The NBA has problems. Big enough problems that the owners of the 30 NBA teams have put the 2011-12 season on hold until those problems are solved. This is no small matter. What remains at question is exactly what those problems are, what caused them and, of course, what can fix them.
This document is attempt to comprehensively determine the problems, the root causes and the potential fixes for the NBA as the lockout drags on. It is modeled after Luther's 95 Theses because I am completely full of myself and also because Joey from Straight Bangin' told me to do it. I broke it down into general sections for ease of navigation; direct links to those sections can be found below.
CONTRACTION | ARENA ISSUES | GUARANTEED CONTRACTS/AMNESTY
CONTRACT LENGTH AND TERMS | REVENUE SPLIT
1. The NBA argues that player salaries, currently pegged at 57 percent of the league's basketball-related income, are too high. The NBA has proposed either slashing that percentage or decoupling salaries from revenue. Given that player salaries are a guaranteed 57 percent of revenue, it is clear that it is in fact the largest expense for teams. Salaries were $2.1 billion last season. Basketball-related income was $3.8 billion. The league says it lost $300 million. That means that salaries accounted for 51 percent of expenses.
2. Salaries have indeed grown over recent years, but only at the pace of league revenue growth. The league has an escrow system that holds 8 percent of each player's salary until the books are settled at the end of the season. If player salaries exceed the 57 percent threshold, the players lose the appropriate portion of those escrow funds. That is what happens most years. This prevents player salary from outpacing revenue every season, and in some ways acts as a hard salary cap at the league level.
3. This year, for the first time ever, player salaries came up short of the 57 percent threshold (which was $2.1 billion). Salaries weren't short by much: just $26 million. But as a result, owners had to pay $26 million spread over the player base, assigned by scale. (Kobe Bryant's extra check will be a bit larger than that of Damien Wilkins, for example.)
4. Some have argued that the lower-than-57-percent salaries in 2011 show that the salary cap is working to limit salaries. The NBA retorts that this was a fluke due to widescale cap-cleaning in advance of The Summer Of 2010; shockingly, every team with space did not sign LeBron James, and as a result many teams made small signings and didn't go massively over the cap. (The salary cap also tends to force major salary increases at the team level to come in gradually. Were it not for the lockout, the Miami Heat -- who didn't hit the luxury tax threshold in 2011 -- would have one of the league's highest salary levels ever over the next few years as trades and mid-level exceptions plus annual raises for the Big Three added up.)
5. Beyond the quibbling over whether the soft team cap/hard league cap system works as designed, the league maintains that the split needs to move closer to 50-50 ... if not beyond. The union's counter-offer, presented before the league instituted the lockout, cut the revenue split to 54.3 percent for the first season of a new collective bargaining agreement, then edged it up toward 56 percent by the sixth season. In contrast, the NBA's position was said to start out around 45 percent for players. The union's offer would not get the NBA to break even (let alone profits) given the NBA's claims of losses. The NBA's initial offer would have cut about $400 million in player salary in 2012. Its second offer, decoupling revenue from player salaries, would drop the players' share of revenue down to an estimated 40 percent by the end of the deal. Each side finds the other's proposals odious ... and it's hard to blame any of them. They are like Kamchatka and South Africa right now.
6. The NBA includes most of its total revenue in the "basketball-related income" pot ... but not all. A recent Sports Illustrated report pegged actual "total NBA revenue" at $4.3 million -- some $500 million more than basketball-related income. Larry Coon lays out some of what isn't included in BRI: a portion of in-arena sponsorship revenue, a portion of arena naming rights fees and 60 percent of all luxury suite revenue.
7. If you adjust for this and calculate players' percentage of total NBA revenue, it comes out to 48.8 percent, or less than half of the league's revenue. That's on par with other sports leagues and eerily close to what NFL players agreed on to end that league's recent lockout.
If you include this extra $500 million in the pot when figuring the NBA's losses, you'll note that the league -- assuming the numbers are right -- actually made $200 million last season. The NBA clarifies that its losses of $300 million came outside the bounds of basketball-related income, and include total NBA revenue.
8. In the course of the lockout becoming more vitriolic as cloaked men offer nuggets of anger to respected reporters looking to present the tone the stoppage has taken, it's come out that some owners support dragging player endorsement revenue into the basketball-related income pot. That's lunacy. So too would be a drive from the players to add private businesses tangentially based on a proximity and/or familiarity with the NBA -- Dan Gilbert's Cleveland casino neighboring The Q, for example -- to the pot. Relativism is a bitch, and the slippery slope is mighty steep.
