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.

Share this:
  • Billybob

    This sort of article is much better than the same old Bargs haters vs nuthuggers catfights that inundate this site. Kudos for trying.

    • Ihatehaters

      King Bargs for king!

    • Raps Loyalist

      OR you could just lock the players out until you get everything you want. The NHL showed this was the best thing for the league’s owners to do long-term.  Don’t get me wrong I really want a season in 2011-12 but if I were an owner it makes way more sense to get the best possible system for the long-term and suffer one lost season. Every NBA player that isn’t a superstar is wwwwaaaayyyyy overpaid! Time to cut them down to size

      • Nilanka15

        Good call.  You know it’s a fucked up system when Rashard Lewis is the 2nd highest paid player in the league (per year) at $22.1M.  And he’s under contract for two more seasons!

        • Statement

          Again, the players make 57% of Basketball Related Income in the aggregate.  This is a fixed share, it doesn’t matter how it is individually parsed, it is all the same to the owners.  If they are losing money (which I doubt), it shouldn’t be because of salaries.

          Sure Rashard Lewis is overpayed, but all of those rookies on rookie-scale contracts a vastly underpaid. 

          Labour makes up the majority of the cost for any business. 

          • Theswirsky

            the real question there is what impact do those individual overpaid players have on a teams income.

            With a salary cap and/or limited money available to a team (how much an owner is will to invest), a team only has so much to spend.  If a player is eating a way at that, then that is less money available to pay for players who can help more. 

            If wins lead to increased revenue, then a player preventing wins decreases that revenue.  While the BRI may not change, the ability of a team to make money still does.

    • points

      billyjoe you had to bring ANDREA

  • Cjthomson2

    Some very interesting ideas that cover the basic financial discussions.  I would be interested to hear how you would address the parity aspect.  The system as you have outlined it would still favour the big market teams who have already shown that spending money on luxury tax is a non issue.  How do the Raptors and Cleveland etc. ever attract enough talent to compete in this system?  To me that is just as big a problem as the financial issues you have addressed.  If teams are more competitive across the board won’t that have and impact on revenue as well i.e. more interested fans because their team is able to compete in the league.

    • well, by increasing the tax % (currently 100%), while including a floor, you’re (theoretically) shrinking the gap between the small- & large-market teams; as tom indicates in the addendum, having a solid ‘hard’ limit would likely be necessary (to protect idiot owners from themselves), but there would no-doubt be teams who would spend up to any limit, regardless…and those that do would be putting money back into the pool for revenue sharing by those teams who stay under the cap.  it’s not going to help certain markets attract free agents, and some markets may have to continue to overpay for marginal talent (let alone superstars), but at least there would (again, in theory), money available for them to do so (or at least help keep them out of the red).

      increasing the competitiveness from bottom to top (i.e. increasing parity) would make those markets currently struggling to attract talent more capable of playing with the big boys…at the end of the day, players want to go where they have a chance to win; increase a team’s ability to legitimately compete, and it will be an attractive destination for FA’s.

    • Mapko

      Free agents can be signed to 3-4-5 year contracts:
      1. If a team signs a free agent -Max 3 years
      2. If a team does a sign & trade -Max 4 years
      3. If a team re-signs own FA -Max 5 years (and perhaps allow a slight annual increase). In addition: If a player gets traded last year becomes non-guaranteed-team option;

  • Where were u four months ago when all this trouble started?

    • for starters, this ‘trouble’ started years & years ago.

      and tom’s been writing about this for quite a while.

  • Matt52

    I do not think the luxury tax forumla  is prohibitive enough to ease the disparity in the league.  Teams like LAL, ORL, DAL were already spending $85M or more in salary plus a dollar for dollar hit over $70M.  So a team with a 90M payroll is really spending $110M.

    • It’s really about the structure and obviously would need to be negiotiated. 

      • Matt52

        I agree something like this structure might work.  This is not my original idea but I read somewhere someone with a proposal of $65M cap, 0-5M over $1:$1 tax, 5-10M $2:1 tax, 10-15M $3:1 tax, and over 15M $4:1 tax.  I think this structure would offer a real deterrent to exceeding the $75M barrier.  At the same time it might only further widen the gap between the have’s and have not’s.

        In this example, a $90M payroll (like DAL or LAL) would actually cost them $160M versus the current $110 (luxury tax included).

