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Schmeelk: Solving The Issues With The NBA

(credit: AP Photo/Mary Altaffer, File)

(credit: AP Photo/Mary Altaffer, File)

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By John Schmeelk
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Thanks to two great interviews by Mike Francesa with David Stern and Billy Hunter, the disagreements that are driving this NBA lockout are becoming very obvious. Let’s take a look at the three primary issues that are keeping the NBA off the court.

1. BRI Split – This appeared to be the huge issue a couple of weeks ago, but its importance seems to have diminished. The league is sitting at 47% of basketball related income and the players at 53%. There seems to be a pretty obvious middle ground at 50/50, which would appear to be an approximate number where this will eventually land. This has been tabled for the time being, until other system issues are taken care of. At this point, the thought seems to be that once the system issues are taken care of, then this can be negotiated.

But the bottom line is that this split guarantees what the players get, so it is very important. In the prior agreement, players received 57% of BRI, however, total money spent on contracts did not reach that percentage. The NBA wrote the union a check to make up the difference. Keep in mind, if the NBA teams give out contracts worth more than the BRI number, the players don’t have to give anything back. This numbers serves as the minimum amount of total cash the players get in any given season.

2. The Luxury Tax – This looks to be the hammer issue. The owners have dropped their demand for a hard cap like the NFL, or for a flex cap like the NHL has used since their work stoppage. In the past, the NBA has charged an extra dollar for every dollar a team goes over the luxury tax threshold. The owners now want to increase that penalty to about two dollars for every dollar spent for the first ten million over the tax limit, and then make it higher as it goes along. The players argue that such a punitive system is a virtual hard cap, only missing the name.

This type of punitive cap system would limit the spending of teams like the Lakers, Celtics, Knicks, Mavericks, Heat and Bulls. The players are unhappy with that. The owners argue that a more punitive luxury tax system is about competitive balance. The Lakers spend well over the luxury tax threshold, and that makes it impossible for the Kings to compete with them considering they can’t even go over the salary cap. Their disparity in spending is nearly 50 million dollars.

Despite the fact the Knicks have been terrible for a decade due to bad management, it is hard to argue that teams who spend more have a significant advantage. The Lakers, Mavericks, and Spurs have used the Larry Bird exception and the mid-level exception to go over the cap in order to keep their roster together and add valuable roleplayers. Many of the teams that have won most consistently this decade were all willing to spend money over the salary cap. It’s an advantage teams like the Timberwolves or Hornets don’t have.

The players believe that competitive advantage can be addressed solely by revenue sharing, which is short sighted and unrealistic. As NBA revenues grow, so will the gap between the big and small market teams, making it hard for the small market teams to compete. The effect might be decreased by revenue sharing, but not eliminated. The players are going to have to move towards a more punitive tax system if the lockout is going to end. This issue, even more so than BRI, is important to the owners since it will limit the top end spenders, and that drives payroll growth.

If the BRI split is high enough for the players, a restrictive tax system should be irrelevant since the players are guaranteed X number of dollars anyway. However, the players are hoping to keep a minimum luxury tax penalty so big market teams will go over the cap, pay the tax, and the players will earn MORE than the guaranteed BRI percentage. Theoretically the number could go as high as what the players earned in the last deal. There is no ceiling on how much the players can earn.

There will be a balance between issue one and issue two in the eventual agreement. What the owners are asking for does not appear to be unreasonable, especially considering the system would be less restrictive than what is in place in the NFL and the NHL. Players, especially the stars, will still have huge earning potential. The system will improve competitive balance. This will make or break the deal. This is where the devil lives.

3. Contract Length and Raises – I don’t think this is going to be a killer in the end. Right now the owners want to limit player contracts to four years when a team signs their own free agents, three for normal free agents, and give each team one five year contract to spend on a player of their choice. (such as a player signed with the Bird Exemption – which looks like it will make it into the new agreement in one way, shape or form) The players want contracts maxed out at five and four years. Last year, contract lengths were at five and six based on whether or not a team was resigning their own player.

It’s hard to blame the owners for wanting to limit contract length. There have been countless players who sign their contract, and then mail it in while they cash in their checks while sitting at the end of the bench. Eddy Curry and Jerome James come to mind. Limiting contract length makes players perform more consistently to earn their contracts and that makes the product better. It is also reasonable. The players already moved on this issue, so I would not be surprised to see the owners relent and agree to the player’s position. If issues one and two get resolved, this will shortly follow.

With the NBA and the Union meeting with a federal mediator next week, time is of the essence. If no progress is made then, the remainder of November games will be cancelled and both sides could return to their camps and dig in further. The shame is that the two sides aren’t that far apart and an agreement seems to be within reach.

The more I look at it, the more I become convinced the NBAPA is the side that’s going to have to move more in terms of the system, agreeing to a far more punitive tax system. It would be a 2-1 penalty early, and getting worse the more a team goes over the cap. It would be a system that would actually benefit the league. I would guess the owners will have to give a little more on the BRI issue, perhaps going as high as 51%. The owners would also relent on contract length. It’s a deal that would give both sides enough of what they want, while making both feel some pain. That’s how most good deals feel and that’s how this one will too.

You can follow me on twitter for everyone on the NBA, Giants, NFL and the Yankees: http://twitter.com/#!/Schmeelk.

What’s your prediction for the NBA season? Let Schmeelk know in the comments below!