9. However, total NBA revenue is a smarter standard for measuring (you guessed it) total NBA revenue than is the current "basketball-related income." The currently uncounted portions of arena sponsorship, arena naming and luxury suite income are legit NBA-related revenues. Without NBA players, owners would not be making this revenue for 41 home regular season games and playoffs. This is legit revenue. To ensure clarity in comparisons and fairness, the NBA and union should both adopt the opinion that total NBA revenue should be used going forward instead of the current basketball-related income, and that the full amount of in-arena sponsorship, arena naming rights and luxury suite revenue should be included.
10. Two going concerns with regard to player salaries is the mechanism by which salary is capped, and how it can be spread effectively among players. In 1999, the league adopted a soft salary cap with exceptions that allowed individual teams to go well above the cap but instituted the leaguewide cap on player salary. Teams typically have no trouble exceeding the cap if they wish to; 2011 was the first season since 1999 that the New York Knicks did not exceed the luxury tax threshold, which is substantially higher than the salary cap.
11. The 1999 CBA also set max salary limits on players based on years of experience; players active before that CBA was signed, including the NBA's current highest-paid player Kobe Bryant, were grandfathered in as such that they were able to receive annual raises that may exceed maximum salary limits.
12. The soft team cap with a hard league cap had the unintended consequence of institutionalizing payroll disparity in the NBA: high-revenue teams have waged war on low-revenue teams. Owners like James Dolan (Knicks) and Mark Cuban (Mavericks) were willing to spend whatever it took to compete. (When mixed with a clueless GM this had disastrous results for New York. Dallas made only few major mistakes, and really just spent the money to lubricate desired deals.) This free-spending by an elite few indirectly drove salaries up across the board but more directly created veritable "missile crises", where another high-revenue team would respond to a major move by a rival with a major move of its own. Teams weren't able to explicitly buy championships (the 2011 Miami Heat came the closest) but they all (the high-payroll teams, that is) bought chances. Meanwhile, teams out of contention often spent at levels closer to the team salary cap. This resulted in annual spreads of some $40-50 million between the highest- and lowest-spending teams. These teams at the low end would often be rebuilding clubs or teams just on their ascent, with stars on rookie contracts (such as the recent Oklahoma City Thunder teams).
13. At both ends, salary costs could lead to team losses. The Mavericks spending $100 million on payroll in a soft system could lead to annual losses, but no one would argue that the team was forced to spend that much in order to compete. Instead, the Mavericks used every quirk in the CBA in order to get desired players under contract; famously, Dallas gave a retired Keith Van Horn $10 million in a sign-and-trade deal to land Jason Kidd. The Indiana Pacers, meanwhile, have recently lost money in years with sane, cap-reflective payrolls simply because revenue dried up and it's difficult to fall down toward the team salary floor (about $15 million under the cap) when you have a legit shot at the playoffs. No one would argue that the Pacers chose to lose money in recent seasons due to overzealous player acquisition; the system did not allow Indiana to make money, largely because the high-revenue teams were driving salaries up with their huge spending.
14. Losses and the threat of losses sink mid- or low-revenue teams into inescapable quagmires. For a team like the 2011 Pacers, for example, the marginal return on a mid-level player ($6 million annual salary) would be a couple of wins, or the difference between a dogfight for the eighth seed in the playoffs or a chance at No. 6 or 7. Given that the Pacers would suffers losses if they did not pick up that player and greater losses if they did with no serious difference in the revenue potential, there is no reason to spend dollars on that extra player. The best bet for non-contenders is to either shoot for a low playoff seed to earn at least $2 million playoff gate revenue, or bottom out, minimize expenses and pray for a high draft pick. Bottoming out reduces bad revenue even further: the poor saps who own season tickets pawn seats off on the secondary markets at high discounts, obliterating the chances for good numbers at the box office. This is why high-wealth owners almost never allow their teams to bottom out, even at the detriment to the team's long-term future. (See: Knicks, who spent spent spent with an awful roster.) A conscious choice by a team to reduce salary can often lead down a troubling path of self-immolation it then becomes difficult to recover from. (See: Sacramento Kings.)
15. The league's claimed losses include a mix of Mavericks situations and Pacers situations. There are multiple teams who chose to go well above the cap and end up losing money, and multiple teams that keep payroll reasonable but still lose money. As such, it is difficult to judge whether the league's losses in the aggregate are due to excessive spending by owners who deem they can afford it, or whether they are due to structural problems with the revenue split. If the Mavericks, Knicks and Lakers spent reasonable amounts of money on payroll instead of almost twice the salary cap, would the league's aggregate losses -- even using the flawed basketball-related income definition -- dry up?
16. Since 2006, the Mavericks and Knicks spent a combined $335 million over the luxury tax threshold, which is about 20 percent higher than the salary cap. The other 28 teams spent a combined $374 million over the tax threshold, or an average of $13.3 million per team. If you replaced the Mavericks and Knicks actual payroll over tax figures with that average for the rest of the league, total payroll for the NBA over the six seasons since 2006 would decrease by about $308 million, or $51 million per season. In other words, since 2006, player salary spending by these two teams enormously out of line with the rest of the NBA has accounted for $51 million per season.
