AICPA

THIS NBA CAP-OLOGIST GOT GAME

By Alex Gordon

Not many businesses are built around overpaid, trash-talking, ego-grinding employees who earn multimillions each year. But for NBA teams, a roster of players with those characteristics can easily become one that ends with a champagne shower and a bling-bling ring. Any frustrated fan knows that building a championship-level pro sports team isn’t simple, unless you’ve got the deep pockets of the Yankees—and even then there are no guarantees! Aside from freak injuries, bruised egos, and balls that just don’t bounce the right way, drawing up a winning NBA team requires spreadsheet skills that can do more than just mesh talents and personalities (and surely no spreadsheet can bestow the luck the Cleveland Cavaliers had when they landed superstar LeBron James with their first draft pick), thanks to the ingenious—and often maddening—salary cap, a set of rules that limits the amount of money each team can spend on players’ salaries.

In 1984, the NBA became the first modern league to enact a cap, limiting teams to spending just $3.6 million that year, a whopping $24 million less than Shaquille O’Neal alone will earn this season! But as the cap’s dollar amount has increased over the years, this season stands at about $43.87 million, its rules have grown increasingly complex. Today there are so many loopholes and clauses that each team employs a go-to exec whose main duty is to know the cap regulations inside and out.

THE POINT GUARD OF PAYROLL

The all-star front-office cap expert is the Chicago Bulls’ Irwin Mandel, a CPA and the team’s senior vice president for financial and legal matters. It is his accounting skills and experience that have earned him the respect of players and coaches leaguewide. NBA commissioner David Stern said, “There’s nobody in the NBA [who] understands the intricacies of the salary cap better.” “I’m extremely lucky,” says Mandel. “I couldn’t have a job that would be more enjoyable or more interesting or more stimulating or more fun.” Mandel works closely with Bulls general manager John Paxson to analyze every potential personnel move from a salary-cap standpoint. “The general manager doesn’t say to me, ‘Irwin, is this a good move basketballwise?’ But he does say, ‘How can we do this?’” “The salary cap is a factor in every decision you make with your team,” says Mike Bratz, the Cleveland Cavaliers’ director of basketball operations. “Not only to determine if acquiring someone is possible under the rules, but also how it affects your team immediately, capwise, and in the future. You take all that into consideration any time you are looking at a player.”

SLAM-DUNKING DEALS

Mandel prides himself on finding a way to complete any deal, no matter how complex. The first priority, he says, is getting together the right players on the court. Then he makes his accounting play: “If something is workable basketballwise, I try to figure out a way to get it done salary-cap-wise. I take it personally if the cap prevents us from doing what we want to do.” With limits on players’ annual raises, clauses applying to performance bonuses, and complex concepts like base-year compensation, trying to complete what should be a simple trade can require hours and hours of crunching numbers and running spreadsheets. Take, for instance, the six-player trade that sent the Bulls’ Jamal Crawford to the New York Knicks last summer. “I had literally about 40 pages of different scenarios in getting that to work,” Mandel says. Like any accountant, he had to run the numbers every which way possible. “This job involves being creative, being aggressive. If route A doesn’t work, you try route B, then C or D or E.” The NBA also has what is known as a “soft” cap, which means teams are allowed to exceed the cap limit in a number of different circumstances. The best known is the so-called Larry Bird exception, which allows teams to re-sign their own free agents even if it means exceeding the cap. So in order for the Bulls and Knicks to deal, the Bulls had to first re-sign Crawford, who was a restricted free agent, clearing the lane for the Knicks (who were already over the cap) to acquire him from the Bulls, rather than off the open market. All a bit more complicated than a free throw, for sure. The Bulls sought to clear cap room for future seasons by trying to unload expensive, long-term deals while receiving players in the final year of their contracts. And while the Crawford trade may seem like a case of the tail wagging the dog, Mandel says the alternatives—a less restrictive cap or its elimination altogether— are simply not an option. “I think the cap has helped save the NBA,” he says. “All leagues should have caps, and I’m not just saying that as a part of management; I’m more importantly saying that as a fan. The cap ensures competitive balance.” For basketball teams, the work is done as much off the court as on it. Mandel’s not a fan of “the system in baseball where the Yankees can keep buying the best players,” he says. “To me, that’s a joke.”