The CBA: My Last, Best Offer

It’s June 27, and in a few days, there will be a lockout.

As of the time I’m writing this, the NBPA representatives are saying that the owner’s demands cannot be met.  These demands, reported Tuesday by Ken Berger, have changed significantly in form from the owners’ offer used in the comparative on June 1, but not in substance.  The result of both offers greatly reduces the players’ share of BRI (from 57% to below 40%), institutes a hard cap, and effectively ends fully guaranteed contracts.

The owners new offer includes a “flex” cap at $62 million while guaranteeing the players $2 billion per year in salaries and benefits over the next 10 years.  The players consider the “flex” cap the same as a hard cap — I’ll explain this later, but the players are right — and they note that $2 billion guarantee essentially means that they won’t share in the future growth of the league.  Billy Hunter says that the current offer would cost the players $8.2 billion over the next 10 years compared to the current system, and $7.0 billion compared to the players current offer (of roughly a 54.3% BRI split).

The new CBA has been a topic of discussion for two years now, and the first formal offers are almost a year old.  In that time, neither side has made any material move towards the middle.

And that’s why there will be a lockout.

The Offer

A few days ago, David Aldridge published his ideas to avert the work stoppage.  While the NBA Blogosphere and Twitterverse were both very receptive to Mr. Aldridge’s ideas, I was not.  The unfortunate few who follow me on Twitter (@toothpicksray) saw my criticisms.  These primarily centered around the $20 million exception and the bi-annual amnesty clause.

Though I still would not like to see his proposals implemented, my complaints were unfair in two aspects.  First, I did not give sufficient weight to his 50/50 BRI split.  Second, I committed the sin of attacking someone’s ideas without offering alternatives of my own.

What follows are my alternatives for a 10-year CBA.

The New BRI Split

Current Agreement – Players are guaranteed 57% of the Basketball Related Income (BRI) to be paid in the form of Salaries and Benefits.

Current Players’ Offer Players are offering to reduce the amount guaranteed from 57% to 54.3%.  The percentages are based on targeting a $500 million reduction vs. the current agreement over a 5-year period – or an average of $100 million per year.

Current Owners’ Offer – David Stern said the new offer guarantees at least $2 Billion per year to the players.  In effect, still generates a BRI split reduction, but phases it in more slowly.  In terms of dollars over the course of a 10-year CBA, it has roughly the same impact as the previously proposed $900 million reduction to BRI (for expenses), followed by a 50/50 split.

Union Chief Billy Hunter claims that the current owners’ offer would reduce the players’ share of the NBA pie over the next 10 years by more than $8 billion versus the current agreement and about $7 billion versus the players’ current offer.  This remains an extremely aggressive stance on the part of the owners – one that seems unlikely to be agreed upon without a lengthy lockout designed to effectively “break” the union.

My Proposal – Players would receive 51% of the first $4 billion of BRI, then 67% of any BRI above $4 billion.  Cap on overall effective BRI split at 58.5%.

The owners have been claiming annual losses of $300-400 million, and their demands have basically been aimed at getting $700-800 million in savings annually.  The players dispute the claimed losses.  They also argue that gap should not be filled entirely from their share.  As noted above, they have recently offered what amounts to about $100.

This offer gives the owners a savings of roughly $230 million at a BRI level of $4 billion (which should reasonably approximate current levels).  This acknowledges the owners’ claim that the business is not as healthy as desired, but neither moves them towards (virtually) guaranteed profits nor puts them in a position to recoup losses from the previous agreement.

At the same time, it gives the players a greater share of the growth, which provides an opportunity to get back to an overall 57% share — albeit gradually.  They would have more risk, but more opportunity.

Without direct access to the numbers for current and future years being used in these negotiations, I am forced to use the anecdotal information available to generate overall impact.  Based on the comments by Messrs. Stern and Hunter, I believe their revenue projections would indicate that:

  • under the current agreement (57%), the players would receive a little over $30 billion over the next 10 years.
  • under the players’ offer, the players would receive about $29 billion over the next 10 years.
  • under basically both versions of the owners’ offer, the players would receive just under $22 billion over the next 10 years.

Broadly speaking, this seems to indicate significant revenue growth during the period, perhaps averaging 5% annually.  Using that somewhat gross assumption, my proposal would pay the players just a little under $29 billion over the life of the CBA.  That is roughly $1.2 billion lower than the current agreement and roughly the same as the players’ proposal.  However, it is about $7.0 billion higher than the owners’ current demands.

Obviously, these differences will fluctuate based on future revenues.  The faster the revenue grows, the fast the players’ share approaches an effective rate of 57%.  The slower revenue rises, the longer they linger below.  As an example (not a prediction), if BRI were to rise at a relatively stable (though optimistic) 5% per year, the players would end up at an effective rate of 57.1% in the tenth year and receive a little over 54% of the full 10-year revenue.

Note: There is a cap of 58.5% of effective BRI rate. This means that the players will never receive more than 58.5% of total BRI.  In practice, this means that at approximately $7.5 billion, the players will be receiving an effective BRI split of 58.5%.  Any BRI above that, the will receive the 58.5% split, not the 67%, in order to maintain that balance.

The Salary Cap System

Current Agreement – A “soft” cap with exceptions and a luxury tax.  As always, see Larry Coon.

Current Players’ Offer – Effectively, the same as the current system.

Current Owners’ Offer – A “flex” cap with a midpoint target of $62 million.