17. Now under the hard league cap, total league salaries cannot exceed 57 percent of BRI. The NBA would argue that even if the Mavericks and Knicks drove up salary, teams would have to pay the same total as if that salary were spread over all 30 teams. This is the argument for the hard team salary cap: it would prevent the Mavericks and Knicks from spending so much more than most competitors every season. The luxury tax has obviously not been enough of a deterrent for these two teams and intermittently a number of others (Blazers, Lakers, Celtics among them). A hard salary cap would keep the Mavericks' salary more in line with the rest of the league.
18. The problem, then: the desire and ability of certain teams in the current system to spend much more on salary (to the point of operating losses) indirectly raises all player salary and creates a competitive advantage for these free-spending teams.
19. A hard team cap in addition to the current hard league cap would fix these specific issues, but would create a potentially worse problem: it would raise the expenses of the teams that can least afford higher expenses.
20. Imagine if we had a hard team cap in addition to the hard league cap for the now-expired CBA which guaranteed 57 percent of "basketball-related income" to players. Players were to be paid $2.1 billion. To achieve those salary levels with uniform team salaries, the team cap would have had to be $70 million, some $11 million higher than the soft cap was. That would also necessarily raise the salary floor, meaning teams like the Kings -- bad teams losing money -- would have had to pay much more in salary than under the soft system. And the result would have been the same league-wide: $300 million in claimed losses based on basketball-related income.
21. This is what has happened in the NHL since a hard cap was instituted following the 2004-05 lockout: as revenues have grown steadily, so has the hard cap, and so has spending disparity. Familiar lines are drawn: high-revenue teams or those with free-spending owners spend much more on player salary than the low-earners, even with a hard cap and salary floor in place. The hard cap has not solved payroll disparity in the NHL, and has perhaps made it even more acute!
22. A hard team cap in addition to a hard league cap, then, is not itself a solution for high total player salary (the hard league cap already manages that) or payroll disparity. The only achievable aim of a hard cap, then, is competitive balance. Studies have found, however, that hard caps do not improve league parity. The NBA in particular has intrinsic challenges that could prevent any great gains on parity. In seeking a hard team cap for the purposes of salary reduction, salary parity and competitive balance, owners are chasing a goose that won't lay eggs.
23. As such, the NBA ought to abandon its quest for a hard team cap and use a luxury tax threshold with a stiffer penalty, or perhaps graduating luxury tax penalties, in order to deter mammoth team salaries and encourage payroll parity. Salary reduction should be managed via the league salary cap. Competitive balance is not effectively managed via team salary cap permeability, and should be addressed elsewhere in NBA policy.
24. As noted in Thesis No. 1, player salaries currently account for 51 percent of all league expenses. Given that the league claims to operate at a loss and that player salaries are directly tied to revenue and as such cannot grow at a rate faster than revenue, it stands to reason that non-player expenses have grown at a rate faster than revenue.
25. The NBA's own numbers verify that this has been the case in recent years: while revenue and player salaries have each grown at roughly 3.5 percent over the last four years, non-player expenses have grown at more than 5 percent. This includes a seemingly amazing decrease in non-player expenses in 2010; revenue grew 1.5 percent, but non-player expenses decreased by 1 percent. This has been explained as a tightening of the belt by the NBA, though it does show that prior to said tightening those expenses were a bit loose. (The tightening did not hurt the league's ability to grow, as seen by the 4 percent revenue growth in 2011, with the economy still struggling mightily.)
26. These other expenses include anything that has to do with running a league that you can dream of: coach salaries, GM salaries, arena operations, ugly t-shirts for fans at playoff games, wages for workers who drape those ugly t-shirt over chairs in the empty arena, jet fuel for charter flights to Phoenix and Boston, hotel stays, player per diem, dance squads, pyrotechnics, laser light shows (I see you, Chicago), mascot suit dry-cleaning, advertising, the costs of broadcasting, the cost of selling tickets, special events for season ticket holders, practice facilities, flatscreens for the locker room, ice tubs for the training room, medical expenses (including pricey healthcare plans). The NBA argues that as the league's profile has grown, these costs have grown at a greater rate. When there are many more entertainment options and limited demand from a constricted economy, you have to pay more to get those fans in seats. The marketing and game presentation dollar doesn't do what it used to.
27. Another of these expenses is interest payments on loans taken out to finance the purchase or operation of the teams. This is a large expense, all told.
28. In order to help get its teams better interest rates, the NBA has arranged a league credit facility headed by JPMorgan Chase. The credit facility has increased in size over the past decade, and now stands at $2.3 billion. That means that NBA teams can collectively borrow $2.3 billion from this group of lenders at preferred rates.
