Monday, October 13, 2014

Are Mark Cuban’s Comments Evidence of Collusion?

Mark Cuban
“If you give up guarantees, [i]t’s a trade-off….”

“It was discussed during the lockout time among owners, but never got anywhere. So it was just one of those trial balloons. I’m not offering this as a negotiation, I’m not suggesting it, all I’m saying is that was something we discussed before, and max contracts are always big question, guarantees are always a big question. But we have two years before that’s even an issue, so no point discussing it now.”

While many of us read Cuban's comments and focused only on the impact on future labor negotiations; I could not help thinking that Cuban's words sounded a bit like the owners were discussing colluding to change the market which results in guaranteed deals (just as the NFL was accused of doing during the supposedly "uncapped year").

As I've stated many times before the only NBA contracts mandated by the CBA to be guaranteed are those belonging to 1st round picks on their rookie deals.  Any other guaranteed contract is the result of the negotiations as they exist in the current market.

With that in mind; its hard to not read Cuban's comments and feel that the owner's were discussing artificially changing the market which results in the lion's share of the workforce receiving totally guaranteed deals.

Kevin Durant and Mark Cuban Verbally Spar Regarding Max Contracts & Guarantees

We’re less than a week from the announcement of the new media deal and discussions about the new Collective Bargaining Agreement ("CBA") are out in mass.  We've already heard from the movers and shakers such as Mark Cuban, LeBron and Kevin Durant regarding restructuring maximum deals and the possibility of removing guaranteed contracts.

After LeBron and Kevin Durant publicly lobbied the owners to remove maximum salaries; Cuban responded with the following:

Mark Cuban
“If you give up guarantees, [i]t’s a trade-off….”

“It was discussed during the lockout time among owners, but never got anywhere. So it was just one of those trial balloons. I’m not offering this as a negotiation, I’m not suggesting it, all I’m saying is that was something we discussed before, and max contracts are always big question, guarantees are always a big question. But we have two years before that’s even an issue, so no point discussing it now.”

These contrasting viewpoints have polarized much of the NBA fan base; and as such I thought I could shed a little light on the issues being discussed:

Maximum Deals.  As a direct result of explosion of contracts given to star athletes which occurred during the mid-to-late 90’s; one of the owner’s biggest wins during the lockout of 1999 was the imposition of maximum contracts.  Fresh off the megadeals signed by Shaquille O’Neal (signed seven-year, $121 million contract in 1996) and Kevin Garnett (in 1998 signed six-years, $126 million while only 21 years old) the owner’s had a legitimate reason to fear the increasing costs of superstars. 

Additionally the owners had an unlikely ally here as they had the support of the vast majority of the players in the union.  These players realized that the star’s salary being capped leaves more money available for the rest of the players on the team; and because these players represent the lion’s share of the union this alliance was enough to approve the inclusion of max deals.

While I am optimistic that the value of max deals will increase substantially; I doubt the influx of money will be enough to defeat those two powerful forces and totally remove max deals.

Guaranteed Contracts.  While most of us know that the bulk of NBA contracts are fully guaranteed; most of us do not seem to know why, mistakenly believing that the basis of the guarantee lies with the CBA. 

The truth is the only NBA contracts mandated by the CBA to be guaranteed are those belonging to 1st round picks on their rookie deals. Any other guaranteed contract was the result of the negotiations as they exist in the current market not the CBA.

Therefore any changes in the structure of contracts would be the result of a change in the market and not the CBA.

So while it was interesting to hear these powerful voices make their stances known regarding labor issues; I am not optimistic that this will result in any changes. 

Tuesday, October 7, 2014

NBA, I Salute You

Congratulations NBA.  In just 3 short years; the league has gone from being perceived as full of “thugs” and hemorrhaging money to having its future interests firmly secured by totally restructuring their image and taking progressive financial steps to secure a massive influx of revenue.

Image.  While no one is ready to claim that the NBA is ready to rival the NFL, the fact that ESPN/ABC and Turner sports are willing to triple the media deal with the NBA proves just how desirable the league currently is.  Players like LeBron James, Kobe Bryant, Kevin Durant, Carmelo Anthony, Dwight Howard, Blake Griffin, and Chris Paul are among the most recognizable faces in sports. Don’t believe it?  Try to tune in to an hour of TV without seeing one of their commercials.   

While it can be argued that much of this is due to those respective stars and not the league, the league’s contribution cannot be denied.  The NBA’s implementation of the dress code, exile of Donald Sterling and willingness to embrace ideas other leagues have been historically tone-deal to (i.e. gambling), that have made it easier for the casual fan to accept the product. 

