A modest examination of the NBA's proposal (Part 1)

Posted on Mon 14 November 2011 in Lockout Coverage by Aaron McGuire

This post is part one of a three part series examining the final doomed CBA proposal pre-disclaim.

The other day, the NBA officially released the terms of the final CBA proposal sent to Billy Hunter and Derek Fisher in the latest CBA negotiations. Among the myriad terrible PR moves by both sides during this excruciating lockout, this is one of the more transparent and respectable things they've done. The majority of the lockout coverage has been through hearsay and anonymous sources. To actually release the proposal on the table publically both opens the NBA up to criticism and allows fans and media to actually take a look at the real proposal and figure out what they like, and what they don't. How bad of a deal is it, essentially? If the players blow up talks today and decide to decertify (edit: they did, making this more a retrospective curiosity than anything substantial -- not that I'm going to let that keep me from finishing the job), is it a reasonable response? Given that we now have the ability to do it, I'm going to put on my thinking cap and find out just how crummy the deal is. So let's go through it, point by point.

• • •


Players to elect one of two system options:

  • Option 1: BRI is split 50%/50% each season between the players and teams.
  • Option 2: Same as Option 1, except in addition:

  • Players receive a greater share of BRI to the extent BRI exceeds projections, and a smaller share of BRI to the extent BRI falls short of projections. Specifically, the players' share will be increased by 57% of incremental BRI in excess of projected BRI for each season, and will be reduced by 57% of the amount by which BRI falls short of projected BRI for each season.

  • The players' resulting overall share of BRI in a season is no less than 49% and no greater than 51%.

So, here's the big pickle. Start the CBA proposal with the rat poison. The current BRI split is 57% for the players, 43% for the owners -- with, believe it or not, a flex exception that allows the player's component of BRI to increase if BRI goes over a certain threshhold (one that it never met, but came within 0.1 billion of happening last season and almost certainly would've happened this season). If it had, players would've gotten 57.5% of BRI, and they would've gotten 58% if BRI had ever gone above 4.8 billion (which probably would've never happened, but still). So, this is a really huge concession by the players. Enough so that you would expect some system levity going forward.

To wit -- full BRI was $3.81 billion last season. With a 57% cut, the players are cumulatively getting $2.16 billion. With a 50% cut? $1.91 billion. May not seem like a huge gap when calculated at the billions level, but that's $250,000,000 the players are giving up, straight off the top. That's huge. With the NBA's losses being reported as around $300,000,000 per year, this (plus revenue sharing, something that will be dealt with on the supply side) should essentially cover that. And that's if you believe the loss numbers. Personally, I don't, but that's a sticky issue we probably don't need to get into right now. Regardless. It's a huge concession. The owners getting the players to even consider agreeing to this level of BRI split is a measure of how thoroughly the players got flogged in these negotiations.

And, frankly, answers the question at the top of the post. If the players reject it based solely on BRI, I can't say I completely blame them.

2. System / Salary Cap

  • System includes a Soft Salary Cap as under the 2005 CBA.
  • Salary Cap and Tax levels set in relation to the projected escrow level (escrow level equals 50% of BRI, less Benefits, divided by 30) in same proportions as under the 2005 CBA. Salary Cap and Tax levels in years 1 and 2 to be no less than their 2010-11 levels.

Now, there's something relatively important here that isn't getting much play. Notice the last sentence of the second bulletpoint? The salary cap can't fall under 2011 levels for two years, and neither can the tax level. That's extremely important. Combined with some of the points I'll be getting into later, the fact that the cap can't fall from $58.1 million is a very player-positive development. The fact that the tax level can't drop below $70.3 million is a very player-positive development. And the fact that the players kept a soft cap -- even though the tax is on the edge of punitive -- is a good development both for the league and for player salaries going forward.

Let's go over the exceptions, starting with the new three-pronged midlevel.

  • Non-Taxpayer Mid-Level Exception: Set at $5M in years 1 and 2, growing 3% annually thereafter; maximum contract length alternates between 4 and 3 years; can be used every year.
  • Taxpayer Mid-Level Exception: Set at $3M in year 1, growing 3% annually thereafter; maximum contract length of 3 years; can be used every year.
  • Mid-Level Exception for Room Teams: A new Exception is available for teams that use Room under the Salary Cap (and therefore forfeit their Non-Taxpayer Mid-Level and Bi-Annual Exceptions). The exception allows a team using Room to thereafter sign one or more free agents to a contract with a total first year salary up to $2.5M and up to 2 years in length. Exception amount to grow 3% annually.