What’s a “flex” cap?  An unnecessarily convoluted hard cap.

The $62 million “midpoint” being thrown around would operate as a soft cap.  Bird and Mid-Level Exceptions would remain as a means to go past it.  However, above the $62 million there is an actual hard cap…so, hard cap.

My ProposalHard Cap

If you’ve read my previous work, you are now thoroughly unsurprised.  However, I think that the owners’ desire for a hard cap is only a little less fervent than my own.  Why?  Well, Kevin Garnett wasn’t wrong the other day, when he said the owners want “control.”

Of course, they do.

The hard cap is a reasonable target.  In fact, while I believe the BRI split should be the most important decision point for the players, it is the salary cap system that needs to be the single most important decision point for the owners.  The owners’ approach with the “flex” cap disappoints me.  Playing games with the “flex” cap was dishonest, insulting, and utterly counterproductive.

The players, however, do not consider it a reasonable target.  Billy Hunter has said that guaranteed contracts are the “life blood of professional basketball,” while Derek Fisher has said there will be no agreement with a hard cap.  The BRI split is crucial, but, really, this issue is/was/always may be the casus belli in this conflict.  I have always felt that this would be the hill that both sides would be willing to die on.

So, why am I including it in this offer?  In order to answer that, I want to address what a hard cap means and, just as importantly, doesn’t mean for the two parties.  First, it doesn’t mean this:

“A hard cap would cut hundreds of millions of dollars in player contracts, including those of star players.” – David Aldridge One man’s way to avert NBA’s looming lockout June 20, 2011.

A hard cap will not do this.  The controlling issue on the dollars due to players is the BRI split.  What a hard cap creates is 1) a short-term transition phase that could create some upset depending on how it is handled, and 2) a long-term market environment where long, fully-guaranteed contracts will become virtually extinct.  Both are important to understand, but it is the latter — the loss of the fully-guaranteed contracts — that creates the discord.

Net-net, the players don’t like it, because they fear it will cost both long-term security for individual players and possibly that one big contract that sets them for the rest of their lives.  Owners want it, because it provides the cover necessary to pull back from offering 4-, 5-, and 6-year guaranteed contracts that the market has created as expectations.  That, in turn, allows owners and front offices more flexibility — and control — in terms of running and building their team.

I’ve considered both, and below are the details of my hard cap arrangement.

  • The hard cap level will be established by taking the Players’ projected share of BRI, reducing it by $100 million to account for benefits, and dividing it by 30.  For example, a BRI of $4.0 billion would generate a hard cap amount of $64.7 million.  At $5 billion, the cap would be $87 million.  (Note: a hard cap established by the players’ BRI split virtually guarantees that the negotiated salaries and benefits will not meet the Players’ guarantee.  This hole will be filled by the owners, but the mechanics need to be sorted out.  I have an idea, but I can’t decide whether it’s brilliant or insane, so we’ll let that sit for today.)
  • Contract length limitations will remain the same as the current agreement — six years for your own players, five years for other teams’ players.
  • There will be no express limitation on guaranteed contracts — though the hard cap will create practical limitations.  However, all deals longer than three years must have a negotiated, league-approved buyout agreement.  Also, it will be required that at least the first two years of all deals longer than three years be guaranteed, and at least the first year of any two- or three-year deal will be guaranteed.  Also, any nonguaranteed year in a multi-year deal becomes guaranteed if the player is on the roster for opening night.  One year contracts may be fully nonguaranteed, becoming guaranteed on January 1.  Ten day contracts will function the same as today.
  • A player’s cap hit will be the average salary over the course of the contract.  Buyout amounts will be straight-lined over the balance of the initial contract.  The actual payment of the player may be negotiated.  For example, a player signing a 4-year, $40 million contract will hit the cap at $10 million per year.
  • A team’s payroll may not exceed the salary cap at any point during the season.
  • If a team is found in violation of the salary cap, they must get below the cap immediately, and they will be charged three times the excess for the first offense.  All additional offenses will be penalized with the loss of a draft pick. (These will need to be calibrated.  I want teams to take the cap extremely seriously, but I’m not sure I want to create a situation where a $25,000-screw up costs a team a draft pick.)
  • Injuries – I don’t have a fleshed-out arrangement, but I would put provisions in place that would protect both the team and the player in the event of catastrophic injury.  Of course, the biggest difficulty in this regard is actually determining what would qualify as a “catastrophic injury.”
  • Sign-and-trade deals will be allowed only to match salaries.  The contract will be under the limitations associated with signing another team’s free agent.  Therefore, you could not do a sign-and-trade to get six years instead of five.

The above are the core details of the arrangement, but there will need to be a transition period.

Here’s how I suggest handling the transition:

  • Time Line
    The actual hard cap will not be fully in place until the 2014-2015 season.  During the interim period, the calculation will be used to establish the luxury tax threshold.  The old soft salary cap will be abolished entirely.  Using a $4.0 billion example, teams would be able to spend up to $64.7 million without having to use exceptions.  Any thing above that will be subject to a luxury tax.
  • Exceptions
    The Larry Bird exception will remain in place until the hard cap is fully implemented, then be abolished entirely.  The Mid-Level & Bi-Annual Exceptions will be available for the 2011-12 and 2012-13 seasons, and abolished entirely starting with the 2013-14 season.  All MLE & BAE signings must expire by the end of the 2013-14 season.
  • Future Contracts
    Beginning with Summer 2011, all new contracts must meet the requirements outlined above, including the negotiated buyout agreements and guarantee requirements.
  • Current Contracts
    All existing contracts will be executed based on the terms as signed.  All guaranteed monies will be paid, and there will be no salary rollbacks.
  • Amnesty
    Prior to the 2014-2015 season, teams over the cap will have a one time Amnesty to remove up to $10 million from their cap figure.  They will still have to pay the players guaranteed monies, but it will not count against the cap.  If they are more than $10 million over the cap, or cannot field a roster of at least 13 players under the cap after using the $10 million amnesty, then they will lose a 1st Round draft pick in addition to having to get their payroll under the cap.  (You’ve had three years to plan for this, I’m not feeling sorry for you.)

