How to fix the NBA economic crisis: one man's (flawed?) proposal

[Roy Hobbs]

I'm a little hesitant to start this topic, because I hate bashing others for their ideas (Peter May excluded), but this idea made little sense to me, and I wanted to be able to discuss it with others.  Elrod Enchilada is a good contributor over at RealGM, and he's a Celtics fan, but this article / suggestion is completely off-base, from my perspective.

http://realgm.com/src_feature_pieces/751/20090308/how_to_prevent_a_catastrophic_war_between_owners_and_players_in_2011/

His idea?

The league needs to eliminate individual contracts between players and teams, and establish a salary structure that encompasses every player. Agents will play a smaller role, but I doubt many people will shed tears over that.

The owners can have their financial flexibility, such that as their revenues decline, their labor costs do, too. They will not get hosed paying massive long-term contracts in a deflationary depressed economy. General managers can build rosters – make trades, sign free agents -- without any concern about salary. The “capologists” will be out of work. It will give the players added incentive to see that the league succeed, as they will all be the direct beneficiaries of increased revenues. They will become full partners with the owners.

Player salaries will be determined by three criteria:

1. Base/performance pay based upon how many minutes a player plays (70 Percent of total, or $1.305 billion)
2. All-Star pay to reward the better players in the league (20 percent of total, or $373 million)
3. Team pay, to reward players on the best teams (10 percent of total, or $186 million)

All-Star Bonus Pay: These will be determined by MVP votes and all-NBA team votes. The top 25 vote-getters in the MVP balloting will get paid bonuses. There will be ten all-NBA teams for each conference, so 20 five-man rosters and 100 players (two-thirds of all starting players in the NBA) will get rewarded. The voting procedures will have to be determined in the CBA, with the players and coaches the likely voters. Voting should be done immediately after the regular season so as not to penalize players on lottery teams. The top 100 players will be rewarded, sometimes handsomely.

There's *a lot* more, and in fairness, people should read it before making an opinion.

I feel bad that somebody obviously spent a ton of time and effort on an idea that is pretty flawed.  You think players complain about minutes and shots now?  Implement a system where salary is tied to minutes and all-star appearances.  You think small market teams have a problem competing now?  Give players the ability to freely choose to sign wherever they want, with every team being able to offer the same contract.  I'm sure Minnesota would be a popular destination.

Also, how is it possible to have a "hard cap" when salaries are based almost entirely on bonuses (which will be figured out after the season)?

Am I being unfair?  Or is this really just a proposal that makes no sense at all?

[Casperian]

Soccer players receive boni for many things. It´s not unusual that players earn €500,000 per year fix, but can get up to €1,500,000 in boni, for example.

Players get boni for playing in a game, winning games, goals, not getting goals against them etc.

I get your line of thinking, Roy,  but the positive side of this is that every player wants to play. They have to keep themselves in the best shape possible, DUI´s or Marijuana abuse would hit them hard. Do you think Mark Blount would have played the way he did if he had to produce after the contract extension?

More desire and thus competition is not a bad thing, quite the opposite. If a player moans about his PT or touches, he´ll play less and will earn less money. Teams would have a stronger position when dealing with unprofessional players.

[Coach]

I haven't read the entire article, but in general, I think the premise is good, the execution is bad.

Minutes and allstars shouldn't be the criteria used to compensate players.

Wins, championship, team revenue growth, league revenue should.

As well, fully guaranteed contracts should go.  There should be a shedding concept, where by a team can cut a player, and only be responsible for 1/2 his salary, and it wouldn't count against the cap.  That player would then be able to be resigned by another team, and that salary would could against the new teams cap.

Again, didn't read the whole article, so I probably shouldn't comment, but the current system is totally flawed.

[Roy Hobbs]

I think that a new CBA should have a hard cap, and some sort of "amnesty" provision whereby teams can shed bad contracts from their salary cap, either in whole or in part.  Guaranteed contracts should be shorter, probably capped around four years.  These are all good ideas, that I imagine the owners are going to work hard to implement.

