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Back to Lockout Reality

You may have noticed that I haven't written about the NBA lockout for awhile. There are a couple of reasons for that. For one thing, there wasn't much happening with the lockout for a very long time there. The bigger factor though was that with the EuroBasket tournament going on, there was (thankfully) actual basketball being played, which gave me something else, something more pleasant, to focus on.

EuroBasket ended Sunday (Spain won like everyone knew they would), and there's been a LOT of labor news lately (maybe too much) so I pretty much have to return to the lockout at some level. This post isn't a proper segment in my "Mysteries of the NBA Lockout" series per se - it's more of an overview of the current state of affairs.

If you tried to follow the news for the last couple of weeks, you probably felt like you were on a roller coaster - the outlook for the season as reported in the media has gone from hopeless to hopeful and back to hopeless (but maybe not) every couple of days. I'm not going to try to recap it all here. If you haven't been paying attention, and/or if you want to refresh your memory, I highly recommend the SBNation StoryStream on the Lockout. (I try to be circumspect in my promotion of the network, but the StoryStream format is really ideal for this type of story that is constantly twisting an turning. Go to the StoryStream and look through the developments since the sides began meeting on Sept. 7. I'll wait.)

In broad strokes, here's where we are - the players offered to accept somewhere between 52% and 53% of Basketball Related Income (BRI), down from 57% in the last CBA and down from 54 and change in their last proposal. The owners agreed to allow that percentage to be tied to revenue, as opposed to a fixed amount for player salaries they had demanded in their last proposal. So that's all good - the sides appear to be very close, if not in agreement, on the money, which one would think would be the major issue. But apparently not so.

The 'blood issue' has turned out to be the cap system - the owners want a 'hard' team-by-team salary cap, while the players want something 'softer', similar to the current system, a league-wide cap with various exceptions that allow teams to spend more in certain situations. And frankly, if this is the issue that causes me to see fewer than 82 regular season Clippers games this year, I'm going to be pretty hacked off at both sides.

But especially hacked off at Robert Sarver and Dan Gilbert. Reports had those two, the owners of the Suns and Cavs respectively, as the most intransigent on the cap issue. We don't know of course exactly how it went down, but the implication is that the rest of the owners were ready to accept the deal in principle, but Sarver and Gilbert refused to budge on the hard cap.

Which is infuriating. Others have already pointed out the absurdity of a couple of guys who made their money in banking insisting on a new set of rules designed to guarantee that their teams will be profitable, no matter how they run them, but I guess that's what the Fed did for banks by bailing them out, so maybe it's just how these guys are used to doing business. Forget the fact that "Subprime Dan" Gilbert's Quicken Loans was among the most aggressive lenders in the subprime mortgages that were at the heart of the financial meltdown - the meltdown that sent the economy in an ongoing recession that puts luxury items like basketball tickets out of reach for many Americans. Ignore the fact that Sarver has made a habit of selling draft picks since taking over the Suns - totally missing the point that young stars on rookie scale contracts are the best way to compete without overspending in the NBA. Never mind that Sarver and Gilbert bought into the league in 2004 and 2005 respectively, while the current CBA was in effect. If the soft cap was such a life and death issue, why did they buy their franchises in the first place? 

Ignoring the hypocrisy of Sarver and Gilbert for a moment, I'm at something of a loss to understand why some owners are so dead set on a team-by-team cap. If the overall amount of money going to players remains the same (and by all indications, it would), then a team-by-team cap only means that the teams that previously spent the most (like the Lakers, Knicks, Mavericks, etc.) would no longer be allowed to do so, and that the teams currently spending less would have to take up the slack. How exactly does that help small market teams become profitable? The answer is that it doesn't - not at all. (Tom Ziller at SBNation has covered this issue in detail.)

A team-by-team cap might in theory help create more competitive balance in the league - but in reality there's been little indication that parity works that way in real life. But the argument that it helps make small market teams more economically viable is convoluted at best - those small market teams would be forced to spend more than they are currently (since imposing a hard ceiling would necessarily mean imposing a higher floor as well to keep the total dollars the same), and if the logic is that a hard cap will give them a better chance of having a winning team, and a winning team will sell more tickets... well, that's hardly a straight line, and there sure aren't any guarantees of wins, even with a more level playing field.

At the end of the day improved financial security for the small market teams lies in revenue sharing, not in a hard cap. Always has, always will. Whether the cap is hard or soft, team-by-team or league wide, with exceptions or without, revenue sharing is the real issue for small market teams.

