The Owners are adamant they want a hard cap - and that will fix the competitive and financial problems of the League...
The Players are adamant that they will not accept a "Hard" cap system...
The beauty of the system signed in 1999 is that salary costs are already capped, even if 57 percent is a bit high. If the League grows, the salaries grow - but if the League revenues stagnate, the salaries stagnate as well. The players are guaranteed 57 percent of Basketball Related Income (BRI). A percentage of every player's salary is put into an escrow account. At the end of the year, an audit is done. If it is found that the players exceeded 57 percent, the overage is taken from the escrow account and given back to the owners. If the players did not exceed 57 percent, the amount in the escrow account is paid to the players.
57 percent was the most the players could receive. In a way, the NBA was already operating under a hard cap system for the last 10 years.
So why the impasse? Why all the posturing? Why the failed negotiations?
Over the last few years, as we've suffered through a global recession, the NBA's revenues stagnated. In 2008-09, BRI rose 2.5 percent. In 2009-10, BRI rose only 1 percent. In 2010-11 BRI rose 4.8 percent. But, players salaries never exceeded 57 percent of BRI.
So, even after revenues stagnated (actually, revenues rose modestly) over the last several years - 22 of the 30 teams are losing money. The highest television ratings ever. The League experiencing tremendous popularity. Yet 22 teams are losing money? Expenses must have risen at a higher rate than the revenues, right? But salaries have stayed constant at 57 percent. Then what has changed from 1999? Which expenses have gone up faster than BRI has risen?
Obviously reducing salaries could fix the problem - but what if the players salaries are not the entire problem? Tom Ziller (SB Nation) did an excellent piece on the mysterious other expenses that seem to have spiraled much higher than revenues. Unfortunately, without an audit of all 30 NBA teams books, we may never know what makes up those "other" expenses.
There are other factors at work here as well. Many owners bought their teams recently, over the past 10 years, and have huge debt service and acquisition costs to recover. So now, we have a bunch of "new" owners that look at their 43 percent piece of the pie and want more.
So - how do you fix the financial problems of the League? (if there is a problem)
Last season, players received $2.176 billion (57 percent) of BRI ... The players have reportedly put forth a proposal, tweaking the current system - but reducing their share to 54.3 percent of BRI. Had that percentage been in place for the 2010-11 season, the owners would have saved over $150 million dollars in player salary costs. That is not an insignificant concession by the players.
In addition to the salary concessions, the players proposal also included scrapping the current luxury tax system in exchange for a new revamped revenue-sharing system. Something the owners have so far refused to talk about, or even acknowledge that it could be part of the overall problem.
The players' proposal included:
- Changes to loosen trade restrictions.
- Elimination of base-year compensation rule (which makes it almost impossible to trade those players).
- Increasing the matching salaries requirement from 125 percent to 250 percent. (easier trades)
- Elimination of the biannual exception
- Reduction of the maximum length of mid-level deals from five years to four
With some tweaking here and there, dropping the player's percentage to, say, 50 percent, and another concession from the players to accept a team maximum hard cap (along with a team minimum salary floor as well) - this seems to be an entirely workable solution. With such an agreement in place, owners and players could say they are actually partners, with a 50/50 split of revenues. Owners would presumably make more money. Well-run teams would prosper. Teams would be able to move previously unmovable contracts with the easing of trade restrictions. And competitive balance would be restored.
It's apparent that the players have a good grasp of the league's current financial and competitive problems - because real revenue sharing, along with a lower percentage for player salaries looks to be the best way to ensure competitive balance between the teams in the future. Plug in a hard cap system, with a ceiling and floor - and one team (Dallas) wouldn't be able to spend $90 Million while another (Kings) spends only $46 Million.
The owners should have been happy to take the player's proposal and work with it ... tweak it ... and come to a mutually beneficial agreement.
Unfortunately, many of the owners seem hell bent on breaking the players and forcing an agreement so one-sided as to be unprecedented in the history of labor negotiations. They are insistent on establishing an essential guarantee that each team in the league is profitable, whether they are managed properly, or not.
The owners propose to cap players salaries at two billion. At first blush, their "$2 billion guarantee" doesn't look too bad - until you think about how league revenues could climb in the next several years; especially when new television rights deals are signed in the next five years. As the league expands and revenues climb, the players would essentially be stuck at $2 billion - and the extra revenues that they helped generate would go 100 percent into the owners pockets.
So essentially, it seems like the owners are telling the players to take a pay cut and give up any raises for the next 10 years - but reserve the right to cut pay again if revenues fall. Even if revenues only increase by four percent per year, at the end of the agreement, the players would be receiving less than 40 percent of BRI. This would ensure the owners massive profits, and the value of every team in the league would skyrocket.
The players have conceded that they should deduct some of the arena/construction expenses from the BRI pool - because in reality those are part of "Basketball Related" expenses - and part of putting on the show that is the NBA. But the owners want to go a giant leap past that and deduct franchise acquisition costs and interest and debt service from the BRI pool.
Essentially, the owners want the players to pay for the costs of acquiring a team, even though the players will not reap any benefits when that team is ultimately sold for an obscene profit. One more slap in the face by the owners.
As these sham negotiations continue, one image keeps flashing through my mind - the owners flipping their collective middle finger at the players.
Buckle down folks - it's going to be a long, long, cold winter.