The CBA: A comprehensive analysis (of what we know)

The CBA: A comprehensive analysis (of what we know)


The CBA: A comprehensive analysis (of what we know)

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Here is some commentary and critique of the Summary of Principal Deal Terms (SPDT) issued by the NBA and NBPA following Saturday’s announcement that a tentative deal had been reached.

On BRI split: Other than Year One of the deal, the players appear guaranteed to receive between 49-51 percent of BRI with departures from 50 percent occurring in the event that the BRI projection was either surpassed or not attained; respectively, the players would receive 60.5-39.5 percent of the BRI exceeding projections or be responsible for 60.5 percent of the shortfall.

Here, the NBPA is obviously fully expecting BRI to exceed projections and thereby accepts risks that could come with shortfalls. This is a dangerous strategy if the NBA is allowed to unilaterally make BRI projections. It would be in the NBA’s best interest to project too high and then to fall short; checks and balances as to this type of behavior should be expected to be in place come the finalized CBA. Shrewdly, the NBPA negotiated for a set BRI in this first year of the new CBA, a lockout-shortened year in which some former fans may have lost interest in (or even actively shun) the NBA.

All things being equal and barring significant economic meltdown, a shortfall would probably be more likely in this year than in any other year. Thus, negotiating for a fixed BRI here was wise.

On pro-rated, guaranteed 2011-12 player contracts: Players will receive 66/82 (80.4 percent) of their 2011-12 salaries. However, duration of the pre-season is not accounted for. So if players play fewer than 80.4 percent of regularly scheduled pre-season games, then this small point runs slightly in favor of the players.

On grandfathering 2005 CBA’s salary sap and luxury tax for 2011-12 and 2012-13 seasons: This deal clearly affords protection to teams who made salary commitments to players throughout the 2011-12 and 2012-13 seasons (note: no such protection is afforded to Heat and Lakers, who are already heavily extended in 2013-14). Under this new deal, these teams vying to compete for a championship will have an incentive to take on salary if it means quality players and especially if that salary does not extend past 2012-13. So expect Atlanta, Boston, Chicago, Dallas, Lakers, New York, Orlando, Portland, Phoenix and Spurs to take on two-year or fewer contracts this free agency season and at least Hawks, Lakers, Heat and Magic to take on high-paying one-year contracts during 2012 free agency. The strategy here would be to get while the getting is good… to pay a relatively small 1:1 luxury tax before the tax penalties become far more punitive.

On the mid-level exception for room teams: Another underpinning of this deal is that it allows teams to more quickly build a significantly competitive roster from scratch. Once a team sheds much of its salary (think 2011-12 Denver, who has only approximately $30 million committed to date), it is able to quickly rebuild by not only using cap room to sign valuable free agents but to also add a mid-level player. This is not a luxury that Miami had in the summer of 2010, which, had they had the option, may have impacted the NBA Finals.

On the luxury tax with teeth: If your team is $25 million into the tax for four consecutive years, your tax bill is $45 million + $45 million + $45 million + $65 million = $200 million in luxury taxes alone.

On the traded player exception for non-taxpayers: The NBA has increased the salary matching requirements, facilitating the possibility of trading value for value irrespective of salaries. A further step that they should consider would be to increase the formula to 150 percent of salary + $500,000. By doing this, players with lower salaries would become more tradable, theoretically leading to more efficient outcomes of team fits and chemistry. For example, under the current deal a decent rookie (with a $1.04 million salary) and a future pick could not be traded for a very good rookie (with a $2.02 million salary). By increasing the $100,000 number in the formula to $500,000, deals of this nature would be a possibility.

On removal of base-year compensation (BYC) provisions: This should allow for greater player movement and greater facility of NBA trades. Players should, on average, be valued closer to their actual worth for salary matching purposes. Plus, BYC was always a confusing hassle to follow for the average, and even sophisticated, NBA fan.

On minimum salary requirements: By implementing 85-plus percent of the salary cap floor implemented in Year One (2011-12), teams who have significant cap space and who might have otherwise held out for free agents in 2012-13 will be forced to take on salary in free agency in 2011. If no players worthy of long-term commitments are available, expect these teams to sign short-term (1-2 year) deals for the purposes of preserving flexibility in making a run at stronger future free agent classes. This short-term, higher-dollar signing was a strategy employed by teams in some contracts prior to the lockout.

The idea of these heightened floors is to cluster more NBA teams around a median salary level to enhance competition. This desire for more economic parity will not occur in years 1-2 because the old system will largely remain in effect and because owners will try that much harder to win under the old system before it gets more expensive to do so. (To compare: if gas prices are expected to double tomorrow, might as well fill up today).

Depending on how much of a deterrent the new luxury tax becomes starting in 2013-14, the NBA’s goal of greater parity may or may not be achieved.

On Miami Heat’s “Year Three” of the new deal: What Miami will do in each year of this new CBA will prove particularly interesting and will be heavily scrutinized. Miami already has over $71 million committed in 2013-14 contracts, about $57 million of which represents the contracts of the Big Three. Miami has the option of adding mid-level players in 2011-12 and 2012-13 and effectively running up their salary or to take on mostly short-term (nothing into 2013-14) deals that will allow them to mostly avoid the most damning levels of the new luxury tax. Since the value of the Miami franchise is likely to soar in the next five years and since the team is likely to sell out games and make handsome profits every year, and since the team’s owner is wealthy and ready to spend, Miami can be expected to spend but to spend judiciously.