This arrangement will reduce the long-term commitments of the owners, but it will not leave the players entirely “disposable.”  Front offices will still need to plan years into the future, but they should be able to avoid being trapped for three, four, or five years at a time.

The owners’ have been (not inaccurately) accused of trying to “guarantee” profits for at both the league and team level.  However, it should be noted that the players’ insistence on holding onto their guaranteed contracts and over half of the BRI amounts more or less to the same thing.

As I said earlier, the Players should maximize their BRI, while the owners should seek to maximize their control.

Other Meaningful Items

The BRI split and the Salary Cap System are far and away the most important things in this conflict.  If the two sides agree on these items will clear the way for a final signing.  None of what is below will prevent overall agreement.  Some may be meaningful to only one side or the other.

Rookie Contracts
This doesn’t need to change much but the following is my suggestion:

  • The rookie scale will be reduced by 10%, which is consistent with the BRI reduction being made on the 1st $4 billion above.
  • Rookie contracts will be four years — 1st two guaranteed, team option for third and fourth years.
  • The “Qualifying Offer” will be abolished, meaning players will become unrestricted free agents after their fourth year.  However, the following two adjustments will be made:
    • Teams will be allowed to sign their draft picks to extensions up to June 30 after the fourth year vs. the current deadline of October 31st prior to the fourth year.
    • Contract offers for another team’s draft pick will be limited to three years in length.  Teams may offer their own draft picks extensions of up to five years in length prior to June 30th, and contracts of up to six years once the draft pick hits free agency.  All offers must follow the contract and cap rules as outlined above.

Max Contracts
As of the 2014-15 season, “max” contracts will be abolished.  Teams are free to pay a player as much as they can fit into their cap space.  (This should be interesting.)

Minimum Contracts
I’ve said before that “a hard cap is a hard cap is a hard cap.”  This is going to be a close to an “exception” I’m going to come.  The Minimum Contract will follow the same rules as today, with the league “reimbursing” teams for the difference between a veteran’s minimum and that of a third year player.  However, teams may not have more than three players eligible for this reimbursement.

NBA Developmental League
In order to encourage use of the NBADL, I propose the two following items:

  • Each team will be required to “sponsor” at least two players at NBADL standard salary rates, which are $12,000, $18,000, or $24,000 per season.  The team will hold the “rights” of these players for one season, renewable, but another team can claim them simply by reimbursing the first team for the salary amount.   This will not count against either the team’s cap figure or the Players’ BRI split.  Update: The “assigned player” would not count towards the 15-man roster limit.
  • If a team assigns a first- or second-year player to their NBADL affiliate for the entire season, they may exempt up to $2 million of that player’s salary from their cap figure.  If that player is brought up to the parent team at any point during that season, his entire salary counts against the cap.

Roster Requirements/Limitations and Activations
Rosters can be no more than 15 players, no less than 13 players.  The league agrees to an average roster size of 14 players. There will be no more “Inactive” list.  All players on the roster may dress every night.

The Draft
The first round will remain the same.  The second round will be abolished by 2014.  This allows players not taken in the first round (and thus, not getting guaranteed contracts) will be free to find the best opportunity for them.

The Age Limit
Abolish the age limit for 2012 Draft. Look, I agree with the idea of an age limit.  I think it would be good for quality of play, but I think it is basically useless as currently constituted.  I’d like to see it move up, but don’t consider that practical.  Therefore, if I can’t get a useful one, I see no reason to continue the one-and-done charade.

In Parallel: The New Revenue Sharing Structure

The other day, I was fortunate enough to have a really interesting tweet-versation with Nate Jones (@JonesOnTheNBA) about whether or not the NBAPA should or could legally compel the NBA to bring revenue sharing into the CBA negotiations.   I believe that they’re separate, but Mr. Jones is a smart guy who made some damn good arguments.

This is my piece and my world, so I get to hold them separate.  However, I consider enhanced revenue sharing an imperative for the NBA.

Most importantly, while I don’t believe they should have a seat at the table for this discussion, I believe that the NBAPA and guys like Nate Jones deserve to see a practical and concrete proof of good faith efforts in regards to revenue sharing.

Of course, I am a small market guy, and as you read this, there are big market guys winding up to hit me in the face with questions as to why they should subsidize me.  That’s a fair question, but I think I have a way around that.

These ideas are mine, but they were formed by reading about the NFL labor situation, specifically these two outstanding documents:

What dawned on me as I tried to understand this situation is the relationship of team revenues to BRI to team costs.  One of the issues in the NFL is that the amount of unshared revenue has increased over the last few years, and that revenue is included in the calculation of the salary cap.