Influx of Revenue.  Beyond the revenue being produced by the new TV deal; the NBA has taken several steps to make the NBA a more financially healthy league.  The first and likely most significant was the CBA of 2011 which not only increased the money that the owners are entitled but also strengthened revenue sharing among the teams to ensure that cash-strapped teams have an additional stream of cash.

While the effects of the mega media deal on the CBA, salary cap, etc. are yet to be determined; the most significant development of this new deal is how expertly the NBA has navigated the tumultuous waters that permeated the league after the ugly labor battle. 

Monday, February 25, 2013

Exmining Impact of New CBA After Uneventful Trade Deadline

Speaking to reporters earlier in February Stern was quoted as saying "[i]t's not about size, it's about revenue, San Antonio is a small market ... four championships, pretty good. Oklahoma City? Pretty good."

"Teams are going to have to manage well to get the best players they can," he said. "They'll have to manage well to hire the best coach, manage well their roster under the cap, manage well with tickets and sponsorships to do the best business they can. Every team has the ability to be competitive and profitable under our current system.

"It's not about market size. It's about management."

Seeing that I’m not the biggest advocate for parity I gave only a passing thought to these comments until last week’s dud of a trade deadline.  Its normally an annual tradition in the NBA for one of the teams that feels they are on the verge make a move to add a real contributor at the deadline; however last Thursday we saw no such things.  Instead [according to RealGM] this year marked the first time in 6 years that not a single all-star was dealt at the all-star break.

So what role does the new Collective Bargaining Agreement (CBA) have to do with this?  Depends on who you ask -- most seemed to erroneously believe sweeping changes would be felt immediately after the CBA was ratified, it always seemed logical to me that the majority of teams would not truly change course until the more punitive portions are implemented.  Now that teams know that we are mere months away from the aspects discouraging overspending being put into operation we are seeing that the vast majority of teams are being more fiscally responsible.

What are these punitive portions you ask?  Good question, and to answer it I’ve taken snippets from Larry Coon's excellent FAQ on the NBA’s salary cap to detail four different ways that the new CBA attempts to make management and not market size the most vital aspect to running a successful franchise >>>>>

21. What is the "luxury tax?" Why does it exist? How is it determined? Who pays it?
The luxury tax is a mechanism that helps control team spending. While it is commonly referred to as a "luxury tax," the CBA simply calls it a "tax" or a "team payment." It is paid by high spending teams -- those with a team salary exceeding a predetermined tax level. These teams pay a penalty for each dollar their team salary (with a few exceptions, see below) exceeds the tax level. The tax level is determined prior to the season, and is computed as follows: 

The amount of tax a team pays depends on the season, the team salary as of the team's last regular season game, and whether the team is a "repeat offender":
  • For 2011-12 and 2012-13, teams pay $1 for every $1 their team salary exceeds the tax level. There is no repeater rate.
  • 2013-14 teams pay an incremental rate based on their team salary. There is no repeater rate.
  • For 2014-15 teams pay an incremental rate based on their team salary. They pay the repeater rate if they also were taxpayers in all of the previous three seasons.
  • For 2015-16 and all subsequent seasons, teams pay an incremental rate based on their team salary. They pay the repeater rate if they were taxpayers in at least three of the four previous seasons.
Here are the tax rates beginning 2013-14:
Team salary above tax level
Tax rate
Incremental maximum
Tax rate
Incremental maximum
$7.5 million
$12.5 million
$8.75 million
$13.75 million
$12.5 million
$17.5 million
$16.25 million
$21.25 million
$3.75, and increasing $.50 for
each additional $5 million.
$4.75, and increasing $.50 for
each additional $5 million.
For example:
  • A team with a team salary $12 million over the tax level in 2011-12 pays a tax of $12 million.
  • A team with a team salary $12 million over the tax level in 2013-14 pays a tax of $21.25 million (the incremental maximum of $7.5 million for $0 to $4,999,999, plus the incremental maximum of $8.75 million for $5 million to $9,999,999, plus $2 million times the incremental rate of $2.50 for $10 million to $14,999,999).
  • A team with a team salary $4 million over the tax level in 2015-16 pays a tax of $10 million ($4 million times the repeater rate of $2.50 for $0 to $4,999,999) if they also were taxpayers in three of the previous four seasons, or pays a tax of $6 million ($4 million times the non-repeater rate of $1.50 for $0 to $4,999,999) if they were not taxpayers in at least three of the previous four seasons.

What it means?  That the days of teams trying to “buy a title” (i.e. spend so much above the rest of the league that they have a completive advantage) may be over.  As the example illustrated the transition to a system involving tax brackets that has even harsher rates for repeat offenders from a dollar-for-dollar tax means costs will skyrocket if teams don’t change their spending habits.