29. But the NBA, wanting to prevent underwater franchises and reckless borrowing, has a debt cap on all of its teams: franchises themselves can borrow up to $125 million apiece, and a holding company for a franchise can borrow an additional $50 million. The only other borrowing against an NBA franchise in excess of those amounts is when a franchise is financing the construction of a new arena. Loans in excess of that $175 million limit cannot be used for the purchase or renovation of existing arenas.
30. Necessarily, that common cap on debt means different things to different teams. If the Lakers had $175 million in loans out, no one would raise an eyebrow. $175 million is a (relatively) small portion of the Lakers' total value. But if the franchise were the Bobcats, which may be worth well less than $300 million, which would mean that they care a debt-to-value of well more than 50 percent ... that's a debt problem. But the dollar-figure debt cap is really the only way to do it: team values are hard to ascertain except in the case of a sale, so capping allowable debt based on a percentage of team value would be impossible to manage. The result is that less valuable teams can perhaps take on more debt than they should be allowed to, and that more valuable teams are unnecessarily limited in taking out loans.
31. Our concern lays with those "small-cap" teams: the Charlottes, the Sacramentos, the New Orleanses. In order to remain solvent and, in the Hornets' case, competitive, these teams have stretched to their debt limits. According to the leaked Hornets' audits posted by Deadspin in December 2010, in 2009 the team had $111 million in debt and its primary holding company -- Shinn Enterprises -- had $35 million in debt. The interest payments on the $111 million came out to almost $9 million annually. That would have made Debt To JPMorgan Chase the third most expensive player on the roster, behind Chris Paul and Tyson Chandler. (Yes, JPMorgan Chase made more than David West that year. Another slight for the big man.)
32. The story is similar around the league. A report from Crain's Detroit detailing the Pistons' pre-Tom Gores flirtation with a loan to cover operating expenses said that 19 teams have tapped the NBA's credit facility, with most taking near the max. That'd be 19 teams making interest payments of up to $9 million a year. That's $171 million annually. In interest. In many cases to cover the purchase of the franchise itself. If you adjust the estimate downward to $150 million, which is a figure the NBPA has cited, that suggests that interest payments alone account for 3.6 percent of the NBA's annual total expenses.
33. The players' union doesn't appreciate that in citing the league's losses these interest payments are included. The NBA maintains that standard accounting practices allow it. The problem from the union's standpoint is this: most of this debt is accrued when teams are purchased. If Gucci Mane, for interest, were to have purchased the Hawks, he would finance the purchase instead of paying cash, because wealthy men rarely pay cash for major sports teams. So Gucci would take out a loan for $125 million to help finance the team. The old owners would walk away with $400 million or whatever Gucci agreed to pay; in almost every single team sale in NBA history, the seller has received more for the franchise than he paid for it. (Chris Cohan bought the Warriors for $119 million in 1995 and sold the team for $450 million in 2011. Burr.) The interest Gucci will play on that $125 million loan counts as an expense for the Hawks, but inarguably does nothing to help grow the league or help players and isn't necessary to run the league. Meanwhile, the old owners are skating on huge profits from the sale. As such, players feel that Gucci should pay cash or at least not count interest payments when claiming losses and asking for salary reductions.
34. This problem is completely immaterial once we determine that there is a way for players to continue to make a fair portion of revenue while allowing NBA owners to escape such situations. Whether debt is counted in the balance sheets only matters if we are "legislating" via the balance sheet, which we ought to stop doing. Therefore, players ought to stop whining about teams counting depreciation and interest, and the owners ought to stop obfuscating the point. Everyone knows now that this high debt exists and that while it is real money that team owners have to shell out, it's none of the players' concern.
35. Any suggestion that players receive a portion of the sales price on franchises is misguided. As NBA owners have said, team owners bear the business risk in running the NBA. Players cannot take losses on contracted money; no player leaves an NBA season poorer than he entered, lest he is truly addicted to bourré and awful at cards. Losses are a potential reality for the business owners of the NBA, and as such, capital profits should be their undisputed right.
36. The increased costs of "doing business" are a concern for the NBA, though it seems -- based on decreased non-player expenses in 2010 and stemmed growth of these costs over the past four years -- this is manageable. Given that interest represents such a substantial portion of non-player expenses -- 3.6 percent of total expenses and 7.5 percent of non-player expenses -- the NBA ought to make a push toward decreased debt among its member teams and, via revenue sharing and an arena funding program, look to prevent situations in which mounting debt prevents teams such as the Hornets from being profitable.
37. Revenue sharing is the process by which teams blessed with situations that present high revenue -- the Lakers, say -- share a portion of their revenue with those operating under less favorable circumstances (say, the Kings).
