Breaking Down The NBA's Final Offer

A relatively detailed summary of the NBA's November 10th proposal (allegedly its last and best offer) is found here in PDF form. Some thoughts:

The ban on "extend-and-trades" in Paragraph 13 is clearly intended to avoid a repetition of the Carmelo Anthony drama that dogged the Nuggets for most of 2010-11. If a top player in his final contract year (such as Chris Paul in the putative 2011-12) is keen to leave his team, he can wait until the following summer to sign with a new team as a free agent; pushing for a trade to his desired team (the Knicks, say) would not immediately yield him a long-term contract extension. Few or no teams would trade for a Paul just a few months before his contract expiration, if they are not allowed to immediately gain his long-term contractual commitment. Of course, it could be that the only way for Paul to get to the Knicks, if they have no good salary-cap room, is via a mid-season trade rather than a summer signing, and then he could re-sign with the Knicks as a "Bird"-type free agent (see Paragraphs 5 and 6). Maybe the Knicks or other similarly-situated teams would do the deal anyway. But the elimination of extend-and-trade transactions will certainly quiet, somewhat, the in-season rumor mill.

Per Paragraphs 4 and 5, the maximum contract length for a free agent joining a new team is 4 years and the annual salary increases are limited to 3.5%; the maximum length for a contract signed with a free-agent's existing team is 5 years, with 6.5% annual increases. For a maximum-salary caliber player (assume the initial max salary is $20 MM), a free-agent contract with his existing team would yield 35% more dollars (compared to a free-agent contract with a new team) over the life of the contract, i.e. approximately $113 MM instead of $84 MM.

Per Paragraph 11, if a free agent signs with his existing team immediately prior to a trade to a new team (the "sign-and-trade" maneuver), then his contractual terms are exactly the same as if he had signed as an outright free agent with the new team: a maximum 4-year deal with 3.5% salary increases. Thus, a free agent has no incentive to push his desired destination team for a sign-and-trade; this change in the rules might actually hurt small-market clubs. It was better for Cleveland and Toronto to receive draft picks when they lost James and Bosh, rather than receiving nothing at all. (Similarly, it was better for Detroit to receive Ben Wallace when they lost Grant Hill, rather than receiving nothing!) And this provision will make it easier for a potential new employer that lacks salary-cap room to compete for a FA's services against teams sufficiently under the salary cap. The employer over the salary cap can acquire the free agent only via a sign-and-trade with the FA's existing team, but the terms of such contract -- four years, 3.5% annual increases -- are exactly the same as if the FA signs a regular contract with the suitor team that is under the salary cap. In other words, creating salary-cap room to lure free agents becomes relatively less attractive under the proposed new CBA. On the other hand, after 2012-13, taxpaying teams will not be allowed to do sign-and-trades. It should be noted, though, that the tax line exceeds the salary cap and many rich teams may savvily figure out a way to stay just under the tax line.

According to some reports, some players are unhappy with the provision in Paragraph 3 saying that players will never receive a higher share than their agreed-upon 50% of Basketball-Related Income. If the dollar value of BRI turns out to be less than projected and the total nominal dollar amount of player salaries exceeds 50% of BRI (even after owners withhold and then keep part of contracted player salaries via the escrow mechanism) then, although owners have no practical means to claw back the cash from players' bank accounts, they will withhold the overpaid money from future seasons' salaries, it seems. I don't see a problem with this; it simply ensures that owners get their 50%.

Per Paragraph 7, maximum player salaries will be unchanged from the 2005 CBA, as I assumed in my post last week modeling team salaries under the new system. Also consistent with my post last week, rookie salaries (see Paragraph 10) and veteran minimum player salaries (see Paragraph 6) will be reduced by 12% -- the same percentage reduction as the player BRI share will undergo (from 57 percentage points of BRI to 50 percentage points). Again, intra-team inequality will worsen under this new system.

A Tidy Model of Team Salaries

I attempted to illustrate the problem of salary inequality in my September 26th post, but my explanation was a bit clumsy; let me try again in clearer language this time. The percentage of Basketball-Related Income that players in aggregate receive (currently pegged at 50% in the latest negotiations, and formerly 57% in the 2005 labor agreement) determines total salaries, but does not determine the inter-player distribution of salaries. Let us take a simple example. Say total BRI is projected at $100. Say there are only two teams in the league, each with six players-- five starters and a sixth man. Let us use the 57% number from the '05 deal. Under such terms, all players combined will receive $57. The top two stars (LeBron James and Kobe Bryant, say) might receive $16 each. (Assume player salaries are capped at $16.) If the "mid-level exception" is capped at $5.33 per year, then some team will likely sign a secondary free-agent player (Jamal Crawford, David West) at $5.33. [Why wouldn't a team sign free agents for less? Is Jamal Crawford really 1/3 as good as James or Bryant? In a competitive bidding scenario, with limited quality free agents, teams are forced to overbid up to the individual cap, lest they wind up with nothing, which would guarantee that their roster will remain stagnant.] Each team then pays a total of ~$7.2 (averaging $1.79 per player) to its remaining four players, so each team's payroll is $28.5 and aggregate league spending is $57. So to recap, here are the salaries:

