I don't like a hard-cap because team-player continuity is very valuable from a business perspective and also in terms of the product on the floor. I don't want to see teams losing their young, up'n'coming, franchise player due to salary cap limitations. Planning a 3 or 4 years salary window for a #1 draft pick may be feasible but what about the Arenas and Grangers of the world - guys who erupt to stardom out of nowhere. With a hard-cap, only lucky teams would be able to retain those players. Everybody recognizes this is bad - that's why the "Arenas provision" was added to the current CBA. (and I, for one, don't believe that the teams would behave rationally - as the players union fears - and decimate the NBA middle-class by offering multi-year contracts only to star players in order to leave room for future eventualities. That's a great display of faith in the market efficiency hypothesis but in the real world it wouldn't work - maybe if GMs had their jobs for life. Players don't want a hard cap because they believe it'd lead to an environment where only All-NBA players would have access to guaranteed contracts but I suspect their fears are unwarranted. GMs would still make the same short-sighted decisions they make now). A hard-cap would also make the draft less important and free-agency more important - and the draft is the biggest factor for competitive balance. The prohibition of multi-year guaranteed contracts could solve this, but it would create bigger problems. I oppose the prohibition of long-term fixed wages for a few reasons:
- as the paper
Moral hazard in long-term guaranteed contracts: theory andevidence from the NBA by Arup Sen, J. Bradford Rice proves, teams already factor the "contract year effect" in their calculations. As the authors put it:
We conclude by answering the question that was put forth at the start of this paper- are teams being fooled repeatedly and is this an equilibrium of this market? The answer to that question is quite simply, no.
This suggests guaranteed deals don't produce inefficiencies (when considered league-wide, of course. Eddy Curry or Mark Blount are frequently mentioned when this issue is discussed but Rondo or Perkins are more rarely named. Or, on another note, Big Baby Davis: I'm not sure if having a league of guys always on their contract year would actually improve the product on the floor. I'm pretty sure that the pace of the game would rise rather and the FG% decline quite a bit).
- To me, that removes the main rationale to prohibit multi-year guaranteed contracts. There are two strong reasons that IMO suggest they should remain in place: As I've written in the preamble, I'd like to keep an environment where teams are punished/rewarded by their decisions. Prohibiting non-guaranteed contracts would remove the moral hazard for teams. I'd like to keep a system that rewards/punishes teams for good/bad decisions. Slightly less than now - so I'd like to see a reduction in the length of contracts (1 year) and more flexible injury exception rules.
- Secondly, there's a reason why guaranteed deals (with fixed wages or via huge rescission clauses)are so common amongst highly paid employees in every field of activity: because risk aversion exists and workers are willing to make wage concessions in exchange for security. Which allows teams to hire at cheaper prices. If LeBron James demands a $100 million/5 years contract, he'd demand a lot more than $20 millions for a 1 year contract. Of course, one could say that in any case Lebron couldn't get a better contract anywhere. However, if that was true, he'd just be paid the minimum salary - or at most an amount that would prevent him from taking his talents to the Manzanares' margins (that's a river in Madrid) or the Mediterranean shore. Someone point out correctly that the NBA itself isn't a free-market; unfortunately for NBA owners, it operates within a free-market environment (more or less). A CBA combining a salary cap, max contracts limits and a prohibition of long-term fixed wages would severely penalize the earning potential of star players. I don't think such an equilibrium would be sustainable in the long-run, the market would self correct. I could see this working in, say, a dominant soccer league (a NBA for soccer, a world soccer league), but not in a sport like basketball (the impact of high talent is disproportionately large) . The gap between the free-market value of superstars and their wages is already large, it can't be overstretched much more. By getting rid of their ability to pay smaller salaries in exchange for security, NBA teams would be self-imposing themselves a dangerous limitation.
Therefore, I say no to a hard-cap. And a hard-cap is a hard-cap is a hard-cap. A hard-cap with a single exception is called a soft-cap. A soft-cap with a hard-cap at the current luxury tax threshold, as I've also read over here, is a hard-cap - just like the "flex cap" the league proposed is a hard-cap with a fancy name.
I favor keeping in place the current luxury tax system but making it a tiered system that penalizes high-spenders - making it costlier and costlier for teams to go over the cap. Say, 2/1 for the first $10 millions over the cap, 4/1 for the next $10M and so on. At some point, a hard-cap would exist due to budgetary restraints - and with an apt revenue-sharing system and a reduction on exceptions (get rid of the LLE and non-Bird exceptions, make the MLE a bi-annual exception), it'd be pretty close for every team. It's the less distortionary solution but teams would still be able to take a hit for a year or two for the purpose of keeping a franchise player or a title team together if they wished so.
As for the BRI split:In their last proposal, the owners offered a share of $2 billion/year for the players. The players naturally rejected it as it'd leave them out of future revenue growth (which makes a lot of sense if the owners explanations for the growth in non-players salaries expenses - revenue generating investments - is true). At the current BRI levels, $2 billion amounts to 50% of it. This should produce enough savings to cover the losses the owners are claiming. So, my proposal would be a tiered revenue split, using the owners proposal as the starting point:
- the first $4 billions of BRI would be split 50/50
- the rest of the BRI would be split 65% for the players, 35% for the owners.
This is great for the owners as gives them enough money to cover those current rigid (and slightly mysterious)costs that are making them lose money. Plus, it gives them control - the will know the price in players salaries of future revenue and, as the ones in charge of revenue, they can make decisions based on that. They'll always be interested in maximizing tv rights fees, but those other revenue generating costs Stern talks about - speculating, an expensive marketing effort, may not be worth it. It's up to them.
For the players it's a gamble that ties their fortunes to a league revenue growth. But that's only fair considering the quality of their work is the ultimate factor for the league's success and they'd be putting their money where their mouth is.
I'd also keep an escrow system that would keep the % of the BRI going to the players under 60% in any given year.
As for competitive balance: - I favor an environment that assures equality of opportunities, not of results. I don't want a league filled with 40 wins teams. I think great teams (including dynasties) are what puts the NBA on another level. What would be so great about a New Orleans vs. Atlanta finals this last month? The NBA needs excellent teams - and being a zero sum game, it implies having mediocre teams. What is needed is a system that allows every team, regardless of location, to be excellent. And the main tool for that should be a robust revenue sharing system. My proposal would be to follow the BRI split: for the first $4 billion dollars, teams would share 50% of the BRI they individually generate, after that, 60%. Luxury tax would be distributed 100%.