In the NFL, approximately 70% of BRI is shared, primarily driven by the national TV contract.  However, this is down from a few years ago, when it was 80-85%.  As a result, as the NFL Salary Cap has climbed, it has put what the lower revenue owners feel is undue hardship on them.

In the NBA, only about a quarter of the BRI comes from shared revenue, exaggerating the difficulties.  And this is the genesis of my Revenue Sharing proposal.

For every dollar of BRI that a team generates, they are responsible for the creation of a liability — monies owed to the players.  The liability is based on the agreed upon BRI split.  Under the current system, it would be 57 cents.  Under my proposal, it would start at 51 cents and escalate as BRI grows above $4 billion.  However, that liability is shared by the league as a whole.

Therefore, my revenue sharing proposal is simple:  For every dollar of BRI generated, a team will kick a commensurate amount into the “pool” to be distributed equally among the 30 teams.  Using the reported new $150 million annual local TV deal for the Lakers, they would kick $76.5 million per year into the pool.  The Kings, who are said to have an $11 million per year local TV deal, would kick in $5.6 million.  This would flow throughout the rest of the BRI (excluding the already shared revenue like the national TV contract), and look something like this:

(Click Here for Larger Version)

The “Net Impact” column indicates the amount of change for each team using the 2010 figures reported by Forbes.  These are some pretty gross assumptions, but it should give you a sense of scale.  The highest revenue teams — the Knicks and the Lakers — would see about $50 and $45 million less in revenues, respectively.  The lowest revenue teams would gain between $15 and 20 million each.

Jerry Buss and James Dolan may have just thrown up in their mouths a little.

Oh, well.  There are two things to keep in mind here.  First, this isn’t giving away money with no basis — this is covering the liability created by your own activity.  Second, the Lakers payroll costs for 2010 were about $112 million, including luxury tax.  Under my hard cap rules with the $3.8 billion revenue figure above, they would hover around $65-66 million (salary plus benefits).

At the end of this, the range of revenues will be from a low of $108 million (New Jersey Nets) to a high of $175.4 million (New York Knicks), instead of $89 million to $226 million.  The rich will remain the rich.  The poor should become viable.

A Brave New World

There should be enough here to pretty much make everyone unhappy.  It’s important to remember that I gravitate towards fair or balanced rules without necessarily being worried about fair or balanced results.

As a Pacer fan, I believe this removes some very real obstacles currently standing in the way of my team being able to consistently build and maintain a good basketball team.  However, it also removes excuses.  Though luck will always play some role, I believe this creates an environment where organization, planning, and smarts are paramount.  I do not know what will happen, and it’s both exciting and terrifying at the same time.

So what does this proposal mean to the two sides?  This is a net “win” for the owners, though I’m not entirely comfortable with that terminology.  In the short term, the players would be giving up some of their BRI share (about $230 million at $4 billion), but there is a mechanism to get that back at higher revenue levels.  (Note:  that accelerator, as well as some of the aspects of the rookie contract structure were inspired by things written by David Aldridge).

They are also, in effect, giving up widespread fully guaranteed contracts.  This is something they value greatly, but to be brutally honest, I don’t see any more birthright to that than the owners would have to guaranteed profits.

It’s often asked why the players have to “give up” things.  Well, there are three, thoroughly mundane reasons.

First, this is with whom the owners are negotiating at the moment.  We’ve already heard stories of salary roll backs for front office personnel — including Larry Bird, who supposedly took a significant reduction on his $5 million salary.

Second, this is far and away the largest segment of the cost stack.  David Aldridge said, “Players, of course, don’t want their paychecks to finance profit certainty when no other business has that kind of arrangement with its workers.”

That’s not really true.

All manners of business use their workforce’s paycheck to manage profitability.  Difference is that in this context, this comes in the form of reducing the Players slice of the pie.  In the rest of the world, it comes in the form of wage freezes or reductions, hiring freezes, furloughs, four-day weeks, hour reductions, and, of course, layoffs.   Players are an odd hybrid of employees and product, so the analogy here isn’t pure.  Regardless, the tug of war will always exist and will always mimic labor relations in other industries.

Third, this is where the large risk and the waste is.  There is no sound formula to determine what a player is worth, and in the current market, mistakes cost tens of millions of dollars.

Sure, people can look at a Jerome James-type signing and know that it was stupid, but what about Brandon Roy?  Where does Danny Granger fit on the scale between bad contract and bargain?  Tyson Chandler was worth $12.6 million to the Mavericks, but would he have been worth that to the Pacers or the Hornets?  Zach Randolph has spent the better part of the last few years being considered a boat anchor, but damn, was he good this year.

This is my last, best offer.

I believe it to be far better for both parties than what either are currently offering (at least as reported).  It represents a lot of movement for both parties.

But is it enough for either?

http://www.eightpointsnineseconds.com/2011/06/the-cba-my-last-best-offer/

Topics: CBA Talk, Collective Bargaining Agreement

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  • http://www.bsutton.com/bill Bill

    Good work. There are flaws, but nothing will be perfect and I think this comes very close to achieving the necessary balance.

    You didn’t really talk about the fact that the players are also opposed to a 10-year CBA, but it would be required in this case due to the transition years – 3 years of transition and then only 2 years of operating under the new rules before blowing it up again makes for silly.

    I think the petard in your proposal is the unlimited contract size for a single player. Teams will blow themselves up using it to sign their own franchise player, and while some will be worth it some will not. Players will blow themselves up if they accept it because it will drastically increase the salaries of the cream of the crop at the expense of everyone else – you’ll have one ridiculous contract and 12 minimums on every team.