Team King
LeBron James - $16
Jamal Crawford - $5.33
King Scrub 1 - $1.79
King Scrub 2 - $1.79
King Scrub 3 - $1.79
King Scrub 4 - $1.79

Team Mamba
Kobe Bryant - $16
David West - $5.33
Mamba Scrub A - $1.79
Mamba Scrub B - $1.79
Mamba Scrub C - $1.79
Mamba Scrub D - $1.79

Now imagine the season's Basketball-Related Income is tallied up and it is not actually $100, but really $90, which is 10% under $100. Every salary thus will be rolled back by 10% to maintain the 57% of BRI ratio. The new salaries will be:

Team King
LeBron James - $14.4
Jamal Crawford - $4.8
King Scrub 1 - $1.61
King Scrub 2 - $1.61
King Scrub 3 - $1.61
King Scrub 4 - $1.61

Team Mamba
Kobe Bryant - $14.4
David West - $4.8
Mamba Scrub A - $1.61
Mamba Scrub B - $1.61
Mamba Scrub C - $1.61
Mamba Scrub D - $1.61

Now total salaries are $51.3 (57% of $90). However, notice that regardless of how the total dollar amount of BRI comes out, if we fix aggregate salaries at 57% of BRI and assume certain other individual salary caps, then the best player on the team will always earn three times what the second-best player makes, and about 9x the salary of each role player.

Now, let us assume again that total BRI is $100, but, after some bitter labor negotiations, let us tweak two features of the system: first, player share of BRI falls to 50% (so each team has a payroll of $25), and the mid-level exception salary for free agents falls to $3. Assume the maximum salary remains at $16. What now?

Team King
LeBron James - $16
Jamal Crawford - $3
King Scrub 1 - $1.5
King Scrub 2 - $1.5
King Scrub 3 - $1.5
King Scrub 4 - $1.5

Team Mamba
Kobe Bryant - $16
David West - $3
Mamba Scrub A - $1.5
Mamba Scrub B - $1.5
Mamba Scrub C - $1.5
Mamba Scrub D - $1.5

Notice, now, that James and Bryant make more than five times the salary of their respective running mates, and nearly 11x the salary of their scrubs. [Now imagine again that BRI falls to $90 instead of $100. The numbers immediately above will all be reduced by 10%, but the ratios of salaries between different players will remain the same. I will omit that presentation so as not to bore you too much.]

Who suffers here? Obviously, mid-level-exception-caliber players suffer a lot, seeing their salary reduced by 44%, from $5.33 to $3. Scrub players also see their salary reduced by 16%, which is more than the percentage reduction, 12%, in the players' aggregate BRI share. Mid-level players are asked to bear much of the player suffering, and scrubs get hurt as well, disproportionately to the union's overall hit. Superstars like James and Bryant don't suffer one bit, at least in my example (and, I believe, in the owners' actual proposal).

Of course, if I scaled up the dollar value of BRI sufficiently (more and more eyeballs are watching the Association in China), I could construct a set of numbers where Crawford, West, and the scrubs are making an equal or better salary in dollars under the new regime, compared to the old regime. Say BRI blows up to $180 (so the players' share is $90 and each team has a payroll of $45), and the individual max salary, and the mid-level exception salary, are both increased by 80%.

Team King
LeBron James - $28.8
Jamal Crawford - $5.4
King Scrub 1 - $2.7
King Scrub 2 - $2.7
King Scrub 3 - $2.7
King Scrub 4 - $2.7

Team Mamba
Kobe Bryant - $28.8
David West - $5.4
Mamba Scrub A - $2.7
Mamba Scrub B - $2.7
Mamba Scrub C - $2.7
Mamba Scrub D - $2.7

This scenario is entirely possible with the projected growth in league revenues during the coming decade. The scrub salary (which is also the median player salary) is higher under such assumptions. And perhaps the inability of teams with one superstar to sign another very good player (due to the paltry mid-level-exception salary for tax-paying teams) will encourage parity among teams, thus juicing fan interest. Posit for a moment that the new system could actually contribute, by itself, to BRI growth, and my imagined 80% growth of revenues would not happen with the 2005-2011 rules. So why wouldn't players be happy with this deal? Well, note that now, as I mentioned above, the superstar makes over 5 times the salary of his best teammate, and over 10 times the salary of his worst teammates. Under the 2005-2011 regime, those values were 3 and 9.