Looks like those habits are in fact changing too. While all transactions have a financial aspect to them, the deals this year seemed to be even more focused on financial ramifications. We saw 2 contenders (Oklahoma City and Memphis) deal away players with all-star talent (i.e. James Harden and Rudy Gay) in large part because their old teams  already had multiple players making big bucks and wanted to cut costs.   In the old days that would have never happened.

23. Other than financial penalties, are there restrictions on taxpaying teams?

In addition to the tax payments described in question number 21; taxpaying teams have the following restrictions. Note that most of these restrictions aren't triggered unless the team would be over the "apron" -- the point $4 million above the tax level -- following a signing or trade.

- Teams above the apron cannot use the Bi-Annual exception.
- Teams above the apron have a smaller Mid-Level exception. Teams above the apron can offer contracts no longer than three years, while other teams can offer four. The starting salary is also lower (for example, in 2011-12 it is $3 million for teams above the apron, versus $5 million for other teams).
- Taxpaying teams can acquire less salary in a simultaneous trade.
- Starting in 2013-14, teams above the apron cannot receive a player in a sign-and-trade transaction (see question number 89).

What it means? Today’s NBA now there has a true impediment for overspending that goes beyond dollars and cents.  Gone are the days where the only obstacle for improving a team was how deep an owner was willing to dip into his wallet -- now overspending means a team is restricted in the transactions they can make to acquire talent.  

The most significant restrictions come into effect in free agency: now teams who have spent too much are barred from adding an average salaried player using the mid-level exemption (instead they can only offer a contract that is 40% lower to start).  Additionally the loophole allowing teams over the luxury cap “apron” to add top level free agent talent even though they have no cap space has finally been closed.  

These changes work to make cap space more valuable, as the big spenders will not have the same flexibility to continue amassing talent unless the players are willing to pay for peanuts.

24. How does revenue sharing work? How is it different from the luxury tax?
The high revenues generated by the big-market teams increases BRI, which increases the salary cap, which increases the amount all teams (including low-revenue, small-market teams) are forced to spend on player salaries -- leading to an unsustainable system. The league's revenue sharing plan works in parallel with the CBA (including the luxury tax) as a one-two punch to address franchise economic disparity. It is designed to help redistribute money from high-revenue teams (generally in big markets) to needier teams (generally in small markets). By 2013-14 all 30 teams are projected to be profitable under this system if they meet reasonable revenue and expense standards

The NBA also had a revenue sharing system in place with the 2005 CBA. It was funded entirely through luxury tax revenues, and paid an average of $40 million per season. However in many cases teams were getting back money they had put into the pool themselves, so the net redistribution of money was much lower than the gross distribution. Under the old plan teams received much less than under the new plan, with the highest individual receipts averaging $5 million. With the new plan, $181 million is projected to be redistributed in 2013-14, with two teams projected to receive over $20 million each, and seven teams over $16 million each. 

The basic idea behind the plan is that teams contribute an equal percentage of their total revenues into a common pool (minus certain expenses such as arena expenses), then receive an allocation equal to a 1/30 share of the pool1. Small market teams with lower revenues will therefore contribute less than they receive, and will be net beneficiaries under the plan. Large market teams will contribute more than they receive, and will be net payers under the plan.

What it means?  Say what you will about how reliable the figures used by the league during the last CBA negotiations were, but the assertion that now every team in the league “should” be profitable is huge.  I also like that the size of a team’s market will determine how much they are expected to pay, so small markets like Oklahoma City or Charlotte are not expected to bring in the same amount of revenue as a big market team like the Knicks.

Seeing the value that the two teams that have been up for sale since the ratification of the new CBA looks like this provision is also having its intended effect.

In conclusion seems that the provisions in the CBA as it relates to the new luxury tax, restrictions on high spending teams and the increased revenue sharing had a will influence the league for years to come.  Mark my words -- the limited transactions completed at the trade deadline was no coincidence, and expect the trend to continue as teams adjust to the league’s new financial climate.  What will the result be? 

No guarantees, but here’s hoping Sterns quote that “[e]very team has the ability to be competitive and profitable under our current system” comes to fruition.

Friday, February 8, 2013

Reevaluating Commisioner Stern's Decision to Rescind CP3 Trade to Lakers

For all the criticism Stern took in the closing days of 2011 when he rescinded the original Chris Paul trade to LA hindsight has shown that the right decision was made.  For all the talk about how that trade would impact other teams very little attention was paid to the Hornets who are indisputably in a better situation based on the trade that Stern accepted as opposed to the original 3-way.