Another option, which might increase the longevity and sustainability of a winning franchise might be to trade one of the members of the Big Three (most likely Chris Bosh) for rising starters and draft picks. One problem with this strategy is that few teams are likely to mortgage their futures for Chis Bosh, who at the time would be almost 30 years old. Imagine the team trading LeBron James for an even better haul than the Nuggets got with Carmelo Anthony so to re-load while LeBron still had superstar value. Hard to imagine but not unimaginable given the new dynamics of the league. Few other aside from Pat Riley would have the gusto to pull that move.

On “Superteams”: This deal makes it extremely difficult to have long-term, sustained “Superteams”, such as the ArtestBryantBynumGasolOdom Lakers. The current Miami Heat would be able to keep their Big Three nucleus until at least 2014-15 because after 2011-12 they will each have only, at most, four years left on their contracts. They will not likely have been a luxury tax paying team in 2011-12, so they will be able to wade into the luxury tax in 2012-13 through the penultimate year for the Big Three in 2014-15 without triggering the heightened luxury tax for being a taxpayer for four out of any five consecutive years. If each of the Big Three pick up their player options in 2015-16 with the Heat, then the team may have no choice but to either be a significant taxpayer or to surround the players with minimum salary talent in order to avoid triggering a massive tax burden.

This could result in at least one of the Big Three choosing to move elsewhere or even a complete breakup of the band. But if the team has won multiple rings by this point, Micky Arison may be able to more than justify a steep tax hit, as the Heat will have gained tremendously from the Big Three’s tenure and legacy. While “Superteams” will not be altogether eliminated, they will certainly be discouraged, and only the very strongest superteams in the very strongest markets playing for the very most liberally spending owners will persist.

On the 50 percent of the luxury tax money that can be reserved for league purposes: While not likely to be a heavily discussed point of the deal, this provision is fascinating. Using only the SPDT as a guide, it would be theoretically possible for the NBA to use some of its 50 percent of the potentially heightened luxury tax revenues to bolster failing teams. Effectively, the NBA could take a page out of the federal government’s book and bail out failing teams in failing markets. Expect a large amount of targeted and heavily disputed revenue sharing to come from this 50 percent. It might be worth considering the possibility of limiting any single team from receiving “bailout” money in greater than X consecutive seasons and/or greater than Y dollars over Z seasons.

On the restriction of teams from acquiring a free agent via sign-and-trade while also being over $4 million over the luxury tax: This provision prevents players from forcing their way out of a small market and on to a high-spending, contending team. In its small way, it seeks to level the playing field.

On triggers for the 30 percent maximum player salary: As presented in the SPDT, players must meet certain criteria to be a 30 percent superstar. As of now, a player who was All-NBA 1st Team once and All-NBA 2nd Team once would not necessarily fit the criteria while a player who was All-NBA 3rd Team on two occasions would. This is likely just a wording issue that will require re-phrasing.

On sign-and-trades in 2011-12 and 2012-13: Teams who are seeking to aggressively add salary in order to get into contention can be expected to seek out sign-and-trades in the next two years because if they are beyond $4 million into luxury tax territory they will not be able to participate in sign-and-trades in free agency in 2013 and beyond. Teams seeking to go all in will pursue sign-and-trades now, which will help the teams who would definitely have lost the free agent sans compensation. For players who were considering re-signing with their prior team, the sign-and-trade option will become more likely and more desirable because they will be signing with a team more committed than ever to spending at all costs in order to build a winning team.

On qualifying offers to over-performing draftees: Under this new deal, the Carl Landrys and Landry Fields of the world will be better off, as their qualifying offer will increase based upon performance that exceeds the expectation of their draft status. This is an incredibly fair clause that will provide additional incentive to low-first and second-round draft picks. From the standpoint of the second-round player, this is arguably very unfair because he is continually haunted by his low draft status despite on-court achievements. The flipside is that the heady GM or scouting department who picked the over-achieving second-rounder is still able to enjoy the rewards of a strong draft moves.

On the amnesty clause: This clause will be great for teams with deep pockets who have gotten themselves into big trouble with bad, long-term contracts. The teams most likely to have gotten themselves into trouble and most likely to buy themselves out of it will be the teams most willing and able to spend. This is unfair to teams like Denver, Sacramento, Washington and Indiana who were wise to reduce salary commitments beyond 2010-11 in order to see what the new CBA landscape would be. Fortunately, players who have been amnestied and who still have value will be directed first to teams with cap room rather than being allowed to sign for the minimum with an already heavily extended, highly competitive team.

Separately, an interesting thought might be whether teams who obtain players signed by other teams prior to 2011-12 free agency can trade for a player and then amnesty that player. So if Denver wanted to acquire a bad contract and draft picks, could it then amnesty that player and be in a better place to re-build because of the picks? If this strategy could work, then expect many teams with no one to amnesty to seek picks and/or talent and bad contracts from teams with 2-plus “amnesty-worthy” contracts. Kind of like buying carbon credits, but kind of reversed.

One huge aspect of the amnesty clause that was wholly undiscussed was the salary (both in real and cap dollars) that a team signing an amnestied player would be liable for paying. The same formula should not be applied to every amnestied player because each of their current market values vastly differ. It will be interesting whether a form of silent bidding might take place to determine values for an amnestied player’s salary and/or cap hit vis a vis the new team.

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