NBA Labor Dispute: 5 Predictions from the New Collective Bargainning Agreement

Since July 1, the NBA has been at a virtual standstill. Over the last 62 days, all basketball activity has been halted. No free agency. No trades. No nothing.

With the players and owners so far apart on terms, it has become very difficult to know what the NBA will look like when the dust settles. Everyone has their notions on what will happen, but it is important to understand the issues before making predictions.

The major issue it the distribution of BRI, or Basketball Related Income. Under the previous CBA, the players received 57 percent of the BRI. The owners claim to be losing incredible amounts of money (over $370 million according to some reports), and want the percent to be somewhere in the 60-40 percent range in their favor. Effectively, that would result in about a 40 percent pay cut. 

Other issues of presence are the "Larry Bird Rule", a rule allowing teams to exceed the salary cap to resign players, the mid-level exception and "million dollar" exception, the possibility of pure revenue sharing, new limitations on guaranteed contracts and re-evaluating the age threshold for incoming rookies.

When it is all said and done, here are some predictions of the resolutions of some of these issues. 

A Hard Salary Cap Will Not Be Established

One of the major issues dominating the labor talks is the effort to maintain competitive balance throughout the league.

Baseball is always the example that comes to mind when the issue of competitive balance is broached.  In MLB, there are some teams that simply cannot spend as much as others, creating a "haves" and 'have-nots" situation. Many franchises go into every season knowing that they are at a severe financial disadvantage and are unlikely to compete with the major market.

Funny thing is, there is not a statistically significant correlation between winning percentage and payroll in Major League Baseball in a given year.

Sure, the Yankees and Red Sox are always contenders. But every season, there are numerous teams that come out of the blue and have excellent seasons. Given the fact that with no salary cap, MLB has the most start-salary discrepancy, and it's hard to make the case that a hard cap would provide any degree of competitive balance.

It becomes obvious that the wins and losses are more a product of decision making than pure spending. Success through the draft and wise free-agent signing will always put you on winning track and create a profitable franchise. What seems to be a bigger issue is recovering from bad decisions. That brings us to our next slide...

The "Allan Houston" Clause Will Be Implemented Regularly in the Next CBA

As stated before, the recovery from poor personnel moves and pure luck is more of a problem in the NBA than disproportional spending. Let's take, for example, the Milwaukee Bucks.

Last season, the Bucks came into the season with multiple question marks. Their franchise cornerstone, Andrew Bogut, was coming off a horrific arm injury that may have cost Milwaukee a chance to make major noise in last season's playoffs. 

Their top gunner, Michael Redd, was on the road to recovery from two major knee injuries and at best, would not be available until midseason.

In response to this dicey predicament, Milwaukee extended questionable offers to power forward Drew Gooden and John Salmons in hopes to building on their success in 2009. The result was a diminished Bogut, and $18 million shooting guard that could not play until the team was out of contention, two overpaid, disappointing free agent signings and a 35-win season.

The question is: What if the Bucks were able to get from under the Redd contract before the season?

Milwaukee's situation is not uncommon. An injured or unproductive player becomes an albatross to a team for years, and limits a team's ability to rebuild.

NBA salaries are guaranteed. It is hard to believe that there is a situation where that fact will change. What can change, however, is the ease of a franchise to relieve themselves of these burdens.

In 2005, the NBA came to an agreement on the present CBA. One of the results of the agreement was the one-time Amnesty clause. The clause allowed each team the option of buying out the contract of one player at full value with not luxury tax fine. 

The clause, commonly referred to the "Allan Houston clause" (ironic, because it was not used towards Houston's contract), was a huge relief for many teams who were able to release cumbersome contracts. While they still had to pay the full salary, they were not hit with the dollar-for-dollar luxury tax.

A modified version of this rule would go a long way in a rebuilding project. Re-enter Milwaukee. 

Imagine Milwaukee with the ability to pay Redd and have his salary not count again the overall cap. Would it have been worth the $18 million to let Redd walk and have that cap space? Who knows, but the option is worth consideration. 

Expect some version of this rule to be present throughout the duration of the next agreement.

Revenue Sharing Will Not Be Impemented in the NBA

One of the most widespread notions is that the NBA needs to fall in line with the NFL and MLB, and agree to share revenue. Most believe that the NBA does not participate in the practice, and this fact is a major factor in the financial struggles of the league.

That is not entirely true.

While there is no official revenue-sharing program as in the NFL, the money generated by the collection of the luxury tax is placed in an escrow account and divided up at the end of each season.

In the 2009-10 season, the NBA collected over $111 million in luxury tax dollars. About 70 percent of that total was allotted to non-luxury tax paying teams. 

In short, the teams that do not cross the luxury tax threshold receive a double benefit. Not only do they not have to pay any fines, but also receive a rebate that top spending teams do not. Last season, non-luxury tax paying teams received $3.7 million plus. 

Teams like the Knicks, Mavericks and Lakers who exceed the salary cap are, in reality, providing additional revenue to teams that do not. Decreasing those funds seem counterproductive.  

What does seem more probable is that luxury tax could become much more steep. Increasing the tax imposed on teams that exceed the cap threshold will supply the teams that do not with a greater rebate, allowing them greater relief at seasons end. 

This creates a different problem, however, as teams in smaller markets may see it as more financially advantageous to stay under the cap and put the additional cash in their profits...but that is already happening now.   

The Average NBA Salary Will Be Cut Significantly

The average NBA salary in the 2010-11 season was $5.356 million per season. That figure represents the highest average salary of any North American sports league. The high salary, in part, is a result high collective revenue (a projected $4.17 billion in 2012), and a relatively small roster size (15 players per team).

Projections have that $5 million-plus per season, climbing to around $7 million in the next six years. The owners believe this figure is entirely too high.

In the initial proposal submitted by the owners, players' salaries would be capped at $2 billion over the next 20 years, and maintained despite the expected increased projected revenue. The players disagree, saying capping at any figure is unfair, as players salaries should grow and the NBA brings in more revenues.

The players offered to cut their pay by $500 million, bringing their BRI number down to around 54 percent throughout the course of the new CBA. This would provide the players with raises as the NBA continues to grow. The offer was refused. 

Many believe that while the side are far apart, a 50-50 split of the BRI is a fair compromise. The big problem is the split going forward. Owners want to cap salary potential, players want a proposal raise as the NBA grows. That, at it's core, is the main issue in this labor dispute.

The bottom line is that when the smoke clears, the players will be making less money than before.  

The 2011 NBA Season Will Not Be Lost

Many believe the NBA will look drastically different when the lockout eventually ends. Many look to the NHL lockout of 2004 and point to the drastic overhaul they experienced. 

Looking in to it, however, the NHL was a much different place, spending over 76 percent of total revenue on players salaries. Also, the NHL had several franchises going bankrupt, lacking the diversified revenue to thrive in the market. 

The NBA, however, is not in those dire straits. Despite certain teams in certain areas losing money due to poor ticket sales, the NBA grew as much as five percent last season in total revenue. That type of growth in a depressed economy is substantial.

The issue is the future.

Owners are looking for protection against themselves and the bad personnel decisions they will eventually make. Players are looking to secure their wage scale and ensure they are not giving up something they can never get back. There is a battle to be wage, but there is far too much at stake for an entire season to be lost. 

Expect basketball in November.