38. In the NBA, there are a number of factors that lead to high revenue disparity. The biggest, which informs the three most impactful specific avatars of revenue disparity, is market size. New York is obviously much, much bigger than any other American or Canadian market. L.A. and Chicago are also quite large. Some NBA cities exist in tiny markets (Portland, Oklahoma City, Memphis).
39. This exists in every professional league, and once you get to a certain size -- certainly at 30 teams -- it is completely infeasible to locate all teams in top-20 markets. You cannot have five teams in New York in your basketball league. Unless you have a league in which every team is located in New York City, you will have a market size gap. NYC has 9 million people. L.A. had 4 million. There will always be a market size gap; it's just a matter of where on the spectrum it lies and how large it is.
40. The market size gap manifests as a revenue gap in three areas: attendance revenue (or, more colloquially, "gate"), local broadcast revenue and sponsorship/corporate support revenue.
41. A team based in L.A. has 4 million residents from which to draw to fill a 20,000-seat arena 41-55 times a year. A team in Cleveland has 239,000 residents to draw from. Clearly, you would prefer to be able to target the larger potential audience. This doesn't just manifest as an attendance rate figure, though; the NBA schedule necessarily creates a limited good: there are only so many games with which to fill demand. The Lakers cannot add 10 more games to the schedule to meet demand. So that necessarily limited supply (tickets to games), when matched a large demand fomented by a massive population, drives up the price. This is why Lakers' tickets are so much more expensive than Mavericks tickets (on average, $107 vs $55, per Forbes). Both teams win a ton; L.A. has 4 million residents, while Dallas has 1 million.
42. Local broadcast revenue makes up a solid portion of revenue for individual NBA teams. The Lakers reportedly make upwards of $25 million per season on local TV rights, and under a new contract beginning in 2012 will make up to $200 million per season. The Celtics recently inked a new local TV deal that will double their take to upwards of $35 million (plus a share in the regional network's total revenue). Clearly, teams in larger markets will demand higher prices for these local TV deals: reports suggest the Bobcats make just $8 million per year. This creates a mammoth income disparity between teams, due almost completely to market size. (Most of these deals are severely long-term -- the new Celtics deal runs to 2037 -- so success cycles are expected.)
43. In the newly glamorous NBA, luxury suites make up an increasing portion of team revenue. These are often purchased by local corporations for the purposes of client wooing and company morale. (Also, rich people like to sit in exclusive places with good views where food is served instead of fetched from concession stands.) Obviously, in larger cities there is the greater likelihood of large companies and corporate bases. Some smaller markets do call major corporations home (AT&T in San Antonio, Bank of America in Charlotte), but you'll find many multiples more corporate bases and large companies in the top markets than any other. This increases demand and, as a result, price for the luxury suites. This also results in increased high-end sponsorships opportunities such as signage and arena naming rights.
44. The NBA has no legitimate and impactful revenue sharing system in place. Proceeds from the league's national TV contract are shared equally, but amounts to just 20 percent of the league's total revenue. The current luxury tax system could be considered a revenue sharing item, but teams under the threshold earn roughly $3 or 4 million a year in that. The NBA engages in some minor financing for struggling franchises -- you could call them "hardship grants" -- but it all adds up to relative peanuts. There is no mechanism in place in the NBA to shrink the massive income gap between teams.
45. Winning is not an equalizer. A study by a brilliant writer in 2010 showed that over the past decade, market size had a stronger relationship with reported annual profits than did winning percentage. It was better to be in a big market than to be a good team.
46. The NBA's situation is not at all similar to that of the NFL in terms of revenue sharing, and as such the league can't adopt football's practices. The NFL's revenue sharing is embedded in the very nature of the league's reality: football has one national TV contract with several networks, and the proceeds are shared by all teams. There is no separation of national and local rights, because every game is a "national" game. In the NBA, you have the Lakers pulling the league's $30 million for national rights and $200 million for local rights, and you have the Bobcats pulling the league's $30 million for national rights and $8 million for local rights. In the NFL, you have the Cowboys pulling $125 million for national rights and the Jaguars pulling $125 million for national rights.
47. Pooling all teams' local TV rights to create an NFL-like result is not feasible. First of all, Jerry Buss would have STAPLES Center burnt to the ground before allowing this to happen. The weight of getting to a more equitable NBA cannot be bore solely by the wealthy. (The progressive in me is screaming bloody murder at that sentence.)
48. The NBA has, to date, refused to include revenue sharing discussions in collective bargaining. The union argued that players have a stake in income equality and should have a voice in the creation of a new revenue sharing system. But when the NBA shut down all inclusion of the union in revenue sharing talk, the union retreated.
