December 15 is fast approaching. That’s the date when the players and owners each have the right to opt out of the current Collective Bargaining Agreement, and it’s a foregone conclusion that these opt-out rights will be exercised. Yet there’s little cause for alarm. The parties have been engaged in productive talks for quite some time hammering out the terms of a new CBA. Based on those discussions, there’s tremendous optimism that a new deal will be reached well before the end of the regular season and possibly even before the end of 2016, especially considering that the CBA’s most divisive term—the revenue split—has already been agreed upon.
As you may know, league revenue is divided among the players and owners according to a fixed percentage through end-of-year adjustments, so reported player contract figures are really approximations rather than set amounts. An inability to agree on that revenue split held up the negotiating process the last time around and ultimately produced a lockout and a heavily condensed, shortened schedule that harmed the quality of play back in 2011-12.
Getting the revenue split out of the way early this time allows the parties to focus on terms that can be beneficial for everyone rather than zero-sum in nature. So what CBA changes can benefit the league as a whole by making players, owners, and/or fans better off without making anyone worse off? Here are a few suggestions:
1. Incentivize Contract Extensions
Right now, as an unintended consequence of certain CBA provisions, there are powerful disincentives against contract extensions. This is bad because in most instances—particularly those involving a player on his rookie-scale contract—a contract extension benefits all parties. In signing the extension, the player transfers risk to the team, which is in better position to assume the risk of a potential injury, performance decline, or change in the market. The player gains tremendous financial security by foregoing the possibility of a somewhat more lucrative contract a year later; the team and player both gain long-term certainty and stability; and the team and its fans avoid potentially losing a valued player for little to no return.
Yet under the current CBA, signing a rookie-scale extension often leaves the team at a competitive disadvantage. The team is forced to choose between (a) signing the player long-term but having no cap space to improve the team around him, and (b) maintaining cap space but jeopardizing the team’s relationship with the player and likely signing a less preferred deal with him in restricted free agency.
The source of this competitive disadvantage is the player’s cap hold [the amount that player counts against his current or most recent team’s salary cap] and its connection with actual salary. In the present environment, a player’s cap hold tends to substantially increase once he signs an extension. This occurs because a player’s extension salary immediately replaces his pre-existing cap hold, and cap holds—designed to approximate a free agent’s market value—have not kept up with salary inflation.
Since we’re venturing into some of the more mundane and complex areas of the CBA, perhaps a few examples would help. A couple months ago the Thunder had 3 extension-eligible players on rookie-scale contracts: Steven Adams, Victor Oladipo, and Andre Roberson. Their cap holds, calculated as a percentage of their 4th year contracts, were as follows: Adams $7.85M, Oladipo $13.11M, and Roberson $5.46M. If none had signed extensions, the Thunder would have had substantial cap space in Summer 2017 and readily could have opened up a max contract slot to woo someone like Blake Griffin while re-signing both Adams and Oladipo, yet of course that’s a dangerous strategy. As restricted free agents Adams or Oladipo could’ve then signed a max offer sheet, with unfavorable terms such as a player option after Year 2 [i.e. the “Chandler Parsons Contract” in Dallas], as opposed to signing long-term at a likely discount.
Ultimately the Thunder did extend both Adams and Oladipo, raising their combined cap holds from $21M to $43.5M (equal to their 2017-18 combined salaries) and thereby forfeiting OKC’s future cap space. The Bucks similarly lost $15M in 2017 cap space by locking up their franchise player, Giannis Antetokounmpo, though other teams have approached the situation differently.
The Wizards opted not to extend Bradley Beal a year ago or Otto Porter this year in favor of retaining cap space. Like the Pistons with Andre Drummond, the Wizards followed San Antonio’s successful example whereby the Spurs opted not to extend Kawhi Leonard despite obviously wanting to retain him long-term at any cost. Declining to extend Kawhi enabled the Spurs to sign LaMarcus Aldridge, and in recognition of the competitive effects Kawhi seemed intent on going along with the Spurs’ plan and not seeking other offers in free agency. Not every situation lends itself to such trust between the player and team.
