My Plan to Solve the NBA Lockout — Cap System Edition

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[UPDATE] As of late last night (Oct. 10th), the NBA has cancelled the first two weeks of the season, which total 100 games throughout the league. According to David Stern, it was not economic issues that caused the talks to break. Rather, the two sides could not agree on some of the system issues, such as contract lengths, annual raises, soft cap exceptions. The following post is my attempt to bring sanity to the whole situation. These are creative compromises that, in my opinion, would be beneficial to both the owners and the players.

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Previously I wrote about the most important CBA issue, the Basketball Related Income division. However, maybe I was mistaken in the belief that the BRI was the most important issue for it was the the system issues that caused a break in talks. I will attempt to address these system issues. In my CBA primer earlier in the summer, I wrote extensively about the current cap system and the one being proposed by the owners. I recommend reading those posts first (Part I & Part II).

In short, the owners are pushing for a “hard cap,” while the players are adamant about keeping the “soft cap” system used in the previous collective bargaining agreements. In part one of my plan, the players would be making large concession with the split of the BRI. I believe that is necessary to hold the most ground on the “blood issue” that is a hard cap.

As in my last post, many of my ideas have been influenced by amazing lockout articles that have been written by authors such as Ken Berger and Tim Donahue. My cap system proposal contains three main issues. I will explain each issue individually and give my proposal.

  • Contract Length and Guaranteed Contracts

In the previous CBA, free agents were able to sign six-year contracts with their respective teams or five-year contracts with other teams. Most of these contracts are fully guaranteed, which means the owners are on the hook to pay the full contract no matter what (provided the two parties do not agree to a buyout). A great example of how these long, guaranteed contracts can cause problem for teams is Eddy Curry. He signed a six-year, $60 million dollar contract with the New York Knicks in 2005.

Curry didn’t play for the majority of the contract for health reasons but also because of laziness. Curry became extremely out of shape to the point where he could not contribute to the Knicks even though he was not injured. One report this summer stated that Curry has been working to get back into shape and he is down 100 pounds(!) from his max weight.

Curry’s contract included a player option in the final years of the contract, which allows a player to opt out of the contract. However, the team did not have such an option. Obviously, Curry exercised his player option. Although Curry was due $11.2 million in 2011 and both sides knew Curry was not going to contribute, the Knicks were forced to pay the full amount of the contract.

The players like guaranteed contracts because it provides long-term security. Once the player gets that “one big contract” they are set for life. No matter what happens (injury, etc.) they are entitled to the full contract. This creates a huge problem for owners, which is why they want to do away with guaranteed contracts. The owners are pushing for non guaranteed contracts to more quickly erase mistakes. For example, if Curry’s contract was non-guaranteed and he showed up for training camp weighing 375 pounds, the Knicks could have cut him from the roster and used the money owed to Curry to sign other players.

Proposal

I propose to keep the current contract length structure.  It would remain a maximum of six years if a player signs with his current team and five years if he signs with a different team. However, instead of the entire contract being guaranteed, they will be partially guaranteed (three years of five-year contacts and four years of six-year contacts).

What about the final two years of the contracts? Those final two years can become guaranteed if the players meet certain incentive-based bench marks (playing time, production, etc.) Those benchmarks can be written into the contract based on the particular player. The team would have two options if a player fails to reach those benchmarks: 1) the team could cut the player and not be on the hook for the final two years; or 2) renegotiate the contract to the player’s fair-market value.

I think this is a great compromise from the current system because the owners will be enabled to erase roster mistakes two years sooner than before. Also, the owners are able to potentially keep star players on their rosters for six years.

Although this may seem like a concession on the players’ part, I think this will actually benefit the players as a whole.  When a team is forced to fork over $11.2 million on a worthless player, it may benefit that particular player but it is detrimental to other players. That $11.2 million could be better spent on deserving players in the league. My proposal makes it so players are paid as close to their market value as possible for the length of the contract.

Paying market value for players is the key to a better system, which leads me to the next part of my proposal.

  • Contract Maximums and Rookie Salary Scale

The past system set a rigid rookie salary scale. The order in which a player is drafted determines the salary he receives for the first four years of his career. Also, the past system sets maximum limits on non-rookie player salaries. The maximum ranged from 25-35% of the salary cap depending on the number of years a player has been in the league.