        • albertan10

          i don’t like the cap idea that you’ve presented at all.  it has to be a hard cap at some point. whether there’s a luxy tax at 60 mil and a hard cap at 85 or 90, it has to be there.  owner’s in LA, NY, Dal, etc. make enough that 50 million dollars extra (in the example above) is nothing.  they don’t care because they make major revenues off of a winning team in their large markets.  billionaires spend millions of dollars like fans spent hundreds.  they do not care.  the big guys will always spend big money and the disparity in the league will always be there is no end point. this isn’t about not letting the players make money like the NBPA says, it’s really about making the league competitive and not allowing super teams to rule the whole damn thing.    a soft cap won’t work.  even revenue sharing won’t fix this problem.  Jordan and other small owners won’t spend millions of dollars extra because they might get some extra cash from the league.  if there are no profits that year then they’ll pay for players that they can’t afford.  that doesn’t help the league either.  a hard cap is the only way to go about fixing the problem and if the players don’t agree to some form of it then I hope there’s a lockout.  i’ll hate the stoudamire, anthony, paul team just as much as i hate the heat, celtics and lakers.  heck, if you want to put a clause in that says you can go over the hard cap scott free if you drafted the player, then hell, let them do it.  a team that drafts a player should be able to keep them no matter what. 

          • Nilanka15

            Me likey

          • TheGG

            I think your outcome is the exact opposite of what will / has happened.

            If you don’t allow market forces to drive contracts, that’s where superteams happen.  They can’t get any more than the max so they move onto plan B, stacked teams in the best cities (Miami/New York/LA).  If a marginal luxury tax / soft cap system was in place last year, there would be no Lebron/Wade/Bosh cooperative.

            This makes it even harder for non-elite cities to compete, as you’ve eliminated the cash incentive as well as income from the lux tax to pay for those bigger contracts.

            The other effect of hard caps is significant player movement which has a long term detrimental effect on fan branding and hence lowers revenue.  Yes it works in Football, but Footballs genius was not getting a hard tax, it was getting fans to worship laundry. This will not happen in Basketball which is the definition of a star driven league.

            • albertan10

              either your idea doesn’t make sense or you’ve just not articulated yourself very well

    • Mapko

      The reality is that “Big market teams” have more $$ & should be able to spend more IF they want. Perhaps all teams would be allowed amnesty once a year (say 7 days after the last playoff game) -Waive & pay the player, but his salary does not count towards the cap (or just partially)

  • Statement

    What reeks of crappiness for me is that the players make 57% of Basketball Related Income.  That is a constant share.  To me, that means that players salaries are a fixed, knowable cost, in the aggregate. 

    Given this, how is it that player’s salaries are the problem.  It seems to me that the owners are just trying to guarantee no downside to their investments. 

    This is a case of owner greed.  That Comisky fellow would be proud. 

    • Gman

      So does that mean when owners profits go down then players salaries go down?  I don’t think so…the fact is that regardless of what you said a few answers ago the league did lose a bunch of money and one of the main reasons that happened is because the league isn’t competitive anymore.  

      When owners say they lost money…it’s not like your Dad saying oh yeah I lost a few bucks here.  Oh Dad you just don’t want to buy me a car!

      No they have Accountants and Bookkeepers and there is public access to their records…
      Anyway, lets stop the conspiracy theory rhetoric.  It doesn’t help anything.

      • Statement

        One question,  if the teams are losing money, why are new owners purchasing teams at prices higher than what forbes or whomever are valuing them?

        Also, NBA team finances are not public.  I have yet to see any books on the Dallas Mavericks, nor are they obligated to show anything to me because they are not a public firm.

        It’s not conspiracy theory rhetoric, it’s poor financial management by owners.  This isn’t some weird concept…in 2008 Bear Stearns and Lehman Brothers went down because of poor management.

        Also, salaries are a function of revenue, so yes if revenue went down, then salaries on the aggregate would go down as well. 

        Since it appears that salaries are increasing, that would have to imply that revenues are increasing.  If revenues are increasing and player salaries are a fixed cost of this, then the owners must be really shitty at managing the other 43% of their margin.

  • hateslosing

    Great read, I tend about the hard cap being a bad idea to disagree as I love the system the NFL uses but the incremental luxury tax is a neat idea.

  • Rebuilding and small market teams would suffer defeat on most nights by superstars-stacked team if we still the same soft salary cap. Hard cap would be great for the NBA to prevent teams spend like drunken sailors. 

    Increase the cap to $75 million and that’s it. 

    As for revenue sharing, give whatever they want as long they pay for their plane, hotels, food, and etc. I believe they’d rather be on a business class than be on economy class and sit beside Tyrone – the dummy practice guy. I guess by having this owners will have more cost certainty. They don’t have to be on the same plane regardless if this will go against team chemistry. But if a player misses or late on practice, it will be deducted to his salary. This time players should make the effort to work as a team, not the owners to force them to have a comraderie. This ain’t OFSAA. This ain’t high-school anymore. This is professional and you get paid to play. So pay your own trip to work like everyone else every morning taking TTC!

