NBA Lockout 2011: A Common-Sense Solution (That Owners Will Never Go For)
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Most years, basketball fans have a lot of things to look forward to even as the season comes to a close. After the final buzzer sounds, the NBA draft gives every team a chance to look to the future and hope for better years ahead.
Usually the draft quickly transitions into a free-agency period where fans can again be optimistic, concocting unlikely scenarios where they're able to acquire a favorite player or a talented difference-maker on the open market.
Unfortunately, the summer of 2011 doesn't grant us that luxury.
So while skimming your favorite website for news and rumors that are not likely to come, consider for a second why we're forced into this basketball purgatory: millionaires and billionaires squabbling over what amounts to the last slice of NBA pie.
Instead of throwing my hands up in disgust or losing interest entirely, I've decided to take a crack at the complex issues of renewing the CBA. Unlike the Players Union, I don't have the benefit of poring over team financial statements to make a first-hand assessment of league health. However, I will say I found these articles to be very enlightening with regard to the moneyed interests at stake—and for this purpose you would be wise to do some research before reading much further.
Essentially, the NBA has disputed claims by the Players Union (and Nate Silver in the story above) that around half of the league's reported $340 million in losses could be attributed to "accounting tricks" that allowed them to claim interest payments on loans and amortize team purchase prices while simultaneously ignoring management level decisions that contributed to debt.
Who do you side with in labor negotiations?
While there is certainly some grey area, remember that in these negotiations it is in owners' best interests to elucidate potential losses when bargaining for more revenue. And when considering most of the recent team sales, it's clear the "market value" of these franchises is considerably above the assessed value from the latest Forbes' report.
Conversely, NBA players clearly got the carrot side of the stick in the previous CBA. Most accounts have them receiving about 57 percent of league revenue annually, which has league owners thinking not just about finding equilibrium but getting some form of "payback." They are clearly looking for reciprocity in getting the bigger slice this time around.
So when the owners' first proposal included a hard cap and a 60-40 revenue split in their favor, it was clear that they were not just posturing but attempting to start negotiating from a position of strength: We want an even bigger share than the "crippling" percentage you took in the summer of 2005. With that as a starting point, the logic goes, a majority of revenue would end up in owners' hands when games resumed.
Unfortunately, that kind of thinking is what got us to this point, with one side crying "foul" and the other effectively running out the clock. How appropriate.
So where do we go from here? How can a new CBA avoid the pitfalls of frequent renegotiation? While the NBA may not be hemorrhaging money as the owners claim, it's clear franchises aren't going gangbusters and some additional revenue sharing is necessary.
The NBA will...
So here is a starting point: The league and players admit additional revenue sharing from successful, big-market franchises to struggling, second-city teams will occur. The devil, of course, is in the details, so let's get started with a plan to save the game we love (at least I assume you love it if you've waded this far into muddy waters).
50-50 Is the Only Option
We have seen this with the NFL and NHL previously. Owners and players dance around the 50 percent line, with one side getting the lion's share one decade and the scales tilting the next negotiation. Let's do ourselves a favor and not make the same mistake this time around.
While giving owners the equivalent of seven percent more league revenue makes sense from a balance sheet perspective—expanding their coffers an additional $250 million from an approximate $3.6 billion pie—it also is symbolically the best possible public relations solution. A 50-50 split allows both owners and players to stand together in recognizing how equally important their roles are to creating a successful business.
Whether you subscribe to Krause-ian principles ("Organizations win championships") or acknowledge that generational player talent like Michael Jordan can sway the fortunes of an entire league, it's clear each side has to play their part—and should not be working at cross purposes.
The new CBA will be...
The additional seven percent addresses more than two-thirds of the losses NBA teams claimed last season—about $9 million per team. Given the questionable accounting used to calculate those losses, it seems like an honest contribution to improving the health of the league.
The players have long contended that a hard cap was out of the question. In reality, they might be okay with it if the cap number is set high enough—after all, if the cap is $100 million in salary team pockets will mostly close themselves far sooner due to business obligations and revenue limitations.