49. The NBA maintains that revenue sharing is a matter between owners, and as such will be decided between owners. Further, the NBA emphatically argues that revenue sharing cannot be put into place until collective bargaining is resolved; in other words, "Let's fix the player-team finances, then we can fix the team-league finances." As a result, the NBA says that it will adopt comprehensive revenue sharing, and that we will just have to take its word on that. Players and small market fans are understandably skeptical.
50. As we've argued in the recent past, it makes more sense to include revenue sharing in collective bargaining discussions for several reasons. As David Stern has himself emphasized, the NBA needs comprehensive economic reform. To get comprehensive reform, the NBA and players need to take all economic matters into account. To fix the player-team relationship without simultaneously addressing the team-league relationship is to explicitly only get half of the job done. Further, given players' interest in better revenue sharing, if the league is going to negotiate and implement it anyway, why not use it in negotiations to get the teams a preferable revenue split?
51. How should revenue sharing be implemented? It makes sense that local TV income would be the primary source, since beyond market size and team quality there isn't a particularly strong case to be made that franchises themselves have much to do with their TV audience. Unlike the extensive work done to draw fans to the arena, teams don't do a ton of promotion for TV broadcasts.
52. The revenue derived from TV contracts is primarily by circumstance. While market size weighs heavily on gate and luxury dollars, good teams and forward-thinking, creative promotions teams help a ton. Teams that draw big crowds deserve to be rewarded with their huge gates. But no matter how wonderful the Thunder are, they can only draw so many eyeballs in Oklahoma City on TV, and as such, only so much TV revenue. The NBA can determine a fair amount of local TV revenue to be pooled and shared, but this should be determined alongside a new collective bargaining agreement.
53. Insofar the NBA's suggestion to contract 1-2 teams for the purposes of better competitive balance and perhaps improved overall league finances has been an incredibly toothless threat aimed at inciting anger from fans and the players (who would lose 15-30 jobs from such a contraction), and whereas other than the league-owned Hornets no current owners would volunteer to shut down their team for less than $300 million (the price George Shinn took).
54. Whereas another $300 million, plus the sunken costs of the $300 million paid to Shinn represent substantial further losses to the NBA, and no obvious second contraction candidates comes to mind, it follows that it would be extraordinarily to sell the idea within the circle of owners itself.
55. As such, all NBA suggestions of contraction should be considered dumb distractions unworthy of time wasted on them.
56. The league has left a major market (Seattle) on account of the lack of an updated arena, and will leave another (Sacramento) in a year's time if a new arena isn't in development.
57. Nearly every arena in the NBA has benefited from public financing in some way, be it direct sales taxes assigned to arena financing, special taxes and fees on tourist-related activites (rental car fees, hotel taxes), land grants, preferred bond issuance or extensive tax breaks.
58. To rely on the general public to build facilities for the use of the NBA and other sports is a terribly unsustainable fact of business for modern sports leagues. The public is stretched thin with increasing costs of fire and police protection, contracting public service, rising health care costs for civil servants and the oncoming crush of public worker pension costs.
59. Unlike the NFL, the NBA has never had a program focused on financing the construction of new arenas or the renovation of existing facilities for markets in need of assistance. The NFL's now-expired G3 program took a portion of each team's broadcast revenue and dedicated it a program that facilitated loans of up to $150 million for teams looking to renovate or build a stadium. The loans were repaid at no cost from attendance revenue once the new or updated stadium was complete.
60. Given that NBA broadcast revenues are substantially smaller than those of the NFL and ought to be used in a robust revenue sharing program, another potential revenue source for an NBA arena funding program could be franchise sales.
61. Currently, new franchise owners do not have to "buy into" the league beyond actually purchasing a franchise; there is no extra fee due to the NBA. Only expansion teams or relocating franchises pay a fee to the league.
62. The NBA could institute a new 5 percent fee on franchise transactions in which the controlling partner in a franchise changes. For instance, if Gucci Mane were to have purchased the Hawks for $400 million, he would also owe the NBA $20 million as an "entrance fee." This money would be directed entirely to the NBA Arena Financing Fund.
63. Relocation fees could also be re-routed to this new fund. Clay Bennett was reportedly tagged with a $30 million fee to relocate from Seattle to Oklahoma City. The new minimum relocation fee could be $50 million, and could be sent to the NBA AFF.
64. Would this depress franchise sale activity? No, because existing owners would either be forced to decrease their sale price by the amount of the AFF fee or prospective owners would have to swallow the pill. The NBA has never had trouble getting new owners interested in the league, Hornets aside (given the very particular challenges involved in New Orleans). Four billionaires have bought into the league in the last two years. The market can handle this new fee; if not, the outgoing owners, most of whom take home many multiples of the original purchase price of their franchise in a sale, can handle the ding.
65. Would this increased relocation fee depress relocation activity? Yes. GOOD.
66. In fact, given that many relocations or threatened relocations come because of a lack of financing for renovated or new arenas, the existence of the loan fund may limit relocations no matter the size of the fee. That would be good thing for the NBA's fans, as anyone in Seattle can tell you.