However, paying every player the exact same amount to start the season, and then adjusting this with incentives, is ludicrous.  Tying the vast majority of a player's compensation to arbitrary awards -- voted on by the fans and media -- and to minutes played would create a horrible dynamic within teams.

[elrod enchilada]

Roy--

Thanks for reading my piece and making your concerns known. I also appreciate your kind words about me otherwise. I hope others will read it carefully like you did before shooting from the hip.

The argument is simple: the current CBA is flawed and has only survived as long as revenues were increasing, thereby papering over the CBA's deep limitations. The deepest of these limitations is that it permits long-term contracts of great size to underperforming players. Not a problem when revenues (and the salary cap) increases at 10 percent annually. Huge problem when revenues look to decline and possibly decline sharply for years to come, in a deflationary environment.

That is the boat we are in now, and it is the first time our economy has been in this boat for 70 years. New thinking is needed. All the conventional wisdom is of limited value, and may be a hindrance.

I wrote this piece for a private audience initially and then decided to publish it. All I can say now is that owners and management in the NBA are freaking out about the future, and there is an openness to new ideas that is unusual, including this proposal.

As far as I am concerned, it beats the alternative: a massive one or two year lockout to depress palyers salaries, and/or the closing and/or franchise hopping of a third of the teams in the league. That is unacceptable to me and should be avoided. That may be the real future we face if the global economy continues on the path it is currently on. Don't get me wrong, I want a recovery as much or more than anyone, but what I want and what is going to happen are two different things.

If the players are going to give up money, and they are, my proposal takes it away from undeserving players. If there is no effort to deal with the Jerome James and Wally Szczerbiak contracts, then any effort to get players to take less money will have to come disproproationatley from young and deserving players. That all but guarantees World War III. That is a recipe for disaster.

My proposal simply gives the players and owners depression insurance. The players always get 57 percent of the gross, no matter what. Even if soem franchises are struggling. The owners are covered when revenues tank. It is no more "communist" than the current system; it is simply a recognition that the league is a monopoly, not a competitive market with ease of entry of new firms. Any connection between the NBA and free market capitalism is purely coincidental, except for public relations purposes.

In fact, the system I propose is far more a meritocracy than the current system. The teams that are best run, the most efficient, make the most profit. They are not rewarded for fielding bad teams; in fact, quite the opposite. The best players get the most money. Period. What could be more all-American than that? Getting the dead beat players off welfare while rewarding the productive players? Sounds pretty all-American to me. All the incentives here are for temas and players to do their very best.

I provide an example of how salaries could be determined that would take the pool of money and do a better job of allocating it to the most deserving players. As I emphasize in the piece, my example is meant to illustrate the point, not be the only possible system to use to implement this plan. I am the first to concede that my plan is rough and can be improved upon. It is there to get the discussion rolling.

If the economic recovery does surprisingly well, it may be the owners and players can survive this crisis without a radical change on the CBA, and without a devasting lockout. But right now the odds of that being the case are below 50-50. I hope the ownwers and players are open to fresh ideas because the old ones are inadequate to the economic crisis before us.

elrod  

 

[Roy Hobbs]

Elrod,

Thanks for the response.  Maybe "terrible" was harsh, but it seems like a lot of effort for an unworkable, and in my opinion, flawed idea.  I have to respect anybody who will put their ideas out there, though.

I agree that something major needs to be done in terms of the CBA, not just in terms of the current economic situation, but in general.

The players always get 57 percent of the gross, no matter what.

Isn't that the case now?  Here's Larry Coon on the subject:

ollectively, the players are guaranteed to receive at least 57% of revenues in salaries & benefits. If it's ever less, the league cuts a check to the Players Association after the season for distribution to the players.

That's the minimum the players can get; due to the escrow rules, I think the maximum the players can get now is 58%.  Thus, your system would actually *decrease* the money the pool of players has to divide up.