So inter-player inequality is worse under the new system, even if the average player is earning more money. Is that enough to make the deal objectionable? Note that most of the NBPA could be charitably called "scrubs": only about 3 players on each real team are vital for amassing wins, and the rest are interchangeable. The composition of the NBPA's executive committee suggests this: 8 of the 9 guys are far from All-Stars. It is the scrubs whom union President Fisher and Executive Director Hunter toil for. How much do players mind inequality of income between them and their best teammate? Perhaps the knowledge of 11-fold inequality could lead to locker-room resentment, even if James, Bryant, Wade, Howard, Durant, and the like really do drive ticket and jersey sales to that degree. Looking beyond pro hoops at the broader political-economic system in our society, a majority of Americans don't seem to like the extent of income and wealth inequality that has developed during the past 30 years.

I am not sure whether the players are really resentful over the prospect of intra-union salary inequality, or whether they are just mad at losing their 57% and not inclined to give the owners a "win" just yet. However, judging from the rhetoric of some player representatives, there is a good argument that the players might rather be poorer and more equal, rather than richer and further apart.

Two Bicyclists Headed For A Collision

Last Saturday, NBA owners, fronted by Commissioner Stern, offered players an improved deal that could potentially give players up to 51% of Basketball-Related Income, though the percentage would more likely settle around 50%. Stern threatened to withdraw the deal and replace it with a much worse set of terms if not accepted by Wednesday afternoon, November 9th. A fuller description of Stern's offer is contained in this excellent article by the NYT's Howard Beck, who has consistently been the best reporter on the recent negotiations. Meanwhile, today's reports indicate that several players are ready to take the currently-offered deal.

I cannot predict what will happen in this test of wills. It is notable that players have slowly relaxed all of their previous commitments: 53% of income is no longer a must-have; a punitive luxury tax now seems palatable; and contracts will be shorter than before. A deal could be had with a bit more budging by both parties, but perhaps they both feel they have budged enough and will not slide their respective positions more just to make a deal. They have both attempted to signal their willingness to lose the season — Deron Williams accepted work in Turkey and half the Denver Nuggets took contracts in China, while the owners have already cancelled all of November's games — but actually walking away from play would be insane. From the examples of the 1994 Major League Baseball strike and the 2004-05 NHL lockout, fans would not cheerfully return 12 months later. Unfortunately, neither side seems very inclined to swerve in this game of chicken.

UPDATE, November 8th: The NBPA announced today that they are unwilling to take the league's latest offer. These articles from Sports Illustrated's website provide excellent updates on the terms of negotiation.

It's About Time

What took so long for NBA players to make a serious push at decertification of their union? Pre-emptively taking your best negotiating threat off the table was a poor idea.

Is Marriage For Suckers?

A great article appeared today by Sports Illustrated's Ian Thomsen about Brian Shaw's unsuccessful hunt for the L.A. Lakers' head coaching position. While Shaw is a very strong candidate, Mike Brown is as well and I don't view the Lakers' decision as clearly unreasonable. I did notice, however, the recurring suggestion that Jim Buss, son of team owner Jerry Buss, wanted to expunge any trace of Phil Jackson's leadership from his organization.

After 11 championship-laden seasons with Jackson, there seems little reason to change the organization's direction, particularly when the core players from the recent title teams are ready for at least one more run. Perhaps the Busses are eager to prove that they, and not the coaching staff, are the ultimate drivers of success in the organization. The Buss family will likely lead the Lakers franchise as long as the NBA exists (until the next global nuclear war, perhaps); it may behoove them to show the rest of the league that their permanence will long dominate passing staff. But the Lakers, like most successful teams, have maintained ties to their great alumni: Abdul-Jabbar was an assistant coach, Johnson a part-owner, West the general manager. Why send Jackson's entire squad of assistant coaches out of SoCal?

The real story may be the part left silent in Thomson's SI article. Jackson has, almost since he showed up in Los Angeles in 1999, been the steady boyfriend (by now and at their age, a husband, really, though he apparently does not prefer the ratification of law) of Jeannie Buss, who is Jim's brother and also a Vice-President in the Laker organization. So Jim does not like his quasi-brother-in-law, or at least prefers not to do business with the tall one. Joining a "company family" is not easy; I would rather keep my professional life out of my home, and vice-versa. I wonder what Thanksgiving dinner around the Buss table might be like later this month.

UPDATE: This writer had the same thoughts as I did after reading the SI.com piece.