67. Teams ought to be able to borrow from the fund only up to a third of their arena costs, capped at $150 million. This will allow the fund to stretch over multiple projects and force particular markets and owners to find financing for their projects.
68. This program wouldn't remove public financing from the equation, but it would lessen the burden on governments and taxpayers, and provide a good start for oncoming crises.
69. The NBA had initially said it intended to abolish the guaranteed contract, but quickly retreated from this issue in collective bargaining negotiations. Currently, individual contracts can contain unguaranteed portions (including full years), but most high-salary players are on fully guaranteed contracts. It is a significant bargaining chip in individual player negotiations.
70. The impact of a non-performing or underperforming player on a team's books for the purposes of salary cap limits can be devastating. While there is a mechanism under which players can be medically retired and come off the cap early -- this happened to Shareef Abdur-Rahim, who came off of the books two years early in Sacramento -- many players feel as though they can come back and reject the request to medically retire in order to help their team sign more players.
71. David Stern has recently suggested that instead of ending guaranteed contracts, the cap hits for non-performing or underperforming salaried players be stretched over a longer time period than the contract itself in order to allow teams wiggle room under the cap. For instance, if Zach Randolph were to be told he just signed a four-year, $66 million extension, violating the code of secrecy agreed to by the Grizzlies and Z-Bo's agent, and Randolph immediately bought a Golden Corral franchise to be located inside Z-Bo's house, thus rendering Randolph obese and unable to play well, the Grizzlies would be allowed to, for the purposes of the cap only, waive Randolph and assign his cap hit over eight years, lessening by half the annual impact of the cap hit but adding to the books for twice as long. Randolph would be paid per the terms of his contract regardless.
72. The problem with cap hits if often not the size -- though that is a factor -- but the length. Michael Redd just came off of the Milwaukee Bucks' books in June. He has been incapacitated since 2008. Stern's plan to allow for stretched cap hits would have helped the Bucks replace Redd's production in 2008-2011, but would have stretched the pain over a longer term, limited total flexibility moving forward.
73. Given that a concern of the NBA is the great size of team payrolls, allowing cap hits to be reduced why full salaries continue to be paid out -- theoretically allowing teams to add additional players to offset the loss in production -- may not be the best approach.
74. A better "amnesty" approach may be to allow teams to speed up the end of bad contracts. This could be accomplished by allowing teams to waive a player, immediately paying all future salary owed and adding that payroll to the next year's salary cap hit, but reduced by half. The player would still receive all money owed. For instance, if the Bucks had wanted to waive Redd after his injury-riddling 2008-09 season, when he had $35.3 million remaining on his contract, they could have done so, paying Redd $35.3 million to drop him and taking that half that amount -- $17.65 million -- as a 2009-10 cap hit. That turns out to be close to what Redd would have cost in 2009-10 anyway, and the Bucks could then have had more cap space to work with in 2010 free agency, having lost Redd's $18.3 million on the 2011 books.
75. This mechanism would obviously better help teams with unproductive players fairly close to the end of their deals; if after next the Grizz wanted to expel Randolph, for instance, they would have to take a $25.4 million cap hit for the 2012-13 books, which would likely drive them into luxury tax territory and could kill any hopes of dabbling in free agency. But it would help them in 2013 and 2014 free agency by shedding the long-term drain on their cap.
76. Dear Memphis fans, of which there are a number of passionates: Zach Randolph was used only as an example. Please do not be offended and please do not make "I think you misspelled DeMarcus Cousins" jokes.
77. To prevent abuse of the mechanism and commemorate a special time for the NBA, the rule allowing these amnesty waivers shall be called the Isiah Thomas Rule and shall be limited to years of the Ox, Rabbit, Snake, Ram, Rooster and Boar. (This could potentially be simplified as "every other year."
CONTRACT LENGTH AND TERMS
78. Currently, new free agent contracts are limited to a maximum of five years, but players can re-sign with their teams for up to six years. This includes the early extension, which allows a player entering his fourth season to re-sign for an additional five years tacked on the end. The NBA initially adopted maximum contract lengths in the 1999 collective bargaining agreement, then reduced the length to the current standard in 2005.
79. Contract maximums are a double-edged sword: teams would prefer to keep rookies and young, cheaper stars on deals as long as possible as expiring contracts leads to potential flight (see LeBron James). However, oftentimes player agents pit teams against each other with contract length as big a chip as contract size. That extra season can be devastating to a team's cap ledger.
80. Any reduction in maximum contract length will affect both rookies and veterans; if the NBA shortens contract length too much, it risks seeing greater team turnover among the league's bright young stars.
81. As such, the NBA shouldn't seek a maximum contract length of less than four years, which is the length of the current rookie scale contract.