    I really like the NBDL proposal, though I’d add in an exception on the extra cap to bring someone up to replace a player with a season-ending injury (the cap remains calculated using the original player’s salary).

  • http://www.eightpointsnineseconds.com Tim Donahue

    Bill,

    The issue with the unlimited contracts is sorta intentional. I think there will be some of the blow ups you’re describing, but I think the market would rationalize. It would be interesting to see how both sides would react to such a proposal, let alone actually implement it.

    I’m being a little bit mischievous with that one.

    Thanks, Tim

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  • http://hardwoodhype.blogspot.com Hardwood Hype

    Comprehensive, well thought out and genuinely fair. Great, great work. This is nothing short of exceptional.

  • David

    Tim

    Highly commendable. I also believe the NHL’s hard cap system – which has seen the cap rise every year since it was introduced – has some interesting aspects that deal with the question of mandatory buyouts and such. The system has worked far, far better for the players than they anticipated at the outset when they took a 24% wage cut and returned to work, seemingly whipped. I think there’s a lesson there – any system might not work out as well as one side or the other anticipates.

    There are some issues here that I don’t believe you have addressed. There is the whole expense question – just because revenues rise (or fall), expenses may rise (or fall) faster. In Toronto, we have the added question of currency conversion. The Canadian dollar has varied between 62 cents US and $1.05 US over the past decade, but arena and marketing expenses are fixed in Canadian dollars. A low C$ which the Raptors faced in the early part of the last decade is crippling, pushing up expenses far more than the team gets in added US national television revenues.

    Also, a backward looking BRI calculation doesn’t anticipate the next season’s situation. For example, Toronto has cut ticket prices for next season and the season after by a minimum of 10%. But based on past financial performance, as you suggest, they would be paying MORE into a rev-sharing plan.

    I also think your plan does not do enough to promote parity on the court. I’d like to see changes to the draft like baseball has, where if a team loses an A list free agent, they get a comp draft pick. I believe the players association has even suggested this, providing the pick is not that of the team signing the free agent (so as not to make free agency more restrictive). Furthermore, I’d like to see the teams able to use cap space to fund larger buyouts of European players so they can come over sooner. If a team with cap space forked out $2 million of a $3 million buyout, a player they had drafted previously might come over sooner. A weaker team is more likely to view that as a good use of cap space, whereas a strong team would prefer to use that cap space for veteran help.

    Unfortunately, my biggest hope for reforming the NBA won’t be realized in these negotiations. That is to cut the pre-season to two weeks, cut 4-6 games off the regular season, and eliminate most back to back games which only serve the owners. The quality of play would be enhanced and player careers extended if back to back games were eliminated.

  • wintermute

    Tim,

    I haven’t always agreed with your CBA articles, but you outdid yourself this time. Bravo, a wonderful, massive yet coherent piece of work.

    And in fact, I can hardly find anything to disagree with. Some minor quibbles but it all makes sense and seems pretty fair.

    Ok, here are the minor quibbles. I’m not sure I buy the logic of hard cap = nonguaranteed contracts. You’re taking a leap there by assuming GMs would be rational and not offer crippling contracts in a hard cap regime. It’s like the unlimited contract size, a rational GM won’t cripple his cap by giving any single player a “too big” contract – and yet, all it takes is a Mark Cuban type who’s willing to up the ante and others will follow suit. The counter there I guess is that GMs who do this will eventually hem themselves in with the hard cap, but that might take a few years before it becomes evident and it’s pretty clear that most GMs operate in the short term anyway.

    It seems that if owners are after “control”, they ought to target guaranteed contracts head on such as in their original proposals (which have since been taken off the table). Makes a lot of sense to me to simply partial guarantee or even unguarantee the last years of a long term contract. Your pre-negotiated buyout provision sort of alleviates this though.

    Also wondering why there’s a penalty for teams exceeding the hard cap. All transactions must be approved by the league right? Seems to me that the onus should be on the league to check that any transaction (trade, signing, etc) won’t exceed the team’s hard cap, and simply disallow any that do.

  • David

    TIM

    I’d also offer this analysis of the NHL hard cap system.

    http://www.blueshirtbanter.com/2010/4/28/1448124/nhl-analysis-understanding-the

    The NHL has bigger rosters, and minor league systems like baseball, but it does share something that could interest NBA owners (and allow players to phase in concessions over a long period of time).

    Specifically, unrestricted free agency, as in baseball, is pushed out further into a player’s career. In the NHL, one can’t become unrestricted until age 27. Restricted free agency begins sooner than it does in the NBA, but unrestricted free agency waits until age 27. And in baseball, the number of years a player is controllable – i.e. subject to arbitration – is much longer than the NBA, where controllability ends in the fifth year absent a player being extended or signing a new agreement in the first year of restricted free agency.

    So, the NBA could extend “rookie scale” for a fifth or sixth year, perhaps the sixth year being the start of restricted free agency and the sixth year being the first year as a UFA.

    Also, see the NHL’s buyout provisions.

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  • Ray

    I sincerely believe that a hard cap would be the worst thing that could happen to the NBA. There is nothing more tiresome for a casual fan than to see the defending NHL champion gut their team because they can’t afford to maintain it. I don’t see any problem with the soft cap as it is now. You could extend the luxury tax to apply dollar for dollar on contracts over the cap in order to generate more shared revenue. I also don’t see why a big market team shouldn’t be allowed to spend a little more on players (with penalties of course) if they are willing and able. They sell out the stadiums and get the TV audiences, and there should be some reward for that kind of loyalty. If the NBA institutes a hard cap, it will be the first step in a tailspin.

