While a salary cap of $58 million might sound pretty generous, in reality, teams have a limited amount of financial wiggle room to keep, sign, re-sign, and field a competitive team.
Considering the extremely punitive tax for salary cap offenders (are you $20 million over the luxury tax limit? Congrats, you get to pay a 375% tax!) teams face pressure to find the best bargains for their money — too essentially (‘scuse the economics talk) allocate their resources (a.k.a. their Benjamins) in the most efficient way possible.
So given these salary restrictions, have teams been able to allocate their money efficiently?
Here’s a graph that might be able to answer that question:
What’s going on?
Basically, I collected three pieces of information over the past 10 NBA seasons:
- Each team’s salary
- Each team’s offensive rating (points scored per 100 possessions)
- Each team’s defensive rating (points given up per 100 possessions)
And then in each year, I correlated each team’s salary with their offensive and defensive rating.
Just to go over the concept of correlation, if A and B are positively correlated, that basically means that as A goes up, B goes up. And if A and B are negatively correlated that basically means that as A goes up, B goes down. And if A and B are not correlated at all, that means that as A changes, B doesn’t change.
The interesting thing here is that while we expect a positive correlation between salaries and offensive rating (more expensive teams should score more points) and a negative correlation between salaries and defensive ratings (more expensive teams should give up less points), this expected phenomena has started happening around 2007/2008.
Essentially, before 2007/2008, teams weren’t getting as much bang for their buck — and after 2007/2008, they started getting more bang for their buck.