For all the talk about parity and Stern trying to flex his muscles immediately after agreeing to a new CBA with the players, all evidence suggests that none of these things were actually considered when he rejected the original deal.  At the time of the trade the NBA owned the Hornets and was actively trying to sell the club.  When pressed on why he decided to rescind the trade, Stern replied “[t]he decision was taken that Chris Paul in New Orleans was more valuable than the trade that was being discussed,” the commissioner said.

While the deal he declined would have made New Orleans better short-term than the one he accepted, but it would have made the team much less attractive to potential buyers and severely restricted the Hornets cap-space. Stern realized that owners want to make their own mark on the team and that would not have been possible had they acquired 3 vets (Lamar Odom, Luis Scola, and Kevin Martin), and a young PG (Dragic) whose contract was up last summer.  

The trade that was rescinded would have resulted in their payroll looking like this had it gone down >>>>>

Hornets payroll including players that would have been added in original 3-way trade that was rescinded

Is it really worth paying Lamar Odom [2 years $17 mil], Kevin Martin [2 years $24 mil], and Luis Scola [4 years $30 mil] just to be mediocre? Plus the team would be right at the cap before re-signing Goran Dragic and without including Ryan Anderson (who was signed as a free agent and has probably been the most consistent player for the Hornets all year) or whoever the Hornets would have drafted in 2012 (which likely would have been a middle of the pack pick since the team would have been better in 2011-12). 

For comparison's lets also look at the cap figures for the players received in the trade that sent CP3 to the Clippers (including the unprotected 1st round pick from Minnesota which turned into Austin Rivers).

Hornets payroll including players added in trade with Clippers [* included Gordon's max contract in salaries received because it was always assumed EJ would require a max contract to stay in New Orleans]

With this deal the Hornets ended up with approximately $12 mil in cap space.   This cap room turned into Ryan Anderson and Robin Lopez, who have turned into two of the best values over the summer and those moves combined with hitting lottery gold and drafting Anthony Davis has given this team a great future.

At the end of the day great job by the Commissioner.


Hello to everybody who used to frequent the site and to new readers alike.  After starting my first real professional job in November 2011 I was totally unable to balance working, my developing family life (expecting a beautiful baby boy in just a few months), and writing; and unfortunately writing seems to have been the item that was totally eliminated. 

However now looks like those days are over and I will be able to devote a good amount of time to writing again.  So poke around on some of the old articles for a while and expect to see an influx of basketball, legal, and business insight in the future.

Tuesday, December 13, 2011

Paul Pierce Explains Why Newer Generation of Stars More Likely to Leave in Free Agency

by Kevin L. Davis (@EsquireSports)

“It’s a players league at the end of the day, regardless of what you say about what all went on about the lockout,” he said. “At the end of the day, players are going to want to play where they want to play, whether they’re free agents or not, and they’re going to have that choice. And I think it’s a right. So I don’t really see too much wrong with it. I don’t know if you can create a system to kind of change it or not because obviously we didn’t do it with this collective bargaining agreement (laughs).

“But at the end of the day, the great players want to be part of great teams, and when management and ownership isn’t putting out the product to help the great players, then they feel like their legacy is on the line.When you go through your prime years playing great basketball and you have no help, who knows what kind of player you could have been. That was one of the issues that I had. I was playing into my prime and it’s like you kind of feel like you’re wasting years away. If you got with other players, who knows if there’s a championship on the horizon. Obviously when we got the great players here, we were able to win a championship. So not all of my prime went to waste (laughs). 

“It’s kind of a double-edged sword there. When you’ve got Chris Paul down in New Orleans and Dwight (Howard) down there (in Orlando) and not really a great supporting cast, I think they really think about their legacy. Around the league there aren’t a lot of great general managers, they make mistakes, and like Minnesota, they couldn’t put a team around Kevin and really get over the hump. And I think a lot of players are seeing that, what’s happened to the players in the past and they just want that opportunity for a championship.”

“This is a new generation,” he said. “You just didn’t see this the last 10, 20 years. This is a newer generation who understands that there’s only a short window for success, and they realize that it’s not always about the money with these guys anymore. These guys, they have other opportunities to make money off the court, with sponsorships and shoe contracts. It’s like, they have the money so what more do they want? It’s a championship. So when guys take less money for that opportunity, that’s what you’re seeing.”

I couldn't agree more. This generation of players saw how guys like Charles Barkley, Karl Malone, and Patrick Ewing were ridiculed for not winning the big one and have decided to do anything possible to make sure they aren't looked at that way.

Honestly I can't say I blame them. The thing that has shocked me has been that fans who always bad-mouthed players for never being willing to take less money for a chance to win, are still criticizing players now that they are.

In light of that I've gotta say that the way most fans' have reacted to this development makes no sense to me.