However, the current soft cap has achieved some of the desired parity while still allowing teams financial flexibility if they're willing to pay the luxury tax. In the last 25 years, we've seen teams from all over the country winning titles: Detroit and Chicago in the north, Boston in the east, Los Angeles in the west and Houston, San Antonio and most recently Dallas in the south. The NBA is undoubtedly a national game despite its urban demographics, another reason contraction is probably not the right answer.
While it gives some flexibility, the soft cap does not address the larger issue of teams locking themselves into guaranteed deals that do not always reflect player performance. Guaranteed contracts have been a net plus for the league, in the sense that players know they can dedicate themselves to the sport and make a (temporary) living playing in the NBA.
But it also means you're stuck paying oft-injured Michael Redd and oft-fat Eddy Curry scores of millions of dollars years beyond their useful shelf life.
Some of that is impossible to address. Injuries happen, and in Michael Redd's case, they happened a lot. It would be hard to protect both players and franchises from such volatility in health, especially considering the rigors of the sport and the strain it puts on athletes' joints and muscles.
Yet most teams do have protection from such unpredictability. Teams insure player contracts regularly, although apparently the Knicks had problems doing so with Amare Stoudemire, and they often get a large chunk of their money back when injuries happen. In this sense the league has options to protect itself from guaranteed long-term contracts by spending a bit of extra money to hedge their investments.
The one way we all benefit, however, is to decrease the maximum contract length slightly. Currently, teams are able to offer all varieties of six-year contracts—with early termination options, player/team options, guaranteed final years, etc. By reducing the maximum length by one year it assures, at the very least, that a team is not hamstrung for more than a half-decade by an ill-conceived contract decision.
Make no mistake, the onus still needs to be on teams to budget wisely and maintain flexibility while players commit to excellence for the entire term of the deal. But one more way to assure this is to make the fifth year of every deal a mutual option, requiring both player and team to rubber-stamp the last season of a contract.
Is this proposal a reasonable comprimise?
This amounts to four guaranteed years and a fifth for agreements that have served their desired purpose.
Finally, addressing max/min contracts and the rookie salary scale, I propose only minor changes: Peg the rookie scale to the cap (ex No. 1 pick receives an automatic seven percent, increasing by 20 percent each year of the fixed length deal), extending the NBA minimum (one percent of the cap, increasing by a tenth-of-a-percent for every year of tenure) and basing the veteran maximum on logical tranches (less than five years at 20 percent of cap, five to nine years at 25 percent of cap, 10 to 14 years at 30 percent of cap).
This system would largely maintain the current contract setup with only slight reductions.
Large-market teams fight for these cap exceptions because they make dynasties possible. Some statistics suggest that the NBA is most popular when there are just a few dominant teams, so these exceptions allow determined owners to have more control over the fate of their roster.
Unfortunately, they've also been vices by proxy, as the incentive is to use exceptions whenever possible so you are not boxed in by league payroll restrictions.
In my opinion, the most overused of these is the mid-level exception, which allowed teams to go over the cap to sign one player at the league average salary (or several players that add up to that total). It is used frequently, as with Boston's signing last summer of Jermaine O'Neal, and if eliminated could potentially save $150 million per season for franchises who just can't help themselves. The combination of pervasiveness and savings makes this one the logical first item on the chopping block.
The only other exception I would eliminate entirely is the bi-annual exception, which seems to be an archaic holdover from the 1999 CBA which allowed a team to spend $1 million to sign one or more players to one or two-year deals. It was indexed, so last year this amounted to a $1.7 million exception which, if removed, could save up to $25 million a year.
All other exceptions could be retained: Traded Player Exceptions (allows teams to process trades involving massive salary differences between exchanged players), Rookie Exceptions (you can sign your drafted players even if it takes you over the cap), Disabled Player Exceptions (you can use up to 50 percent of an injured player's cap figure to sign a seasonal replacement) and Minimum Salary Exceptions (you can always sign a player making the minimum no matter what your financial situation).
