While I have generally been in a “neutral” camp for much of this lockout, my frustration with the process is certainly nearing a boiling point.  I am rapidly losing patience with the “line in the sand” positions it appears the owners/Stern are taking on some issues. I believe, opposed to the majority it seems, some teams are seeing significantly negative cash flows that are not entirely due to “controllable” (non-salary) expenses. Issues like having some degree of cost certainty is valid, but insisting on a hard cap is not.

Here are three brief ideas that present “win-win” solutions, and would at least push discussions towards middle ground.

Idea #1: No hard cap, but an accelerated luxury tax scale

A hard cap takes away flexibility. We have already witnessed too many “filler” players in trades just to make salaries work under the current system. Do we really want to make it worse?!

What might an “accelerated luxury tax scale” (trademark pending) look like?

I’ll use round figures for simplicity. For example, let’s assume a “standard” cap of $60 million.  If I team is under or that the cap? Zero tax. Spend $60-65 million? Teams are taxed 25% on the incremental amount above $60 million. Spend $65 to 75 million? Teams are taxed at 75% on the incremental amount over $65 million. Spend $75 million and above?  Teams are taxed at 150% on the incremental amount.  Eliminate all the mid-level exemption and other BS. Keep it simple. (Don’t worry, Larry Coon still has a day job). The tiers and rates are obviously up for debate. It’s the type of structure that I think will work.

Part II of the idea.  Salaries on trade do not have to be within 125% of each other (the rule for salary coming in for teams above the cap).  However, a minimum “floor” of salaries has to exist.  How about teams cannot go below some number like $48 million?  Teams have a small grace period (48 hours) to get back to that level after a lopsided trade.  However, effectively they would have to close two separate deals simultaneously or risk having to do a bad deal to take back salary again.  Keep it simple and allow for more flexibility in trades with less “fillers”.  Combined with idea #2, it should allow for trade flexibility, which all parties should want.

Why the players “win”:  Perhaps no one wins per se, but it continues to allow for flexibility.  This will ultimately result in increased revenue sharing as it shifts high spending teams tax dollars to “have not” teams.  Thus, “have not” teams will have more money and it will likely result in them spending towards the cap – with the extra tax dollars coming from luxury teams.  This means better contracts for the average player.

Why the owners “win”:  As per above, the “have not” teams get more resources without necessarily having to re-work sharing revenues from TV deals etc.  Owners/teams have more flexibility in moving players. Teams can add veteran talent to make a run without being mandated to navigate a hard cap (making deals very hard) if they wish to take the risk (since they’re likely to pay significantly more in luxury tax).

Potential issues: 1) Handling current “exemption” contracts. However, they can likely find a model to partially “grandfather” some of these current contracts. 2) The rich (i.e., high spending) owners may balk at having to pay such a high tax.

Idea #2: Partially guaranteed contracts

New contracts should look something like this: the last year of any deal is non-guaranteed. The second last year of a contract is fully guaranteed in the form of payment to a player, however, a team can cut this player and take only half that amount as a cap hit. If the player is dropped from the roster in the final or year prior to the final year, he is welcome to sign with any team.  One year deals would also be under the “pay in full” but take half the deal amount as a cap hit if the player was eventually cut from the roster (the cap hit would be a pro-rata amount over the number of games played by the team until the player was cut).

As an example: imagine a 5 year deal with a flat $10 million per year over its course.  Years 1-3 are fully guaranteed and the team takes a $10 million cap hit each year. In year 4, if the player continues to be productive, the team would maintain paying the player and take the full amount against the cap.  However, if they felt the player was not productive, they would still pay their full salary ($10 million) but take $5 million against the cap. This would allow them to sign or trade for another player and have more flexibility in doing so.

Why the players “win”:  A portion of all deals are still guaranteed. If it’s not working out with a team, the player still gets paid in the second final year and will have more options in terms of teams able to sign him.  It frees up money to ultimately pay them more.  If teams are able to shed “Eddy Curry” type contracts in later years, it means more money for the players who are productive. The “Eddy Curry” deals only benefit two people: that player and his agent.

Why the owners “win”:  While almost everyone echoes the “well if you don’t want to be stuck with a player don’t sign him for that large amount for that long”, there are just as many players who play hard for a few years, “get paid” and then shirk. The data is pretty clear (see “Moral hazard in long-term guaranteed contracts: theory and evidence from the NBA” summary here), on average, players are more productive in contract years and their performance falls after they sign a big deal.  This new structure would reduce guaranteed portion and thus players would have to exhibit more consistent play.  The owners also have much greater freedom in moving players since the team taking on a bad contract will have a shorter period to deal with it.

Potential issues:  1) We could see more “Vince Carter like” player strikes in the second final year of a deal.  Why? The player knows he’s getting paid in full, he can go on strike and wait to be traded to the team he wants.  To prevent this, perhaps the team that picks up that player will take on the other half of the cap hit, despite being able to sign them for a lower amount.

Idea #3:  Hybrid player-owner revenue share system

Why are they only negotiating a 39% versus 54% revenue split?  There seems to be a simple solution to me.  There are some minimum costs to run a team that are (relatively) fixed: player salaries, air travel, accomodations, coaches, trainers, etc.  Work out some reasonable number of what this is along with reasonable basketball related income projections for the league.  Then you have a formula, whereby the first $x.x billion of basketball related income is shared at say 45% to the players, while everything about that figure is shared at 55% to the players.  This creates more certainty for the owners while providing the upside to the players.

This hybrid system would “incentivize” all stakeholders the common goal to maximize basketball related income.

Potential issues:  Not many that I can see. The main one is that players would be hit significantly if basketball related income was well below forecasts (i.e. the “hurdle” rate).

Getting a deal done

These appear to be the major stumbling blocks.  Surely massaging each of these ideas should result in a deal which both gives the owners more certainty while still protecting the players – while giving the players significant upside in several cases.

There are enough smart and reasonable individuals on both sides on the table. Enough “take it or leave it” negotiating positions.  There is opportunity to find middle ground with innovative structuring of incentives.

There is no reason not to have a full season.  The North American economy needs you to have a full season.

Get it done. 

Addendum (9/24 8am): Tim Donahue, our ESPN TrueHoop colleague over at Eight points, Nine Seconds, posted an excellent rebuttal to my luxury tax idea. His thesis comes down to this: “ultimately, a luxury tax is neither a tool for competitive balance, nor a particularly sensible way to share revenue.” I still believe my proposal has merit, but its made me believe that there would have to be an ultimate hard cap at some level – perhaps $90 million in my example. And perhaps you raise the top tier to 200%. (I’ll try to run the numbers like Tim to see the net impact). Follow Tim’s work, its excellent. Having these ideas flow back and forth can only help narrow this large gap between the two sides.

Follow Eight points, Nine seconds and Tim Donahue on Twitter.

Addendum (9/24 8am): “Steve from Fredericton” notes correctly (via email) sees a couple potential issues. Two questions: 1) “Is there a limit on term?” (see NHL contract shenanigans) and 2) paraphrasing “Is there a limit to the salary increases each year” – e.g. he foresees “a 3rd year player getting something like this: $5M $5M $5M $10M $10M”. Good points as agents/teams could play around with both (Steve believes, in some instances, that this flex could be a benefit to both). However, my assumption (which I should have added in my piece) was that contract length and increases would be similar to the current system. So 5 or 6 year max and built in maximum increases. We want to avoid issues like Steve brings up which is impacting the NHL right now.

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