In response to everybody's posts:
1) I should have mentioned contraction in my original post; I think it would be a good idea to do away with the two least popular teams.
2) As for everyone that said to set the max contracts at 35 per annum, or higher than that or just to eliminate max contracts altogether...
Here's the problem with that idea, and why I like my idea (and no, it's not simply because I automatically like my own ideas better)
Let's say you set max contracts at 35 per year. Yes, this would prevent the formation of superteams, and for that reason it would help parity somewhat. But it would still leave half of the league totally and utterly screwed. Why? Let's say you're drafted by the Timberwolves, who are still terrible, and remain terrible all the way up until the expiration of your rookie deal. Now the Timberwolves offer you the max at 35 mil, because you're a max player and they don't have any other max guys. Sure, LA and Miami and NYC can't sign you since they already have their max guys, so no superteams are about to be formed. BUT. You have absolutely zero incentive to stay in Minnesota, since a dozen other teams are offering you the EXACT SAME 35 mil to play in a place that's NOT Minnesota.
The fact is, when multiple places are offering the same money, you'll take the place you'll want to live in most. And that'll almost never be a small market. So while parity will have improved, teams like Charlotte and Minnesota and Milwaukee will never be more than feeder teams for everyone else. That doesn't make things fair.
Then the other option would be to eliminate max contracts. This would be even worse in my opinion. Once again, no small market would ever get a chance to retain a superstar since they'll just be outbid by places that can afford to spend more money.
Secondly, places like LA and NYC will just be perennial powerhouses because they'll be able to constantly retain 2+ superstars while the rest of the league will never be able to afford having more than 1 at the same time.
edit:
Just to make it clear, I feel like my system is similar in that it raises the cost of retaining superstars. So if you draft 3, you'll only be able to afford 2. The real difference lies within the fact that my system ONLY extends the advantage to the drafting team, so it rewards small market steams that draft well (to be accurate, it rewards ANY team that drafts well, but it also ensures that small markets don't get screwed, by giving the drafting team a financial advantage in retaining their drafted superstar)