There are a lot of questions and concerns surrounding a possible NBA lockout after this season. Seth Kidd breaks down for us what is going on with the current NBA Labour Deal and what that means for teams like the Houston Rockets.
Despite one of the better competitive seasons in recent memory, there are dark clouds building off on the horizon for the NBA. Those clouds, an expiring Collective Bargaining Agreement (CBA), leave the future of the league up in the air after the final buzzer sounds on the 2011 season. So what does this mean, and could the NBA be following in the footsteps of the NFL.
The current CBA allows for a soft salary cap the guarantees players 57% of Basketball Related Income or BRI. BRI constitutes any revenue, from ticket sales to merchandize that is related to basketball generated by the league. Each year, the league projects BRI for the upcoming season, takes 57% of that total and divides it by the number of teams in the league to get the cap. While this cap is set, it is not a hard cap like that of the NFL. The NBA cap is filled with various exceptions, which allow teams to go above the cap limit to fill out their rosters. If a team strays too far past the cap they can trigger the luxury tax threshold, at which point they pay the league 1 dollar for every dollar in salary they have above the tax level. Additionally, the current deal allows for maximum contract length of 6 years with all money being guaranteed (assuming a team does not opt out of a deal if possible).
The owners and league took a massive economic hit with the credit crisis of 2008 and the slow recovery since. The two backbones of individual team’s revenue, season ticket sales and luxury box leases have seen declines in 2009 and 2010. Another thing to consider is that while the league itself reported record revenue’s last season, they are claiming that costs have spiraled out of control to the point that it is projecting a loss of over $300 million for the upcoming season.
While the revenue’s have hit an all time high, those numbers represent the league as a whole, not individual teams. While teams like the Lakers and Knicks have not been affected by the economic downturn, teams like Memphis and Sacramento have been hit extremely hard. Deadspin.com managed to get its hands on the financials from the New Orleans Hornets from last year and the files give you an idea of the dire straights some of the teams are in. But while the top is luxurious and the bottom is hellacious where is the middle? This is a bit unclear. As the league is a private organization, they are not required to publish their financial details. They are also unwilling to make the information public or provide it to the NBAPA (similar to how the owners are withholding their information in the NFL negotiations).
What do the owners want?:
So now that the picture has been painted, what’s next? If you pay attention to David Stern’s recent remarks he has made clear the goals he is intending to seek in the upcoming negotiation. First and foremost the league will look to cut costs, and by costs I mean player salaries. Stern has said the he would ideally like to cut $800 million in payroll league wide in the negotiations. While this number is most likely posturing, it gives you a sense of how serious the league is about tackling the issue of escalating salaries.
On top of the cuts in payroll, the league wants to remove guarantees for contracts. They would like to see the first 2 years guaranteed but after that, have the money be guaranteed provided the player achieved certain performance incentives. They would also like to make contracts shorter in length. Currently 6 years is the maximum length of a contract. Ideally, the league would like to see that cut to 4 years as the max length. Teams and owners feel the current structure with longer contract lengths and guaranteed amounts can overly punish teams for giving one bad contract. Many in the league find themselves in salary cap hell, which can prevent teams from being competitive for years to come (think New York Knicks pre 2011).
In addition to all of the above, the league wants to restructure the salary cap. The owners would like to adopt a hard cap similar to that of the NHL and NFL. They still want to have mechanisms in place to help teams sign their own free agents, something akin to the franchise tag in the NFL, but would like to remove many of the loopholes and exceptions in the current rules.
What do the players want?:
This is where it is simple. The players want things to stay the way they are. Ideally they would like a bigger slice of the revenue pie for themselves, but given the early hard line taken by Stern and Co. they will most likely push for things to stay similar to the way they are.
One point to watch out for is the age limit that is currently in place. This rule has forced players over recent years to play one year in college before entering the NBA, unless your Brandon Jennings that is. The players union would like this rule removed, and I believe Stern could use this to get concessions out of the NBAPA.
Where are we headed?:
While there are many other points of contention, the ones listed above are the main issues over which the upcoming deal will be debated. If I pull out my crystal ball and give my prediction, the league will come out ahead in these negotiations just like they did in 1998. I can see Stern taking a hardline position and forcing the players into a lock out. This could drag on into the season and unfortunately some of it could be lost again, similar to 1998. This would give the league leverage in negotiations, as any lockout would prevent players from receiving their paychecks. Unlike the NBA, the guaranteed nature of player contracts means many live paycheck to paycheck (yes hard to believe, especially with guys making millions a year). It was this group of players who pushed the NBAPA to cave during the last negotiation and I think a similar outcome is on the cards this time around. While any work stoppage would be damaging to the league’s reputation, they have show the ability to bounce back. Especially now with such a high level of talent on display, a work stoppage may have less of an effect than it did 13 years ago. In the end, both sides want a deal done before any lockout, but if it drags on for that long, it infinitely increases the leverage the league has in negotiations.
Stern is a master negotiator and I believe at the end of the day you will see player salaries cut, not by the number the league wants, but by a considerable amount. I think the cap will come down, with many of the exceptions cut out. I still see some remaining, ex. Bird exception, or one similar to the franchise tag in football, but many will be taken off the books. Additionally there will most likely be a compromise on the contract length and guarantee arguments. If contract length is cut, they will most likely stay guaranteed, whereas if they are not guaranteed, the length will remain the same.
What does this mean for Houston?:
Well ultimately until a final deal is negotiated it will be hard to tell. Lets assume that player’s salaries will be lowered and that a hard cap comes into place with fewer loopholes. Looking at the Rocket’s contract commitments for the next few years they will have some cap room with which to maneuver, even taking into account a lower cap. Yao’s contract will come off the book next season, which will be a huge financial benefit to Houston as at 17 million last year, he was one of the highest paid players in the league. Additionally, signing Scola at a bargain price will help the Rocket’s ability to make moves under a smaller and more restrictive cap.
A lower and harder cap will mean that more teams will be in play for the major free agents coming in the next few years, the names of CP3 and Dwight Howard are what pops out the most. Houston would be in contention to go after either of these players especially when you consider that Thabeet’s rookie deal will be up the same time Howard and Paul are available for free agency which leave the team even more money at their disposal.
What if both decide to “take their talents” outside of Houston? In this situation, things would not be bleak for the Rockets. GM Morey has proven himself at going out and getting players for solid value that are able to consistently produce. In a new era with lower player salaries, teams will need to get the most out of the dollars they spend. This puts Houston in a good position with its front office that is consistently seeking out good value. Even if the Rockets were to miss out on either of the aforementioned free agents, they will be able to field competitive teams, as a hard cap will prevent teams from trying to buy a championship.
Regardless of the outcome of the labor talks, Houston will be in a position to adapt to any resolution. As mentioned before, with Yao’s contract coming off the books, they are only committed to one contract that pays over 10 million a year (that of Kevin Martin). This will put them in a good position to create a competitive team regardless of whatever changes come.
Greed is the biggest motivator in all men. The league is currently trying to capitalize on the economic downturn and weak performance of its smaller teams to get a favorable deal. While the league was hit extremely hard by the downturn a few years back, recent data suggest that season ticket sales are coming back stronger than that past few years. The league couldn’t have picked a better time for the deal to expire. Additionally, they have the wild card on their side in the form of David Stern, in my opinion the best commissioner in all of sports and one of the best negotiators on the planet. I can’t see him coming out of these negotiations with a bad deal.