In my opinion this creates a big problem. Placing an artificial limit on star players’ salaries causes less deserving players to be overpaid. The rookie scale has the same effect. Some players on rookie contracts are worth well above their contract price. A perfect example is Kevin Durant. He made approximately $8 million in the final year of his rookie contract. Based on his production alone compared to other players in the league, Durant was worth close to $18 million.

Players like LeBron James and Dwight Howard are also supplementing the middle class of the NBA. The past system limited their salary to a percentage of the salary cap, which causes James and Howard to be paid under market value by more than $10 million per season. There are countless other star players that are forced (via the system) to play basketball for far less than their market value.

The money the owners are saving on these star players is not going into their pockets. Rather, the exact opposite is happening. In efforts to fill rosters and compete for championships, owners are using the money saved on star players to overpay average and below-average players. Some of the blame can go to bad GMs, but whenever a bad GM pays a below-average power forward $40 million over 5 years, that sets the market for other below-average power forwards. After four or five years of over-paying unworthy players, player salaries can get out of control (which happened over the last CBA).

Proposal

I propose to get rid of the maximum contract ceiling all together. Let star players make star money. If Lebron James is worth $28 million a season, let teams pay that amount. The market should drive player salaries more than an artificial cap.

Secondly, I propose to keep the rookie system unchanged. Although many rookies outperform their rookie contacts, the system works very well. It is very difficult for teams to judge a player’s talent out of college, so a slotted system works well. If there were no rookie scale, then it very possibly could turn out like the NFL’s old model where rookies are paid $50 million dollars before playing a single game. The NFL just implemented a rookie salary scale that mimics the NBA’s model.

By keeping the rookie scale the same and eliminating the maximum contract ceiling, two things to happen: 1) NBA role players will be forced to take pay cuts; and 2) the NBA draft will become a much more important tool for building teams.

Exhibit A on NBA role players being overpaid: Travis Outlaw of the New Jersey Nets is set to make $7 million for each of the next four seasons. Players like Outlaw will be forced to accept smaller contracts in the future. Instead of Deron Williams occupying only 30% of the salary cap, Williams’ talent may warrant receiving 45% of the cap. This will force GMs to offer smaller, more manageable contracts to the middle class of players in order to stay below the salary cap.

In the past, many teams completely trade out of the draft or sell their picks for cash. With my proposed changes to the maximum contract system, that may be a thing of the past. Because I propose to leave the rookie cap unchanged, the draft will be the best place to go for cheap talent. As I mentioned previously, many rookies out-perform their rookie contracts. If star players occupy large chunks of the salary cap, teams must fill its roster with small-contract players. The draft is the perfect place to find these players.

If teams are diligent and place more emphasis on scouting and player development, they will be rewarded by drafting players that far out-perform their contracts. Because the draft will increase in importance, it wouldn’t hurt to add a third or fourth round to the draft.

The ultimate goal of these changes is to keep star players from supplementing the middle class. If any group of players should supplement the role players, it should be the players on the rookie scale. If rookie-contract players are outperforming their contracts, they will have a chance to get their “one big contract” later in their career.

  • Salary Cap System

The past salary cap system contained many exceptions that allowed teams to exceed the salary cap in certain situations. These exceptions were the other cause of overpaying players throughout the years. There was the Bi-Annual exception, Larry Bird exception, Rookie exception, and Mid-Level exception. If a team was at its cap level, chances were that it could find some exception that would allow exceeding the cap.

The Bird exception allowed teams to exceed the cap to sign one of its own players. It was originally created so teams would not lose its star players (i.e. Larry Bird). The problem with this exception was teams were using it to sign every player – not just its star players.

The Mid-Level exception gives teams over the cap limit approximately $5 million per season to sign players to its roster. This has been a large culprit in overpaying below-average players. When the market ran low with free agents, teams would float its entire Mid-Level exception to a player to entice them. Therefore, a player worth $2 million was commonly receiving $5 million per season.

