bynum, Dwight Howard, LeBron James, Chris Paul, Dwyane Wade
- 2013: Dwight Howard, David Lee, Chris Paul
- 2014: LaMarcus Aldridge, Kevin Durant, Joakim Noah, Chris Paul
- 2015: LaMarcus Aldridge, Kevin Durant, Marc Gasol, DeAndre Jordan, Russell Westbrook
- 2016: Stephen Curry, Kevin Durant, James Harden, DeAndre Jordan, Russell Westbrook
On average, between four and five players per season have met the performance criteria to be a designated veteran -- including a handful of stars who have qualified all three years. This summer should produce a similar total: Curry and Cousins have already qualified by making the past two All-NBA teams, as has Westbrook.
Harden is an overwhelming favorite to make this year's All-NBA team and join them; Harden and Westbrook are allowed to sign a second extension despite extending their contracts last summer because of a special clause that applies only to them. John Wall is the most likely candidate to join them on the All-NBA team and become eligible for an extension, bringing the possible total to five players.
Were those players worth it?
Figuring out whether designated veteran contracts would have been good deals for players who would have been eligible is a tricky question, but we can start by noting that, historically, teams have had to pay about 3.5 percent of the salary cap to buy one win above replacement player (WARP) in free agency.
That means a designated veteran has to produce about 10 WARP per season by my metric to justify making 35 percent of the cap -- typically the level of a borderline All-Star.
Here's how the players who would have completed their designated veteran contracts performed on five-year deals (starting as early as possible when the player would have been eligible multiple times so as to maximize their earnings).
Remarkably, of the 14 players who would have been eligible, only three produced more than 10 WARP every season over the five-year span.
Obviously, James would be a bargain at any maximum salary, while Nowitzki and Billups were solidly undervalued.
The next three All-Stars on the list (Anthony, Gasol and Wade) were in the sweet spot between where they would have been fairly paid at 30 percent of the cap and slightly overpaid at 35 percent.
The rest of the possible designated veteran contracts would have been mistakes ranging from merely bad to ruinous.
Can teams avoid bad designated veteran contracts?
It's worth noting that nothing in the CBA requires teams to offer the full 35 percent just because players are eligible. Designated veterans can make anywhere from 30 percent of the cap up to 35 percent as a starting salary in an extension, and teams are free to offer whatever amount they want up to 35 percent to free agents.
As it was, the Phoenix Suns declined to pay Marion and Stoudemire at lower maximum rates because of well-founded concerns about how those players would age. (Phoenix's reluctance to match the Atlanta Hawks' offer to Johnson as a restricted free agent also meant he was traded and wouldn't have been eligible for the designated veteran rule had it existed.) The San Antonio Spurs were able to extend their backcourt of Ginobili and Parker at sub-max rates.
Still, this track record should give pause to teams considering extending or re-signing their designated veterans. By definition, designated veteran contracts will cover years 9-13 or 10-14 in the NBA, by which point even players who enter the league at age 19 are past their prime.
MVP-caliber players like Curry, Harden and Westbrook probably will still be worth it. Cousins, who has averaged 10.7 WARP over the past five seasons, is a more marginal case. Teams will have to be particularly careful with players like Noah, who enjoy a well-timed career year in their late 20s.
With the designated veteran rule, owners got the tool they wished to make it easier to retain their stars. They might soon find that tool a mixed blessing.