Do you agree with Luxury/Austerity Taxes?
The largest and most important exception (the Bird Exception) could also remain intact with a slight modification. Instead of having Bird, Early Bird and non-Bird exceptions, they could be rolled into a single exception that allows you to re-sign a player who has been with your team at least two full, consecutive seasons (cue Michael Heisley drafting Marc Gasol's extension papers).
Luxury and Austerity Taxes
Because revenue sharing is a given, a system needs to be devised that logically spreads the wealth to ensure some minimum level of parity and competition. Some of these will be done "off the top" when audits are done after the season when teams figure out how they fared financially. The other way to create a pool for profit-sharing is to "incentivize" teams to spend-but-spend-wisely with a consumption tax, of sorts.
Currently the NBA has a luxury tax that kicks in when a team exceeds not only the salary cap but spends in excess of $75 million on roster payroll. For every million that is spent above that line, the team must contribute a portion to teams who don't have the luxury of free-spending above and beyond agreed upon limits.
Luxury taxes have contributed money to league operation for years, and yet owners like Jerry Buss and Mark Cuban are not restricted from shelling out the dough year after year. It allows owners flexibility while admitting that wealth alone should not determine winners and losers.
My additional contribution would be similar to what is being debated in NFL circles: a requirement that teams spend as much of the money allotted to them as possible. It would help assure that owners don't blackmail cities for additional funding by putting out a poor product while threatening to move the franchise (see Kings, Sacramento). It would also assure that "slash-and-burn" cost-cutting is not an option.
My preferred system would require teams who spent 20 percent more than the cap (Luxury Tax) and teams spending 20 percent less than the cap (Austerity Tax) to pay a quarter for every extra dollar to the league office for revenue sharing. For some perspective, last season only the Kings would have to contribute to the Austerity Tax while eight to 10 teams would contribute to the Luxury Tax. Only six teams would have contributed more than $1 million total, and none more than $4 million.
Finally, there should be no Amnesty Clause in this CBA. Often referred to as the "Allen Houston Rule," it would allow teams to choose one contract that will not count against the Luxury Tax, thereby mitigating the amount they would owe for signing irresponsibly long or large contracts. Ultimately this is a rule that cuts off the league's nose despite its face: giving free-spending teams a pass on bad management and front office decision-making.
Predictably, the teams that benefit are usually the ones faring the best in terms of revenue (Los Angeles being the prime example), and in turn their owners have a great deal of sway in the negotiations. Those who don't put themselves in the position of having to pay the luxury tax get absolutely no benefit (pretty much every team that didn't make the playoffs), and yet it gets pushed through with every new CBA...or once every five years, shorter than the maximum contract length.
Does This Proposal Have a Chance?
This represents a common-sense solution that addresses ownership needs (a larger share of revenue, restrictions on the size and duration of maximum contracts) while also taking into account the players' role in making the NBA so fun to watch (guaranteed deals, minimum contracts, veteran protection, revenue sharing that allows all teams to compete and sign players).
That being said, the owners are out for blood so I don't give it much of a shot.
But, in terms of a final accounting, this achieves the purpose: over $250 million in transferred revenue to owners to cover losses, around $175 million in potential savings from eliminating unnecessary exceptions, parity assurances and revenue sharing, and no rolling back current contracts.
It would set a soft cap somewhere between $55-60 million, with average team payroll right around that upper limit. It would also create a pool of approximately $20 million per season to be used in revenue sharing to maintain small-market franchises.
There is no doubt NBA popularity is on the upswing, and inflexible negotiations are only going to be the rope that strangles the golden goose. The old CBA doesn't need to be scrapped, but small, common sense alterations can drastically help the financial future of the league—without the stress and burden of a lockout. I still have hope that common ground can be found in the myriad layers of complexity hashing out a new bargaining agreement.
But hey, what do I know.
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