I don't see why your system is any better for the players than the current one.  In terms of the owners, I don't think this accomplishes anything that shortening guaranteed contracts and allowing cap amnesty would not.

[the_Bird]

The NFL salary structure seems to work pretty well.  There are few guaranteed contracts, but there is guaranteed money; it's just in the form of signing bonuses rather than spread out through the life of the contract.  More up-front cost for the owners (which may make it a non-starter right now), but more flexibility after the contract is signed.  Is that basic model better or worse than the NBA model (I really can't make up my mind about this).

I have in my head a hybrid model, I'm trying to flesh out whether it works for the teams and the players.  I'd like to see a higher cap, but a hard cap; basically make the luxury tax level a hard cap.  I like the salary rules for drafted players; no holdouts.  Maybe limit player contracts to three or four years, at a lower annual salary but allowing more signing bonuses.  There's got to be somehow to structure salaries so that players still make more-or-less the same total amount, but that they can cut someone who's unproductive. 

Maybe; if a player signs a four-year contract with a signing bonus, the bonus is allocated to the cap 25% each year - but if he's cut, the team can allocate the remaining bonus however they want to for whatever years are left on the contract.  Like, a player gets a $16M bonus for a four-year contract, gets cut in year 2.  There's $8M left of bonus to be allocated to the cap, they could apply that to year 2 if they have space, or year 3 or year 4...

Hmm...  maybe I'll do some thinking and write something up. 

[Donoghus]

The NFL salary structure seems to work pretty well.  There are few guaranteed contracts, but there is guaranteed money; it's just in the form of signing bonuses rather than spread out through the life of the contract.  More up-front cost for the owners (which may make it a non-starter right now), but more flexibility after the contract is signed.  Is that basic model better or worse than the NBA model (I really can't make up my mind about this).

I personally prefer the NFL salary structure.  I like the idea on non-guaranteed contracts with guaranteed money tied up in bonuses and earned incentives.  I'd much rather deal with that than have "dead money" tied up in underachieving talent that will destroy my team's salary cap situation for years.  That drives me nuts about the NBA structure although you can equally point blame at owners/GMs for signing role players or one year wonders to ridiculous contracts in the first place.  I also dislike the "salary matching" dynamics of NBA trades.

[Roy Hobbs]

The NFL salary structure seems to work pretty well.  There are few guaranteed contracts, but there is guaranteed money; it's just in the form of signing bonuses rather than spread out through the life of the contract.  More up-front cost for the owners (which may make it a non-starter right now), but more flexibility after the contract is signed.  Is that basic model better or worse than the NBA model (I really can't make up my mind about this).

I personally prefer the NFL salary structure.  I like the idea on non-guaranteed contracts with guaranteed money tied up in bonuses and earned incentives.  I'd much rather deal with that than have "dead money" tied up in underachieving talent that will destroy my team's salary cap situation for years.  That drives me nuts about the NBA structure although you can equally point blame at owners/GMs for signing role players or one year wonders to ridiculous contracts in the first place.  I also dislike the "salary matching" dynamics of NBA trades.

I don't know a ton about the intricacies of the NFL salary cap, but doesn't it make it almost impossible to trade players, due to the cap hit teams take?  Also, the NFL has its own share of problems, and may be headed towards a lockout of its own, as the players have too large a piece of the pie.

[the_Bird]

I'm sure that the Coon FAQ has these information, but aren't there restrictions on player incentives being linked to team performance?

One thing the NFL does that I like a lot is that extra bonus pool of money that goes to younger players who clearly outperform their rookie contracts.  I remember some of the Pats linemen getting a big chunk of change, in addition to their regular pay, because they were on the field a lot.  It'd be nice if there could be built into whatever system is ultimately agreed upon some kind of bonus that would pay a guy like Rondo a bit more for how much he's done so early on.

I'm pretty sure all the NFL teams pay into a separate pool for this money.  It's be nice if rookie salaries could be capped even more, but you'd have extra money in a separate pool that goes to reward guys who have been particularly productive. 

