Monday, November 14, 2011

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.
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