  • Chris D.

    As a lifelone Pacers fan, I like most of that proposal. Here are a few thoughts.

    1. Would a hard cap drive marquee players to big cities in order to capture outside revenue from advertising and personal appearances? I like to play a game regarding any cap system. I ask myself: “How would this system have made it more likely that Kevin Garnett or LeBron James would have at least considered the Pacers as a destination, assuming the Pacers would have had a competitive salary available?” If it doesn’t move the needle that way, I am skeptical. I’m not sure how a hard cap helps unless we assume there’s enough talent to go around and they can’t all go to the same five cities.
    2. Small market teams need to point out the fact that the NFL is the #1 fan sport in the U.S. due (at least in part) to parity. There are no dynasty cities like NY and LA. Heck, LA doesn’t even have a team. Indy has enjoyed a decade of prominance, which could not happen in any other sport. The NFL is run more like a single corporation comprised of franchises. The NBA is run like a confederacy of owners.
    3. The players must understand that their needs to be more insecurity for non-marquee players. Every team is built around only 2 or 3 players who are “indespensible” to that team’s current system. Everyone else should feel uncertain and as though they are playing for their jobs each year. Fans are sick of overpaid, interchangeable benchwarmers and slackers who have clearly violated the spirit of their contracts (e.g., Jamaal Tinsley). I like your guaranteed vs. nonguaranteed system.

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  • Kostya

    Tim,

    As far the draft goes, I was wondering if you could comment on the policy that baseball has in this regard. They allow players to enter the draft early out of high school. However, if the team cannot reach an agreement with the player for a contract and the player enrolls in college, then he must remain there for three years.

    Now it’s actually less clear why baseball needs such a system, as they have an extensive and well developed minor league system, so the concern about players not learning isn’t a particularly real one. But regardless of the merits for baseball, would such a system be effective in the NBA?

    The main concern I’d have is that essentially none of the top talent would go to college, and we would just in the pre-age limit days. It’s not clear to me that’s not happening in MLB however, so perhaps an NBA equilibrium would develop that would allow NBA ready kids to go early, while others would (who weren’t going to be lottery picks) would go to college and hope to develop into lottery picks after a few years? With slotting it would be much more about hoping to be drafted in the early picks than MLB does it, but the same principle would apply, would it not?

    LeBron James still wouldn’t have learned a post game under this setup, but guys taken later, like say Byron Mullens, drafted in the end of the first round, might go to college and hope to be drafted on the top end in a few years perhaps?

  • Naren

    I think a lot of what you have expressed doesn’t address some fundamental problems with the current CBA— Performance does not dictate pay. Here would be my non-negotiables if I were an owner:
    1. 20% of league revenues should go to teams with winning records..
    2. revenue sharing- 30% of all local and national tv deals go to general revenue sharing.
    2. 10-15% of a players salary should be based on team performance. The deeper your team goes in the playoffs the larger the ‘increases in pay’.
    3. 10-15% of a players salary should be based on individual performance— minutes played, PER… your role on the team changes, and so should your pay accordingly.
    4. Captain/Veteran bonus:You get to set aside 5% of personnel budget towards – team captains, and veteran players who help with player development.3.
    5. Contract length: Three years in the max length of a guaranteed contract with no exceptions.
    6. Contract consolidation clause: You can consolidate a players contract from multiple years to a single year and turn him into an expiring deal. (i.e. 3 year 10 per, can become a 1 year 30)
    7. Contract escalator: contract can only increase by rate of inflation… i.e. 3%
    8. Rookie contracts reduced to 3 years: top 8 pics 100% guaranteed deals, next 8 get 75%, next 7 get 50%, last 7 get 25% guaranteed.
    9. 2nd round picks: Combine the second round a Dleague draft. 50k-200k per year for second round picks. Teams should be required to have at-least 5 2nd round picks in their farm program.
    10. Players get 50% of league revenues (BRI) now and into the future. Fixed for 10 years.

  • Cory

    Very interesting proposals…I like a lot of the ideas, including tying caps and revenue sharing to BRI.

    One fundamental disagreement I have with the plan: the change in BRI according to total revenue. While we all like the game because we watch the players play, I would posit that the front office and ownership may have more of an impact on total revenue than the players…that is to say, the amount of revenue generated by the players is roughly static, or varies slightly depending on available talent. The owners and executives, however, make many more money-related decisions: revenue is increased by building new arenas, improving the live-game experience, good advertising, negotiating TV contracts, expanding the online and social media experience, and choosing which players to bring onto the team (among other things). None of these are under the control of the players, individually or as a whole, although I would posit that I’ve described some of the most important BRI generating tools.

    Thus, it seems to me that the relationship ought to be reversed…give ownership incentives to generate more revenue by granting them a greater cut of the pie when that $4 billion threshold is crossed. This encourages good management, and encourages them to improve the quality of the game. The players already have incentive to play well in the form of contracts…they compete with each other.

    After that, though, I agree with the overall BRI split of 58.5% if BRI is high enough.

  • Craig W.

    Your plan either ignores a specific problem, or at least doesn’t pay much attention to it.