[guava_wrench]

I don't see the point in introducing "communism" into the equation. There is still private ownership of capital. Kinda silly attempt to make an emotional appeal.

This is a shame because valid criticisms are being made.

Sports labor markets are too complex to have such a rigid structure to individual salaries. It makes far more sense for teams to determine players' values by deciding how much to pay them. Like any other business, they need to make smart decisions.

Free agents contacts will be very small this offseason due to teams having to pay current contracts based on expected growth of the salary cap. In the same light, there will be players who will be underpaid on long term contracts when the economy recovers. It does both ways.

[BballTim]

The players always get 57 percent of the gross, no matter what.

Isn't that the case now?  Here's Larry Coon on the subject:

ollectively, the players are guaranteed to receive at least 57% of revenues in salaries & benefits. If it's ever less, the league cuts a check to the Players Association after the season for distribution to the players.

That's the minimum the players can get; due to the escrow rules, I think the maximum the players can get now is 58%.  Thus, your system would actually *decrease* the money the pool of players has to divide up.

I don't see why your system is any better for the players than the current one.  In terms of the owners, I don't think this accomplishes anything that shortening guaranteed contracts and allowing cap amnesty would not.

  The difference is that you don't have future money tied up based on assumptions about future revenues. What if, instead of signing KG to a 3 year $60M (or whatever) extension the Celts had signed him to a 3 year deal for 27% of the salary cap? If the revenues are good and the cap goes up then the player makes out. If revenues are bad then the salary might stay the same or go down a little, so the owners are protected. This might be a better solution because it protects owners from owing huge contracts during an economic downturn while the lack of incentives prevents battles over minutes or shots or the like. What if the starters had complained all last year when they came out of games, or when they sat on the bench during the 4th quarters of blowouts? What if Ray had refused to be the 3rd offensive fiddle last year because he was worried about not making the all-star team? What if Rondo decided that scoring more points would put him into all-star contention?

[nickagneta]

First, a couple of things about the Elrod(full-Garvey) system:

- I'm not crazy about pay being determined by minutes played as suddenly the coaches of the league wield so much power that there could be explosive situations occurring around the league in clubhouses as players in coaches doghouses go ape over sitting when they know they are better and can contribute more than players in front of them. That's only one example but I hope it illustrates the mindset of what will be happening with players as they see millions being washed away because of their coach not playing them.

- I'm not crazy about the voting process for determining bonuses. Voting tends to be a popularity contest and not an objective look at where a player should be ranked within those All-Conference teams and the MVP. It's easy to use examples like LeBron and Paul and Kobe and KG at the top knowing that they will get their fair share of votes, but when it all comes down to it, there's no certainty that deserving players that break out or are on bad unmemorable teams will get proper voting. using a statistical matrix like a modified PER that also incorporates a win shares system and a defensive acuity system that objectively through numbers lists the players would be more ideal.

- The whole concept completely ignores the draft, draft positioning and the financial risks involved in the draft. A player who makes a team that is drafted in the late second round will be earning as much as a guy who was drafted number one or who has been in the league 10 years as a bench guy(see Mikki Moore). That's not going to go over too well with the rank and file of the NBAPA, that's for sure. Almost all veteran professional athletes hate the concept of paying unproven, done nothing in the league, rookies as much or more than good productive veterans.

For that reason, if there's one thing I feel the NBA has right and better than any other major American professional sport, it is the draft and rookie contracts. The first four years of an NBA players career if drafted in the first round is handled better for all involved by the NBA than the MLB, the NFL or the NHL. Everybody seems happy with it. It allows for fair rookie pay with rookies drafted high and more likely to succeed making good money and lesser players making less. It allows for the team to hold onto their draftee for four years and possibly longer depending upon how their free agency is handled. And it allows owners to get out after two years if the draftee is a disaster(see Patrick O'Bryant}.

