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A modest examination of the NBA's proposal (Part 2)

This post is part two 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. I began, earlier today, a point-by-point analysis trying to determine what the players would do. The more I looked at the CBA, the more convinced I was that they'd take it based on the tenor of negotiations. I was wrong. They rejected it, disbanded the union, and plunged the NBA into nuclear winter. Not the players' fault, mind you. This is supposed to be a relatively neutral look at the CBA proposal and an honest delineation of its merits and demerits. Although it's now little more than a curiosity for the sake of itself, maybe by going through it I'll come to some epiphany about why the NBA is, for all intensive purposes, gone. I will continue to go through it, point by point. Though only God knows why.

• • •

3. Guarantees/Escrow

  • NBA to guarantee players’ 50% share of BRI (or the applicable percentage between 49% and 51% if BRI Split “Option 2” is selected). If for any season aggregate player salaries and benefits fall short of the agreed-upon share of BRI, the difference would be paid by the NBA to the Players Association for distribution to all NBA players who were on a team roster in that season on such proportional basis as may be reasonably determined by the Players Association.
  • 10% escrow withholding used in all seasons.
  • If the 10% escrow is insufficient to reduce aggregate player salaries and benefits to the agreed-upon share of BRI, then the overage will be paid as follows: (i) first, from the new benefits pool to be funded with 1% of BRI (described in Section 15); and (ii) if an overage remains, from player salaries and benefits in a manner to be determined by the parties.
  • Parties to agree on mechanisms to adjust Salary Cap and Tax levels as may be needed so as to ensure that the agreed-upon share of BRI is not exceeded

One word that was on the lips of most NBA players entering today's doomed discussions was escrow. So it may behoove me to stop here for a second and explain the concept of escrow to the uninitiated. Escrow is, essentially, the wiggle room that allows the BRI splitting system to work. When the owners send out paychecks to the players under their team's employ, a certain percentage of each paycheck is withheld and placed in an fund. This fund is the escrow withholding. At the end of the season, numbers are calculated to see what percentage of BRI the owners made and what percentage of BRI the players made -- in order to make those figures match the agreed upon BRI numbers, the escrow is divvied between the players and owners to match it. For instance, if the agreed upon split was 50-50 and the players made $2 billion to the owners $2 billion over a full season, all escrow salary would be returned to the players, as giving any of it to the owners would throw off the 50-50 balance. If, on the other hand, the players made, say, $2.2 billion and the owners made $1.8 billion, 100% of the escrow (0.2 billion) would be split among the owners to make the salaries even.

The actual calculations are quite a bit more complicated in the current CBA, as there's a 57-43 split, but the idea is generally the same. Escrow is the mechanism that allows the NBA's financial structure to hit certain BRI thresholds on a yearly basis. The percentage of each paycheck withheld in escrow has, in recent years, been slowly going down. While escrow was at a flat 10% after the last CBA, it went down to 9% in 2007 and was at a CBA-low 8% last year. Last year, due to a record high BRI figure, the players received 100% of their escrow funds for the first time in the new CBA -- normally, they received $20-30 million a season back from a figure that tended to be around $150 million. The NBPA also received a check for $21.6 million to fill the gap between the amount the players actually received and the amount they should've received.

The current escrow structure proposed isn't that much different than the current system. In fact, it really isn't different at all. Sure, if the owners spend more than 50%, under this system they would get to take money from the 1% of BRI designated for pension and player benefits (see: section #15) and keep all of the escrow, possibly dipping more into player salaries if they needed to. But that's, well, basically how escrow works. If the player salaries don't meet benchmarks, they get all their escrow and then get extra money from the league to split the difference. If there are any cap-heads reading this that have anything more to say on it, or have something to point out that I'm completely missing, I'd much appreciate the shout (especially Larry Coon, though I sincerely doubt he has time to read this). But under previous rules, any overage not covered by escrow would be taken from next year's escrow. Owners could overspend and then take 100% of the escrow in the previous system, with overage being taken from the NEXT year's escrow. This isn't new.

Ric Bucher's fearmongering about how the owners would never be disincentivized from spending so much that they take 100% of escrow seems to me rather silly and misguided -- that's an aspect that's present in the current CBA, and while it's not fun, it is what it is. What the players may be protesting is the imposition of a flat 10% escrow across all years of the new CBA -- a reasonable protest, but not really a game breaking one. If that's not it, they're essentially opposing the system of escrow itself. A reasonable battle, but not one that has any particular relevance given that the escrow system is far and away the most efficient way to reach the BRI targets that this and the old CBA demand they reach. The change in escrow is more an accounting change than anything else, and far from some kind of draconian salary death star that was going to bankrupt the league's players.