    I live in Los Angeles. Here we have to major sports owners: Donald Sterling and our now bankrupt Dodgers, who manage their sports teams to make maximum profits without any concern for the city, the fans, or competition in the league they are playing in.

    Any revenue sharing plan has to have more than a minimum number of players (13) and minimum salaries. There has to be something to ‘encourage’ these owners to invest in their franchises so as to aim at winning. These are large market teams so there can be no complaint about disadvantages in marketing.

  • http://www.eightpointsnineseconds.com Tim Donahue

    Thanks to everyone for the comments, and for taking time to read the work.

    Unfortunately, I’ve gotten buried at work, and I’m struggling a little with my home wireless. I have copied all your comments, and I’m going to take some notes to try to answer them properly. I promise I’ll have responses by tomorrow night.

    One thing that you should listen to is Ryen Rusillo’s NBA Today Podcast with Russ Granik, Larry Coon, and Chris Sheridan

    Thanks again

    http://sports.espn.go.com/espnradio/podcast/archive?id=3634017

  • http://searchingforslava.blogspot.com Dave M

    This is a terrific, comprehensive post and proposal… and the comments are worthy of being posts in of themselves. I’m not sure that I agree about the flex cap, in that words themselves can have meaning and can be representative of compromise in thorny negotiations. The way you’re defining how to get to a hard cap, and the basic idea of creating a flex cap that would allow players to feel that they’re preserving some territory, are compatible. Think of it as box office escalators with a ceiling. I agree that revenue sharing is separate but it’s so important, especially with the changing face of major and minor markets. New media was never really considered in earlier boilerplates – nobody could have anticipated the impact of the internet, mobile devices, social media, etc. Ticket sales will soften in coming years and more of the overall pie will come from media, licensing fees and various ancillary streams – major and minor share markets will no longer be as rigidly defined (fans/consumers become increasingly self-contained or pod-like). Players are so locked into the different cap definitions because it’s the now as opposed to the future. I honestly believe that the certain of the owners are predetermined to shut down the league in order to narrow their own playing field – verticle integration will be the future of league ownership, in much the same way that it has taken over other areas of large-scale business. If they can break the players union at the same time, so be it.

  • Yogi

    “Fans are sick of overpaid, interchangeable benchwarmers and slackers who have clearly violated the spirit of their contracts”

    Agreed, which is why long-term guaranteed contracts have got to go, even if it means missing a season. The improvement in players demeanor and attitude will be worth it, and the level of coaching and on-court basketball intelligence will be able to rise significantly, as the coaches won’t be held hostage by players.

    For me your offer doesn’t go far enough in that direction, but still, thanks for an excellent job, Tim.

  • drew

    I like this plan better than anything that I have seen from the players, the NBA, or other outside ideas–although so far the actual NBA and Player negotiations seem to be the worst of all the ideas for offers that I have seen thus far.

    The only thing I really disagree with is the age limit, and that is because I don’t mind the “one and done” mentality. I think that (for the most part) it gives those guys a better chance to improve their game than if they went directly to the NBA, just by the level of competition and working within a system alone. Most players that join the NBA straight from high school (and many rookies in general) end up riding the pine for a couple of years, so don’t really get much out of that other than a paycheck, and that can be had in Europe anyhow.

    But that is just something that everyone seems to disagree about for dozens of different reasons.

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  • http://www.pistonsbythenumbers.wordpress.com brgulker

    Great post, Tim.

    I understand the math behind the number for the hard cap, but I can’t shake the feeling it’s too low, given current market expectations around player salary. I think this concern is underscored when you look at the salary structures of (the majority of) this year’s Playoff teams.

    So I suppose this is a round about way of asking, is that number too low?

    And not just for players, but for those owners who are willing to spend whatever it takes to win. I’m having a hard time seeing Mark Cuban, for example, buy into a hard cap this low.

    Any further thoughts?

  • http://www.eightpointsnineseconds.com Tim Donahue

    OK…Once again, thanks to all of you for taking the time to read this and comment. These are all fantastic comments, and bring a lot of ideas to the table. I’m only half-joking when I say that there’s more productive thought in your comments than in the actual negotiations themselves.

    Anyway, Let’s try to address some of these comments:

    Bill – The “no max” thing probably gets killed by the Players. Great for the stars, sucks for the rank & file. Though it’s a fun concept. What I like about some of the “Other Meaningful Items” is that you could really dig into something like that and get something good that neither side would complain about.

    To Hardwood Hype – you are too kind. Everyone should check out his site:

    http://hardwoodhype.blogspot.com/

    “Intelligent NBA Content, exhaustively researched and written with care” Awesome standard that he meets.

    David -

    Wow…there’s so much there, and I’m going to struggle to answer it adequately.

    First, I don’t think you can really address the currency risk associated with one franchise out of 30 in this context. That would be a really interesting conversation to have with the Raps’ CFO, but I’m sure they consider it. Perhaps there would be some steps towards addressing it, but I can tell you that affiliates I’ve seen in my professional life who suffered due to currency more or less had to live with it. That’s not what I’m proposing, but I just don’t know how to address it without more direct actual information.

    On the BRI – I wasn’t clear, but I would probably continue the current process of establishing the upcoming cap based on an agreed upon projection of the coming year.

    Parity/competitive balance – I think there’s only so far you can go to create a parity, particularly in a sport where LeBron James arguably makes any roster in the league at least a 50-win team, if not a contender. I like the hard cap and revenue sharing, because it removes obstacles. I worry about doing more, because you end up trying to manage results. My experience is that is counterproductive.