- Owners will argue that by giving the same percentage of the BRI to the players and then having to pay even more in bonuses to keep their franchise stars is actually leading to them giving up a higher percentage of the BRI. Also, since times are tough and the players are making all the cash and the owners are starting to lose money, my guess is that the 57% number is going to be a sticking point for the owners. I think a numer around 54% or 55% is going to be where they will be looking at. That 2%-3% doesn't sound like much but it comes out to $70-$100 million that if distributed evenly among the 30 teams will go a ways to balancing some P&L statements.
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Overall, Elrod, I give you a TP for a very well thought out piece that tries to bring fairness into the business of basketball, but there's no such thing as faiorness in competitive business. If teams want to get out from under bad contracts then they need to hire better GMs and Presidents that will better allocate funds to players that are deserving.

The current CBA is not working well and there will be changes. I think those changes will be the advent of a hardcap that will allow for amnesty out of a bad contract once every couple of years. I think it will include a reworking of the free agency proceures and timelines. I think it will involve a shortening of the length of guaranteed contracts to possibly five years. There will be also need to be a giveback on the players parts on drug testing and a percentage of the BRI.

Right now the CBA really doesn't work for the owners and it is being exasserbated by the economic times. There will be a lock out and it will be the NBAPA that will have to cave in to keep the game healthy.

[cordobes]

Yeah, very nonsensical proposal. I don't think there are huge problems with the CBA or that a legal revolution is needed. Players will needed to concede some stuff and allow the owners to have more flexibility - probably by accepting smaller limits contracts in terms of years and a smaller share of the revenue. I feel that vets and the middle-class are benefited with the current CBA relatively to rookies and the superstars who sell tickets, but that's to be expected, they dominate the syndicate.

Anyway, I was just reading about the Pacers situation:

Herb Simon stressed Tuesday that he wants to keep his team in Indianapolis but was equally adamant that he can no longer afford the operating expenses at Conseco Fieldhouse or the team's year-after-year financial losses.

Simon said the Pacers have lost money nine of the past 10 years, including the year the Pacers played in the NBA Finals. (Forbes.com offers a different financial picture; see the graphic at left.) Jim Morris, president of Pacers Sports & Entertainment, said the team has lost $200 million total since Simon bought it in 1983.


"There comes a point where you have to say, 'Maybe I can't do this anymore,' " Simon, 74, said in an hourlong meeting with executives and reporters at The Indianapolis Star. "Certainly my family, if I'm not here, is not going to be able to do it.

"So, let's straighten this thing out. Maybe we can't. But let us try. Sure, I would have picked a better time than the world's greatest economic crisis. The timing sucks, but that's what it is."

The timing is triggered by a clause in the Pacers' lease -- signed when the team moved into the fieldhouse in 1999 -- that allows the team to renegotiate with the city's Capital Improvement Board after 10 years.

Under the agreement, the Pacers agreed to operate the fieldhouse, which is costing the team about $15 million a year. Simon said he did not want to negotiate in public, but it's clear, based on what CIB officials have said, that neither side thinks the team can continue to pay that much.

The CIB is facing its own $20 million shortfall. If it were to absorb the cost of operating the fieldhouse, it almost certainly would need help from taxpayers.

Simon avoided making threats to leave town and said he has not spoken to other cities that might be interested in the team. But, he stressed, "it's very important we resolve this in the near future. Very important."

And it's not just the Pacers that Simon is concerned about. The fate of the Fever seems tenuous at best.

Simon said he is committed to the WNBA team for just one more year. The team has lost "several million dollars," he said, and must double corporate sponsorships and attend ance if it is to survive.

But while Simon bemoaned his financial situation, others looked skeptically at the latest example of a wealthy professional sports team owner wanting public money.

Cathy Burton, president of the Marion County Alliance of Neighborhood Associations, said she doesn't fault Simon for trying to get a deal as good as the one the Colts received at Lucas Oil Stadium.

"The fault," she said, "lies in giving it to them. The citizens can't afford to bail them out."

She said the team brought many of its problems on itself, with player misbehavior that has hurt attendance. She called on the Pacers to open their financial books to the public.