4. Maximum Length of Contracts

  • Maximum contract length of 5 years for Bird players and 4 years for other free agents.
  • Maximum of 4 new years for rookie extensions (except maximum of 5
    new years for a maximum-salary Designated Player rookie extension –
    team can have only 1 Designated Player on its roster at any time).
  • Maximum of 4 total years for veteran extensions (e.g., 3 new years if
    extension signed during last year of player’s original contract).

For all the discussion about player movement being hurt (a discussion I'm in agreement with, this CBA proposal definitely hurt player movement with the tax issues and the exception cutbacks), this actually does help it. Even though it does so in a relatively shitty way for the players that they probably don't want to hear. Smaller contracts mean players will encounter free agency more often and ensure that there's more turnover for middle class guys, and more general fluidity around a few core players for each team. It also means bad contracts (the #1 source of wealth for many not-really-top-tier NBA players) will be shorter. Those players will be on the market more often, and going between teams more often.

You can make the relatively strong argument that this isn't the kind of movement players want, but you can also make the argument that players (at the end of the day) will encounter free agency more and have more control over their own landing spot with shorter contracts than they do in the current CBA. And you can make the argument that players will spend less time grossly underpaid. Well. Sort of. Until you get to the indefensible rookie clauses in this proposal. But lowering contract years in general is a good thing for player movement without the agency of teams.

5. Annual Increases

  • Maximum annual increases of 6.5% for Bird and Early Bird players, and 3.5% for other players.

This is interesting, because while the numbers are less, the structure of raises changes marginally here. In the current CBA all raise calculations are based on the first year of a player's salary. For non-bird players, you get a yearly raise of up to 8% of your first year's salary -- for bird players, you get a yearly raise of 10.5% of your first year's salary. Under this, if I'm reading it correctly, the raises are compounded, meaning that your raise in year 3 is 6.5% of your salary in year 2, not year 1. I may be wrong, but that's how I read it.

Regardless, this is a no-frills concession demanded from the players based on the current CBA. A four percent decrease in Bird player raises and a five percent decrease in non-bird players is serious business. Essentially cuts your raises in half on all contracts going forward, and ensures that Joe Johnson (in the event of contracts not being voided) signed essentially the last full-max Bird right deal ever. Pretty grim. Lowering the years at least has the tertiary effect of giving players more free agency -- lowering the raises essentially hamstrings teams into giving smaller contracts and continuing the league maxim of underpaying superstars. Great success.

6. Minimum Salaries

  • Minimum player salary scale reduced from amounts shown in 2005 CBA for 2011-12 in proportion to overall system reduction (i.e., approx. 12% lower than under the 2005 CBA). Scale grows by 3.5% in future seasons.

About the same, just scaled down for the BRI scaling. Scale grows by about the same amount it did before. This is status quo, although the pay decrease isn't great. It's a product of the BRI split -- with a 50-50 split, this is essentially a requirement.

7. Maximum Salaries

  • Rules governing maximum individual salaries for new contracts are the same as under the 2005 CBA.

This could not possibly be more Status Quo-y.

8. Salary Guarantees

  • Salary guarantees remain the same as under the 2005 CBA; i.e., there will be no limitations on a player’s ability to receive 100% guaranteed salary in all seasons of a contract.

Wait. Yes it could. It could be this one. This is more status quo-y.

9. Other Contract Rules

  • For new contracts, salary of waived players to be “stretched” for cash purposes such that the player’s remaining protected compensation would be paid over twice the number of remaining contract years plus 1 year.In lieu of the usual Cap treatment, the waiving team may elect to have the waived player’s salary follow the stretched cash allocation, except that stretching a waived player’s salary for Cap purposes is not permitted where the portion of total team salary attributable to all waived players in any future season would exceed an agreed-upon percentage of the Salary Cap in effect during the season in which the player is waived.
  • Team and player options are prohibited in new contracts with first-year salaries that exceed the average player salary. Team options in rookie scale contracts continue to be permitted. Non-minimum players with first-year salaries that exceed the average player salary may opt out of the last year of a contract if the contract contains zero salary protection for that last year.
  • All salaries for 2011-12 to be prorated in proportion to the number of 2011-12 regular season games that are canceled