Really, not great for the players. Though the room exception is interesting, and new. And new exceptions are essentially always player-positive, since they usually will mean more players getting more money. The fact that they're cutting contract length will ensure better free agency periods for the fans, and keep owners from making bad mistakes (like, say, paying Ron Artest $6.7 million a year past his prime). So, they're reasonable changes. But not fun ones, and not easy ones to swallow. For reference, here's what the starting level of the contracts will be over the duration of this CBA. Numbers in millions:

.... 2012  2013  2014  2015  2016  2017 ..
TAX  3.00  3.09  3.18  3.28  3.38  3.48 ..
NON  5.00  5.00  5.15  5.30  5.46  5.62 ..
ROOM 2.50  2.57  2.65  2.73  2.81  2.90 ..

Not great, but looking at those contract numbers, they're not as awful as expected. The 3% annual growth ensures that these exceptions will both get relatively more palatable over the life of this CBA. It's a beefed up biannual for taxpayers and essentially the current midlevel adjusted for the overall lesser BRI share of the players. Not great. But not a shellacking, realistically.

The most interesting aspect of this is the "room" midlevel exception, a new feature that probably should be labeled the Miami Heat exception. Why? Essentially what it does is it allows teams that start free agency under the cap and fill all their cap room to sign one or two more non D-League players to small contracts. As a general rule, neither previous midlevel could be used by a team who used their room under the cap to sign contracts. This exception allows teams that fill their cap to fill in tertiary players on 1-2 year contracts valued at less than 2.5 million annually. Which isn't bad, if you're a ring chasing vet. This also has the 3% annual growth caveat, which should push the collected value of contracts signed with this exception up to striking distance of $3 million by the end of this CBA. Not bad. And a decent new exception that throws a bone to teams that try to build their own Heat level super-teams.

  • _ Bi-Annual Exception can only be used by non-taxpayers. Amount set at $1.9M in year 1, growing 3% annually thereafter. Exception cannot be used in 2 consecutive years and has maximum contract length of 2 years (same as under 2005 CBA)_

This is actually a slight change from the current Bi-Annual exception -- it sets the value back from its current level of $2.08 million to $1.90 million, a difference of about $180,000 for players signed in the new Bi-Annual. Not a big concession, but a slight one that's worth calling out. All other terms of the exception remain the same.

  • Disabled Player Exception set at lesser of (i) 50% of the disabled player’s salary, or (ii) the amount of the Non-Taxpayer Mid-Level Exception. Maximum contract length of 1 year. Exception available to be used to replace player who suffers season-ending injury (same as under 2005 CBA).

This is also a slight rollback. Under the current CBA, the maximum exception value is the lesser of 50% of the disabled player's salary or the average NBA salary (last season: $5.7 million). Under this rule it'll be the lesser of 50% of the disabled player's salary and $5.0 million, a difference of roughly $700,000. Though I would caveat that average player salaries will certainly decrease under this CBA, meaning that long-term the $5.0 million mark might be better for the players, if only marginally so. Overall, a wash.

  • Traded Player Exception increased for non-taxpayers such that the amount a non-taxpaying team has available to replace a traded player or players equals the lesser of (i) 150% of salaries of players being traded plus $100,000, or (ii) the salaries of players being traded plus $5M. (For purposes of this rule, team is a nontaxpayer if its post-trade team salary is below the Tax level.)Traded Player Exception for taxpayers equals 125% of the salaries of players being traded plus $100,000 (same as under 2005 CBA). Base Year Compensation (BYC) in connection with the Traded Player Exception is eliminated, except in sign-and-trade transactions. Trades of players who otherwise would be subject to BYC prohibited until January 15. Criteria for whether a player is subject to BYC same as under 2005 CBA.

I don't really feel like going over the complicated intricacies of BYC right now -- it's complicated, annoying, and altogether hard to explain. The best source I can give you to glean your own understanding is here, where Larry Coon gives his take on it. He's a salary cap God, basically. Nevertheless. This is a relatively neutral development for players as far as I can see, as it basically just means that non-taxpayers will have more friendly math for their own trades. It'll be easier for teams under the cap to take back more than they give away, salary-wise, in trades. From an economic perspective I don't see how this impacts players so much as player movement. I could be wrong, though, and feel free to school me on this if you read it differently.

We're done with the exceptions, by the way. Overall, not player-positive, but the overall picture isn't entirely negative due primarily to the addition of the room midlevel. The increased ability of below-cap teams to take back more than they give in trades should lead to a more interesting trading market, too, which is fan-positive. Otherwise, the owners are placing small rollbacks on a few exceptions, but nothing too exotic other than the taxpayer midlevel that changes the old taxpayer midlevel into a beefed up bi-annual. Let's move on.