David Carter, a sports business expert from the University of Southern California, said he can't evaluate the team's claims of losing money in nine of the past 10 years, including 2000, when they went to the NBA Finals.

But, Carter said, "even if they are (losing money), you still need to take a look at how valuable the team would be if it were put up for sale -- and not necessarily in the home market."

The Simons bought the Pacers for $11 million. Forbes magazine said the team is now worth a little more than $300 million, a figure the team disputes.

"The accumulated losses are close to the value of the franchise," said Morris, the Pacers Sports & Entertainment executive. "There is not some golden egg out there somewhere."

Potential suitors for the Pacers include Kansas City, which just built a new arena.

But, Carter said, "just because a city is interested doesn't mean they can pull the trigger. States, cities and school districts are laying people off, and there's going to be a headline about giving money to a new basketball team?"

Simon said he has been a community-minded steward of the team, which almost certainly would have left Indianapolis if he had not stepped in.

Now, it appears taxpayers may be expected to step in again. A number of options have been floated to cover the CIB's operating debt, which, depending on the outcome of negotiations with the Pacers, may very well include some if not all of the $15 million to operate the fieldhouse.

Paul Okeson, Indianapolis Mayor Greg Ballard's chief of staff, said the mayor wants to focus first on increasing admission taxes to help the CIB, spreading the burden to those who use the facility. But a 1 percentage point increase in that tax would raise only an estimated $1.5 million, not nearly enough revenue to cover the problem. In addition, the Pacers are concerned they would have to absorb that cost because they're not certain they could raise ticket prices without losing fans.

Another possibility is raising the existing tax on restaurants, but Okeson said the city needs to be cautious, especially because it would make that tax among the highest in the country.

Still, the city senses it must do something.

"I think everyone involved would agree that a picture of Indianapolis without the Pacers would not be healthy," Okeson said.

Simon said he didn't have any recommendations for how the CIB comes up with the money.

"That's not our job," Simon said. "We want to cooperate, but I think some creative people can come up with creative ways of doing it."

http://www.indystar.com/article/20090311/SPORTS04/903110367

I think the big problem is that the NBA business model needs to change beyond the CBA. The Pacers were losing millions when they were one of the best teams in the NBA. And it's not an exception, I read the Magic have been losing $20 million per year, even with Howard in the team and playoffs runs.

The problem is that most NBA franchises haven't been profitable, rather expensive toys in the hands of millionaires (very much like it happens in Europe with basketball clubs, although on a much smaller scale). The problem is that now the millionaires can't afford those toys any more so the business model needs to be drastically changed.

It's curious how Sterling was so frequently blamed by NBA fans for being a terrible owner when it looks like he was the only guy acting responsible.

Anyway, I've been thinking for a while that the NBA over-expanded - I'm not worried about the "diluted talent", there's enough talent for 30 teams, but the pie is being shared by too many mouths. A competition with less teams would be more interesting and easier to market, I think. More importantly, I think that the revenue sharing system has to change in order to allow small-market teams to compete. I'm not sure about a hard-cap; an aggravation of the luxury tax would do it, I think.

[the_Bird]

The union's the biggest force stopping the league from contracting; I'm sure there are a few owners who wouldn't mind being bought out.

If you went from 30 to 28 teams, that's anwhere from 24 to 30 NBA jobs lost (depending on how full their rosters were).  If NBA rosters were expanded to 16 players, that would make up the difference. 

If we're talking big-picture, teams have also been talking about how they'd like to have control over more players if they're going to REALLY utilize the D-League (why develop a player you don't own the rights to?).  Could you theroetically contract 2-4 teams from the League, keep active rosters the same at 12, but allow the total roster to be maybe 16-18 players, with the guys at the end making a very modest salary (probably between D-League and vet minimum salaries) and most teams keeping 3 or 4 players in the D-League?

Better quality product; the good talent is spread over 26 teams, not 30.
Fewer teams losing money; fewer stupid salary-dump trades
Improved player development; greater committment to D-League
More players in the Player's Union, paying dues, so the union is placated.