The most baffling aspect of this particular 'blood issue' to me is that some of the salary cap exceptions would seem to be the easiest things for players and owners to agree about. Take the Bird exception. If a team drafts and develops a star player, it seems to be in everyone's best interest that the team should be able to retain that player. It's certainly in the fans' interests, and that which is in the fans' interests would seem to be in the owners' interests. And it's in the player's interest in most cases to be able to remain with his original team. Ironically, if anything the Bird exception is there to protect the owners more than the players - to keep home grown talent at home, rather than allowing that talent to leave for better teams in bigger markets.

In a team-by-team cap world, teams would risk losing fan favorites if they were unable to exceed the cap to retain them. You can argue that it would just require more proactive payroll management, planning ahead to guarantee that you have enough money to re-sign that star. That's easy enough to do with a Blake Griffin or a Kevin Durant - you know from the minute you draft him that you're going to need big money available when that rookie deal is done. But what about a late bloomer? What about David West? In his first five seasons in the league he went from 3.8 points per game to 6.2 to 17.1 to 18.3 to 20.6. When his rookie deal runs out, what if the team hadn't cleared quite enough money to offer him what he has now proven to be worth? This is exactly the type of player a team wants to retain - they've developed him, he's now a star, the fans have watched him grow and have an emotional attachment to him - in a hard cap system with no Bird exception, he's gone.

So the next argument is that you just have to stop handing out guaranteed contracts - that you have to be able, in any given off-season, to make those tough choices about the players you're going to keep. If David West needs more money than you had planned for, and he's a higher priority than someone else on the team, then you need to pay West and not pay that other player. But it's worth remembering why players get guaranteed contracts in the first place. There's no provision in the current CBA that requires teams to provide guaranteed contracts (other than for rookies and then only for two seasons). Teams do it in order to compete for players in the marketplace. There's been speculation that those guarantees will dry up out of necessity in a hard cap world because the ramifications will be too significant. Somehow I'm not buying it. The ramifications of offering bad contracts have been pretty damn significant for years, but teams still do it. If one extra guaranteed year is going to be the difference in signing a player you really want, then what makes us think GMs won't continue to offer those guarantees? I'm not sure why we think that the hard cap is suddenly going to make GMs smarter - they offered dumb contracts before, they'll offer them in a hard cap world too. Which is why the owners will still want that Bird exception to retain their stars.

The Bird exception to me is an unequivocally good thing for the NBA. That Larry Bird retired a Celtic, that Reggie Miller retired a Pacer, that Duncan is still a Spur and Kobe is still a Laker, these are all good things. Continuity is the ally of owners, fans and players alike. It's far less common than it once was, and it will no doubt be even less common in the future - but it would be unheard of without the Bird exception.

The problem isn't the exceptions per se (although I could live without the mid level exception). The problem is the teams that don't treat them as exceptions but rather as the rule. In my opinion, teams should absolutely be allowed to exceed a salary threshold in exceptional circumstances. That has not been the case for the Lakers, the Mavericks, the Knicks, etc. They simply exist above the cap and even above the luxury tax threshold. This is a problem. 

But I would suggest that it is also an opportunity. The luxury tax is one form of revenue sharing that the league currently utilizes. I would make a distinction between a team that is over the luxury tax threshold for a year, versus two years, versus three years. A team should have the flexibility to exceed the cap in an extraordinary situation - say in the David West scenario above, a player whose value rapidly increased in advance of free agency. That team should also pay the price of a luxury tax while they're over the threshold. But the assumption should be that the team is working to get back under the threshold in a reasonable time frame. What if the magnitude of the luxury tax was tied to the number of consecutive seasons the team remained above the threshold? The existing dollar for dollar tax could apply in year one; year two, maybe the tax escalates to 150%; year three, 200%, etc. There would have to be some ceiling, but it would also have to be truly painful - say a 500% tax for every dollar over the luxury tax threshold.

That would kill two birds, maybe even three, with one stone. It provides additional revenue sharing from rich teams to poor teams; it provides a real incentive for rich teams to regress toward the league salary mean; and it provides the flexibility to use exceptions as they were originally intended, as exceptions and not as standard operating procedure.

I find it hard to believe that if the sides are really this close, if the money is truly no longer the main sticking point; that we could still lose games this season over the details of the cap. Sarver and Gilbert and other hardline owners seem to be fighting to the death against a system that at some level was designed to protect their interests. Meanwhile, there are unlimited opportunities for compromise, and it's without question in everyone's interest to avoid an actual work stoppage. The luxury tax could be tweaked as I've outlined above; the actual exceptions could be modified, perhaps eliminating or at least limiting the use of the MLE; and countless other approaches could solve this impasse it would seem. But it would be complete insanity to lose a single NBA game because a couple of owners insist on a cap system that ultimately won't help them a bit.