Proposal

My proposal would say goodbye to the Mid-Level exception. For reasons stated, it caused salaries to inflate for no other reason than a team needs to fill a roster. I would keep the Rookie exception, which basically allows teams to exceed the cap to sign rookies. I would also keep the Bi-Annual exception, which allows teams to sign players over the cap up to approximately $1.5 million per season. This is an important exception for teams over the cap that needs to invest in small-contract players to fill roster spots.

Also, I would make a tweak to the Larry Bird exception. Instead of teams using the exception on any and all players, teams will only be allowed to use it on two players. Teams would have to declare which two players are its franchise players in order to use the exception. The franchise tag won’t be as restrictive as it is in the NFL. Rather, teams will be entitled to compensation if its franchise players decide to leave in free agency (extra draft picks possibly).

Essentially, this proposal is for a harder, but still soft cap system. It is much better for the players than a hard cap, obviously. I think these proposals, along with my BRI plan, create a good compromise that would lead to a better, more fairly balanced NBA. What are you waiting for, NBA and NBPA? Get a deal done! I want to watch some basketball!

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About Jason Hines

I'm a recent law graduate for Oklahoma City University. I have a passion for sports, journalism, and law. I use this blog as a tool to engage in all three. View all posts by Jason Hines

6 responses to “My Plan to Solve the NBA Lockout — Cap System Edition

  • Reg Aldrich

    I like your thoughts, but I think the NBAPA will have a problem with changing the pay structure of the “NBA Middle Class” and giving the “Upper Class” more money.

    I dislike that the middle class is grossly overpaid, but the PA will protect them and their position.

    • Jason Hines

      I agree that the NBPA would not likely agree to such a drastic change in the pay structure because the NBPA’s membership is largely “middle class” players.

      However, I wish the NBPA would realize that when a player gets overpaid, it does great harm to the league. It may be nice for an average player to get a $7 million pay day, but that cripples a team’s ability to compete for championships; it weakens the unions bargaining position on future CBAs; and it creates unhealthy resentment between owners, players, and fans.

      I just don’t see how artificially capping or inflating salaries is a sustainable model. I wish the NBPA would not be so narrowly focused on keeping players’ salaries high and, rather, focus on putting a system in place that helps the league’s revenue grow.

  • Thursday Bolts – 10.13.11 | Daily Thunder.com

    [...] see 20 guys better than me. SI.com: Yeah, people thought I was crazy. Anthony: Me too.”A pretty quality plan to try and solve the lockout from a Thunder fan.Russell Westbrook’s Hyperfuses are pretty sweet.Former OKC mayor Ron Norick on the lockout: [...]

  • aaron

    I am not a proponent of increasing the maximum cap on individual player salaries. It is widely assumed that superstars are underpaid. I believe that superstars are fairly compensated when their off court income is factored in. Jordan, Kobe, Lebron, etc… are paid handsomely in endorsements
    .
    This income is not included in any cap formula nor is it part of the BRI. In short the middle class of nba players are needed to create superstars but are not allowed to share in the off court income. When the endorsement income exceeds the superstars salary, the superstar is in infact being supplemented by the middle class.

    • Jason Hines

      I definitely see your point. I think your thoughts are exactly in line with the NPBA’s views. However, I just don’t agree. That is not to say that I’m right and your wrong because that is not what I’m saying at all. I just have a different philosophy, for lack of a better term.

      Just because a player is more marketable than other players, I don’t think he should have to sacrifice any of his earning potential. I see the point you were trying to make about the nba middle class being needed too create superstars. However, I honestly think that the Miami Heat could sign me and three of my friends to play alongside Lebron and he would still be a superstar. Just because the Heat need four other guys to fill a team doesn’t mean that I (or any of my friends) deserve the full Mid-Level.

      Plus, when people buy tickets to see the Thunder play, for the most part, they buy tickets to see Durant &Westbrook play – not Collison and Maynor. The superstars are the ones who put butts in the seats and, in my opinion, should get a more comparable share of the revenue they generate for the league.

      But hey, these are just my ideas. I really only care that basketball gets played – however they make it happen. Thanks for the feedback. I greatly appreciate it!

  • Thomas

    Hey I like it. Though I don’t think you’d get the majority of players to agree to anything that would drive down their salaries so that the superstars could get more. Still though, good thoughts. Can we get this recent OCU Law grad a job in the league office please? David Stern got his start as NBA General Counsel. Maybe you could be next.

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