    Thanks for the NHL stuff – everybody should read that so that you can decide whether you agree with Billy Hunter that it’s the “worst labor deal in sports.”

    I need to think some more on what you want to do with that, as well as what Kostya said. I’ll come back around and answer this in more detail, but one of the things I think a lot about in designing this CBA is that I’m taking security away from the players and giving more control to the owners. Therefore, I tend to look for areas to give players more freedom in exchange.

    Also, for Kostya, I need to fully address your comment, but my first thought was that the NBA and the NCAA have a horrible relationship, and that I think the NCAA would be resistant to helping either the NBA or the players in that regard.

    Also, just as a nugget, it seems to me that the MLB and NHL develop players as assets more – either by design or necessity – while the NBA and the NFL largely just take players and throw them out to sink or swim. That’s overly simplistic, but compared to what Baseball and Hockey do, it’s not unfair.

    Ray, I don’t follow the NHL, so I can’t really address your example. Clearly, I either disagree, or am not particularly worried about that issue, but it would be best if I looked at it further, or perhaps let someone who followed the NHL comment on that.

    Craig W.:

    It’s going to take someone a lot smarter than me to figure out how to make Donald Sterling not be Donald Sterling.

    Sorry..not to be flip. My “brilliant or insane” idea was to, quite simply, make each team pay 1/30th of the Players’ BRI split each year. Negotiated contracts would have to be below that, but in effect, everybody would have the same player costs. That might force a guy like Sterling to think, “Hell, if I gotta pay it, I better get something out of it.”

    That’s not a fully-fleshed out idea, which is why I left it out. However, my instinct is that it’s closer to brilliant than insane, but then I also laugh at my own jokes, too.

    By my count, besides more detail on above, I still owe answers to Chris D, Naren, Cory, Dave M, drew, yogi, and brgulker…unfortunately, I’ve got a 90-minute commute in about 5 hours, I gotta pick this up again tomorrow.

    Again, thanks so much for reading and commenting.

  • http://www.eightpointsnineseconds.com Tim Donahue

    Sorry…still owe wintermute an answer, too.

    I know that we’ve have different core positions on this, and though I haven’t always responded to your comments, I have always listened. Your counter-arguments in the past helped shaped this proposal.

    Anyway, thanks, and the short answers are:

    I personally would use the hard cap as the mechanism to limit guarantees, because I think it removes one potential obstacle to competitive balance. I think there are some owners out there that are in the same place as me, but I don’t know if “the owners” are as a group. They are being so steady on both sides (BRI & Hard Cap) that I can’t pick up if they really want both, or if they want one or the other, which one it is.

    I would punish people who exceeded the hard cap, because it would make the nuns who taught me in grade school proud.

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  • michael_pdx

    Really enjoyed reading your thoughtful, reasonable proposals, and especially like your approach to splitting risk/reward. One thing I really disagree with is further injuring income potential of incoming rookies. Its a travesty how rookie studs like Griffin get screwed under the CBA now, and your proposal only makes that worse. How about two-year rookie contacts, then free agency, with drafting team having some ability to offer additional years or some other advantage to re-sign them? Under your system no one would WANT to be drafted – far better not to be & then negotiate as free agent (something we see a bit currently with second round players actually being sometimes better of than late first-rounders.

  • Donald

    I enjoy your blog and support a hard cap.

    As a fan of the Detroit Red Wings and the Indiana Pacers, I get the best and the worst of sports. Both are well run organizations, both organizations have suffered through tough times during my life. The Redwings are a premier hockey team; the Pacers have been a good team, but to call them premier would be incorrect.

    What would you think of two way contracts for D league players, similar to what the NHL does for prospects? I believe this could solve the Injury problem as well as the Dleague Utilization problem. “Salary for players sent to the minors, under most circumstances, do not count towards the cap while they are there. If a player has a legitimate long-term injury, his cap hit is still counted; however, the team is permitted to replace him with one or more players whose combined salary is equal to or less than that of the injured player, even if the additional players would put the team over the salary cap (if the team’s cap room is larger than the injured player’s cap hit, they may take on as much as their cap room); however, the injured player may not return to play until the team is again compliant with the original cap. All salaries still count towards the league-wide share of revenue that the players receive.” -wikipedia

    If the players are determined to keep guarenteed contracts the owners would be wise to follow the NHLs lead again, “Any player can be bought out for one-third of the remaining salary if younger than 26 at the time of termination, or two-thirds if 26 or older, over twice the length of the remainder of their contract” – Wikipedia. Do you think that would satify both parties?

    I think it’s important to remember that a salary cap can’t guarentee profitability for all teams, some teams due to being poorly run or in a poor location will still fail, and be contracted or relocated.

  • wintermute

    Hey Tim,

    Yeah I figured you do read all comments and it’s gratifying to hear that my comments may have in some small way contributed to your work. Cheers for that!

  • Matt

    I agree with one of the poster’s above. If anything the length of rookie contracts needs to be cut, possibly to 3 years. I would keep restricted free agency. And I would think that would contain player movement of that type.

    Other ideas, add the ability to add on restricted free agency rights to any negiotated contracts. In addition to a mandatory add on for rookie deals. It would allow teams to take a chance on a guy, and capture value from the risk they took, without needing to have a lengthy contract.

    Also, what about writing contracts in terms of % of BRI instead of dollars.

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