A few things to unwrap here. First, the Eddy Curry stretch exception. Not really a big problem, given that this will be rarely applied and when applied will happen between that player's lawyer and the team, to ensure the salary paid is inflation adjusted and all that good stuff. Not really a big issue, especially since the player can sign somewhere else as well. Should make trades more interesting, if it is still there whenever the NBA comes back years from now. The second is essentially the Wes Matthews exception, making sure that undrafted rooks don't end up with crazy salaries of over $6 million dollars a year straight up. There was... well, virtually no danger of this happening, but I guess they wanted to protect from Kahn signing a D-League player to a max contract? Whatever. Lastly, pro-rating the current season's salary. Don't see an issue there, frankly -- you're paid to play the game, you play fewer games, you get less cash. I'd be shocked if this wasn't in here.

10. Rookies

  • First-year salary amounts for first round picks are reduced from the amounts shown in the 2005 CBA for 2011-12 in proportion to the overall system reduction (i.e., approx. 12% lower than under the 2005 CBA). First-year salary amounts in future seasons’ rookie scales to increase by 3.5%. Year-to-year increases within each season’s rookie scale to increase by 3.5% in years 2 and 3 and by the percentages set forth in the 2005 CBA rookie scale for year 4.

Like minimum salaries, you knew the 50-50 BRI split would rear its ugly head at some point. This is where they chose to rear it. 12% decrease doesn't sound like much, but it's a pretty big gap, especially given the already gaping maw between what top tier rookies should be paid and what they are paid. 1980 Magic Johnson? 1999 Tim Duncan? 2011 Derrick Rose? All of them deserve pay cuts, apparently! Granted, so do rookie Darko, rookie Thabeet, and other such busts. So it cuts both ways. Still. The 50-50 split has to come somewhere, and scaling the system back to account for it certainly does it.

11. Free Agency

  • Sign-and-Trades -- Taxpaying teams prohibited from acquiring a free agent in a sign-and-trade, except during the 2011-12 and 2012-13 seasons. The maximum contract length for a sign-and-trade is 4 years, and maximum annual increases are 3.5%.
  • Offer Sheets -- Period for a player's prior team to match an offer sheet that a restricted free agent receives from a new team shortened from 7 to 3 days.
  • Qualifying Offer-- Qualifying Offer amounts for first round picks 16-30 who are “starters” (criteria to be determined by the parties) increased to a range of 55-65% over 4th year Rookie Scale amounts; picks 1-15 and picks 16-30 who are “non-starters” are the same as under 2005 CBA. Qualifying Offer amounts for non-first round picks who are “starters” increased to 140% over prior year’s salary (vs. 125%).All Qualifying Offers fully guaranteed.

The clause that purportedly blew up talks is the first one, here -- the sign-and-trade for taxpayers. Which is patently absurd, given that it has been used 3 times in the last ten years and two of those were Eddy Curry and Kwame Brown. And due to it not kicking in until year 3, it'd only be active in 4 years of the CBA if the players decide to use their leverage in the next negotiation to get it back. Though I seriously doubt they'd think it's worth that, because frankly, it's not worth using leverage to change. It means nothing.

The offer sheet caveat is more of a front-office thing, essentially meant to make sure teams don't mess up other teams a la the Houston Rockets screwing the Cavs last summer in free agency when Kyle Lowry was signed by Gilbert to a great and slightly overpaid contract. The Rockets sat on it a week while agents were getting signed, then suddenly and unexpectedly picked up the option leaving the Cavs with literally nothing to show for the summer. Still, don't think it's a bad addition. I like the qualifying offer pitch, too -- it ensures teams can't lowball their players as much as they tend to do. It's a rather cosmetic change, though the fact that they fully guaranteed the qualifying offer is decent of them.

• • •

I'm really angry and frustrated about the season's demise. Therefore, the last post of this series will be part analysis, part nuclear rant. I'd say "be there or be square", but really, it's an awful thing that makes me mad. My writing will probably suck. Regardless. Be here for the stirring conclusion wherein I determine whether this deal is worth the disclaimer. Spoiler: it's an awful deal and it probably deserves it. Further spoiler: I don't really care.

And tomorrow will be a better day than today.

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Aaron McGuire
Editor in Chief at Gothic Ginobili
Aaron McGuire works as the lead mathematician and CTO for a small financial consulting firm in Richmond, VA. As a basketball writer, he's primarily known for Gothic Ginobili's 2012 Player Capsule series, where he wrote the equivalent of 1.5 Russian novels about every NBA player around. Nowadays, he writes a weekly column on whatever he damn well feels like.

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