  • _ Minimum Team Salary increased to (i) 85% of Salary Cap in years 1 and 2, and (ii) 90% of Salary Cap starting in year 3. _In years 1 and 2, Tax rate for teams with team salary above Tax level is $1-for-$1 (same as 2005 CBA).

Alright. While this is nothing like the BRI concession the players made, this is actually a relatively meaningful middle class-positive concession, especially given the circumstances. There's been a lot of rhetoric about how this proposal could kill the NBA's middle class. This is the owners' first (and, frankly, only) real attempt to combat that. What this means is that teams like the Sacramento Kings and the Charlotte Bobcats can't continue to operate with payrolls significantly under the cap -- the current minimum salary is 75% of the cap, and the 85-90% level is definitely going to change the way teams like that (and the Nets, and the pre-LeBron Heat) operate.

If a team wants to enter a free agency period with a lot of cap room, they can't just keep hoarding it and paying virtually nobody to play basketball for them. They'll need to sign players. This is a good improvement for the NBA's middle class, although it may have the tertiary effect of curtailing player movement a touch (in that it'll be harder for teams to clear cap room for big time free agency periods, though nowhere near impossible if their team is well managed).

  • Beginning in year 3, Tax rates for teams with team salary above Tax level are as follows:
    Tax Level     Tax Rate

    $0M - 5M $1.50-for-$1 $5M - 10M $1.75-for-$1 $10M - 15M $2.50-for-$1 $15M - 20M $3.25-for-$1

    • Tax rates increase by $0.50 for each additional $5M above the Tax level (e.g., for team salary $20M-25M above the Tax level, the Tax rate is $3.75-for-$1).
    • Tax rates for teams that are taxpayers in at least 4 out of any 5 seasons (starting in 2011-12) increase by $1 at each increment (e.g., for team salary $5M-$10M above the Tax level, the Tax rate for a repeat taxpayer is $2.75-for-$1 instead of $1.75-for-$1).

A few thoughts on this. This isn't good for the players. That much is obvious. It means that it's going to get a lot harder for teams to pull a Dallas and spend gobs and gobs of money year in and year out to try and get a championship. I don't know if that's good or bad, but I think a progressive tax depending on the level to which you're overspending isn't an awful thing. It does make it essentially prohibitive to spend $15m+ over the tax line (remember, tax line is still up for negotiation, though even at current levels it'll be a good 12-15 million above the cap line). But there were only three teams that spent that much over the tax line last season, and teams that are that far over the line are actually relatively rare, historically. For example, back in 2007, only one team was over that line (the Knicks, at a cool $45 million over the tax line). This may not be as big of an issue as one would think. In fact, in the 2010-2011 season, out of seven taxpaying teams, four of them would be at the minimum tax level. It will be a change, but not a huge one.

There's also been a lot of ink spilled about the repeater tax. But really? This current agreement makes it essentially worthless. Seasons counted for the repeater tax START at 2011-2012, which means that the repeater tax is not going to be at all calculated until the 2017 season. Which means there will only be two seasons before the inevitable opt-out where the repeater tax is assessed at all. Two seasons! And they need to be taxpayers in 4 out of 5 years -- if they're close to the line a few years, they can make a small trade to get under the line. Or possibly apply the stretch clause. It's unlikely the repeater tax is going to affect more than 1 or 2 teams at a maximum -- in the 2011 season, it would have applied to the Mavs and the Lakers, and that's it. With the disincentive of the repeater tax present as a disincentive, the Lakers could've most likely taken a few mil off their salary in 2008 and kept from paying it. The Mavs were screwed. But if the tax is being paid only by Cuban, it's hardly going to be a big deal on a league-wise scale.

The remaining clauses to section two are essentially housekeeping -- non-taxpaying teams cannot receive more than 50% of tax revenue to ensure the non-taxpayers don't rip off the tax-payers. A team that uses the non-taxpayer MLE cannot turn around and balloon their salary above the tax line later in the season -- though, they can go over the tax line by less than $5 million so long as they do transactions later in the season to get under the tax line. Nothing too impactful, so far as I understand it.

• • •

Due to the length of the CBA proposal, I'm going to split this post into three distinct parts. The next post will cover article #3 (Guarantees/Escrow) to article #11 (Free Agency). The post after that will cover the remainder of the CBA proposal, with some overall thoughts about it and the union's rejection. Perhaps Alex and I will do a small thing with our joint thoughts on the disclaimer, depending on how thoroughly I choose to address it in this series. Regardless. Second part drops later today, while the third part will probably drop Tuesday morning. See you then.