    • Raptor4ever

      I like your idea but I don’t think small market teams can afford a $75 million dollar payroll. I think the real number that most of these teams can afford is low 60s. Lets face it, with the Heat Syndrome , we will see more super stars wanting to play together and these great power houses forming which will make the rest of the league simply noncompetitive and dull. 
      Hard Cap is a way to level the playing field and allow most of these teams to have a super stars that can sell tickets for them and fans who can be optimistic about the chance of their team actually going far in the play offs.

      I personally don’t mind waiting a year if it means we will have a league that is more competitive for years to come.

  • Juicey

    I agree with last idea:

    “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 needs to be more creativity in finding a solution, and the “take it or leave it” way of negotiating wont get them anywhere.  I guarantee when a deal finally get’s done, we will see some new ideas and concepts worked in to make that compromise.  Why not start with new ideas and go from there, as it’s likely where the agreement will come from.

  • Bendit

    What’s it with very short men becoming commishes, union bosses……and tyrants?

    • Theswirsky

      short man syndrome

      • albertan10

        hey! leave us short guys alone 🙂

  • slaw

    I am a big fan of Tom’s last idea and I think that a simple concept like that could work for both sides without worrying to much about anything else other than a revenue sharing plan among the owners. The problem right now is that the owners have no incentive to move off their current position and they must believe, right or wrong, that the players will eventually cave. Why settle for 50% fo what you want when you might be able to get 100%?

    Until the owners feel some pressure to move off of the hard cap or the players fold and agree to the hard cap, I fear nothing is going to get done.

  • Harry S. Truman

    These are nice ideas but I think they pretty much miss the point – the only reason this lockout exists is because there is no hard cap. And you had better believe Stern and the owners will have no qualms about cancelling the season (a la the NHL) to get one either. This is their ace in the hole, and although the players will continue to talk a big game, they will crumble should an entire season be lost.

    Until there is a hard cap, there will be no NBA ball. You can take that to the bank.

    • Nilanka15

      Correct me if I’m wrong, but I heard that the players’ next paycheque is handed out sometime in November.  The reality of the lockout probably won’t hit home with them until this timeline is reached.

  • Sbrother

    I really like the accelerated luxury tax scale concept – especially since that’s what I proposed over a month ago at Hoopsworld.  http://www.hoopsworld.com/28132/

    It’s a great idea – but to work the luxury tax has to be much higher – actually punish teams who make the big bucks if they choose to go very much over the cap.

    • Bendit

      One problem…making the tax overly onerous is like having a hard cap. If the cap is the line in the sand for the players they are unlikely to go for the masquerade.

    • Stephen – hadn’t realized I stole your idea. “Imitation is the sincerest form of flattery”.

  • KJ-B

    IDEA #4: Contract Cleveland and Charlotte in the East as well as Minnesota and New Orleans in the West… The Owners of Money Pit teams, esp. one Michael Jeffrey Jordan, have been given way too much leverage over the rest of the League!  Their losses ‘on paper’ which have not been corroborated, are their fault for signing the checks at the end of the day!

    It’s time for the players to play hardball and say that they don’t mind losing some cities to play in, in exchange for better pay and salary certainty goin’ forward… To me, it’s like owner Burger King and insisting, on keeping a drive thru in Timbuktu where nobody cares! It’s time for the owners to eat C-ROW!!! 

    • That’s a good solution for the owners – no need to revenue share if you get rid of the losers.

      Not so good for the players – 60 guys just lost their jobs.

      Note: Cleveland does a lot better than most outsiders think and has a great owner.

      • KJ-B

        Yah, but I just can’t Danny Gilbert…he’s good major problems and should be left on the outside just because of his “open letter”…. Cleveland’s a small city though and Ohio’s really hard hit by what might become a double dip recession and the major loss of manufacturing jobs to the overseas market.

        • KJ-B

          English class for me, “I just support Danny Gilbert…he’s got major problems”

          • KJ-B

            “Can’t support Danny Gilbert”… smh @ my English/typos–I guess there’s no language to effectively described how confused that the NBA did not learn from 1999!

  • barenakedman

    What is the best model of a successful sports league in North America?
    A league where eight-ten teams have a good shot at winning it all and another eight-ten are close enough to make a good run at it if everything goes their way. Even crappy teams can turn it around in a few short years. The players are happy, the teams are making money and the value of franchises is going up. The wheel doesn’t have to be invented.