82. By setting the maximum free agent contract length at four years, long-term obligations to players who become unproductive will be lessened, even outside of the new Isiah Thomas Rule. Players will still be able to earn well in their primes -- a number of stars will even be glad to hit free agency more frequently, to find a championship-contending team or a bigger payday.
83. Teams should be able to offer their own players five-year deals -- or four-year extension to rising fourth-year players on their rookie scales -- but ...
84. ... the sign-and-trade should be abolished as an abuse of salary cap rules and an unnecessary tool that only brings pain and suffering. We direct your attention to the final year of Rashard Lewis' contract, in which the Wizards forward will be paid $22 million. Because Orlando did a sign-and-trade to get him, adding a needlessly violent sixth year.
85. Maximum salaries have been a net plus for the league, as while the very best players are often underpaid due to salary limits, and there's no question that a number of average-for-the-NBA players earn a salary out-of-line with their production, the onset of the max salary has allowed more balanced teams and has allowed teams with stars to add strong roleplayers. (Let's not forget that while the Bulls of the late Jordan era were well-stocked around His Airness, Scottie Pippen was woefully underpaid.)
86. The existent limits on salaries seems appropriate -- a maximum-level veteran earning a salary equal to 30 percent of the salary cap limit fits both logic and practical purposes.
87. Allowable raises, however, are out of line with normal revenue growth, and should be cut back to 5 percent annually. This is to say that free agents signing contracts with new teams ought to be able to have 5 percent annual raises in their contract. To promote stars remaining with their own team, annual raises of 7.5 percent should be used.
88. The mid-level exception should be abolished. The maximum salary limits on players is a strong enough tool to help the middle class of the NBA survive. While the end of the mid-level and sign-and-trades may hurt specific players find lucrative deals, it will force teams to plan more carefully. In addition to the amnesty rules, everyone should be OK without teams panicking and signing Drew Gooden to $30 million contracts.
89. The revenue split has served as a hard cap at the league level, limiting player salary to 57 percent of basketball-related income, or roughly 48 percent of total revenue. This neither rewards owners for keeping costs in check or punishes them for being too free-spending.
90. The current revenue split doesn't work for owners; they seek a massive downgrade in the players' share of salary, to 50 percent based on BRI (which would be 46 percent of total revenue). The players' top preference would be to keep it where it is.
91. Why not both? Every frozen yogurt machine that serves chocolate and vanilla also serves chocolate-vanila swirl, and it is the greatest. Why can't we give owners and players what they want out of a revenue split? Allow a variable revenue split with a floor (46 percent of total revenue) and a ceiling (50 percent of total revenue). If owners control themselves and rein in salaries, they can reap the benefits. If they don't, they don't.
92. To help influence salaries downward, given that the union has gotten its way throughout most of this document, the salary cap would be set based on the revenue split floor. Currently, the cap is set as 51 percent of BRI less benefits ($120 million). Under this system, next year's salary cap would be 40 percent of total revenue less benefits, or $55.7 million. That's only a couple million lower than last year's. But under the variable revenue split, owners could pay out just $1.9 billion in player salaries -- less than even their proposal calls for. But only if they constrict spending.
93. To help even the playing field without a hard team cap, the luxury tax would become a graduated, punishing scale. Currently, the luxury tax threshold is set at an estimated 120 percent of the salary cap; for every dollar over that threshold, teams pay an additional dollar of tax. The new system: allow teams over the threshold but within 130 percent of the salary cap ($72 million under this system) to pay the current dollar-for-dollar tax. But for teams exceeding 130 percent of the cap, charge a 200 percent tax -- two dollars in tax for every dollar over the new second step threshold. Above 140 percent of the cap (or $78 million), charge a 300 percent tax. Above 150 percent of the cap -- that'd be a payroll in excess of $83.55 million -- you pay a 500 percent tax rate. This would effectively stop high-payroll teams from loading up on excess talent; if they refuse to stop (look at you, Cuban), they'd be single-handedly making every other team profitable.
94. Though vis a vis Thesis No. 34 we ought to stop legislating NBA policy via the balance sheet, it should be noted that, if NBA owners could control themselves in free agency, under the system presented herein player salaries could fall to $1.9 billion for 2011-12, leaving the owners with $400 million in leaguewide profits. For every dollar spent on player salary over the floor, the that amount would shrink. This would continue in perpetuity so long as league revenues grow and non-player expenses are kept in line with revenue growth: the owners would never have a lack of opportunity to make $400 million collectively. Meanwhile, players could earn even more money than allowed under the current system, provided that they convince owners that they are totally awesome and worth it.
95. As such, and with the direction afforded herein, the NBA and players' union ought to adopt this plan with haste and get on with the God-forsaken season. Let us watch our teams disappoint us. Take our money, please!
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