One common proposal to eliminate the competitive disadvantage of rookie-scale extensions is to substantially increase cap holds, though that’s not my preferred solution. I consider it a plus that rookie-scale cap holds are lower than expected salaries. That benefits teams that build through the draft by giving them a larger window to bring in talent and build around their draftees. In my opinion the better method is to afford more preferential cap treatment to extensions. To do so, the parties can easily craft an exception to the rule mandating that a player’s actual salary immediately takes the place of the player’s pre-existing cap hold. Here’s a sample provision:
In the event of an Extension, the player’s Salary for the purposes of computing Team Salary [i.e. his cap hold] shall be the lesser of (a) his actual Salary or (b) his Free Agent Amount [pre-existing cap hold] in the absence of an Extension, until the start of the Regular Season in the first Salary Cap Year covered by the extended term.
That way an extension can’t possibly prejudice the team’s competitive standing in free agency, and both sides are incentivized to act in their natural interests.
The incentives for veteran extensions are also out of whack, but on the player’s side. Teams are severely limited in terms of the contract values that they can offer, as well as if and when they can offer a veteran extension at all, which pushes veteran stars to test free agency whether they want to stay or not. I propose that teams be able to offer veteran extensions in accordance with their Bird rights, meaning that teams could offer (a) a max extension upon entering the final year of a contract that affords them full Bird rights, and (b) an extension up to 175% of the player’s current salary (or 104.5% of league average salary) upon entering the final year of a contract that affords them Early Bird rights. As it currently stands, a team cannot offer a veteran extension until at least 3 years have passed since contract signing, rendering many multi-year contracts incapable of extension, with extension salaries limited to just 107.5% of the salary in the final year under contract.
2. More Player-Friendly Scheduling
The NBA schedule is a frequent topic of concern, and for good reason. The increasingly-common practice of giving healthy players games off throughout the year—in response to a grueling schedule—is troubling for the league. Gone are the days when stars like Karl Malone and Gary Payton missed no more than a single game in any season for a decade-plus. Now a full season for a star player regularly includes a few games off for rest, or even more games off due to injury, and that means a lot of games with disappointed ticketholders. It also seems that teams enter the playoffs more hobbled and exhausted in recent years, resulting in less than optimal performance. Of course the playoffs showcase the most intense and dramatic basketball of the year, but I’d also like to see the playoffs feature the best basketball reasonably possible.
So how do we make that happen? I see a few potential changes to consider. To begin, it’s important to recognize that the two major components of a grueling schedule are (1) heavy travel and (2) minimal rest, often in combination with each other. The league has done well to reduce back-to-backs (B2Bs) from around 20 per team to a little over 16 per team over the years, but it remains true that the vast majority of back-to-backs involve travel between games. This is a major difference between the NBA and the NCAA, where teams routinely play multiple consecutive days in conference tournaments but always in the same location.
Less than 5% of B2Bs take place entirely on a team’s home court, when random chance would put that number around 25%. This indicates a league-wide preference for road B2Bs in scheduling. I can see certain advantages to that method—namely creating additional off days at home for team practices and limiting organizational expenses like hotel costs and meal allowances that are only incurred on the road—but that can’t be good for player health. From a player’s perspective, there’s nothing more draining than playing a game one night, hopping on a plane for a few hours, checking into a hotel between 3 and 4 in the morning, struggling to get a decent night’s sleep, and then playing another game. I feel jetlag flying a few hours and then sitting at a desk or even on a couch the next day; imagine how it must feel to replace that sitting around with sprinting around a basketball court.
When teams play 4 games in 5 nights with travel after every game, that feeling is compounded. And most 4-in-5s do in fact involve travel after every game. The Bulls recently finished one such stretch, where they won the first game and somewhat predictably lost the next 3. The Warriors are now finishing up one of the most brutal 4-in-5 stretches imaginable, where they not only travel between every game (for an average of nearly 3 hours per flight) but actually play each game progressively earlier. Using their home time zone, they had a game in LA at 7:30, followed by a 6:00 start in Salt Lake City, then Memphis at 5, and now a 4:00 tip in Minneapolis. If I were in charge of the team I’d be tempted to leave the whole closing lineup in Memphis rather than bringing them along to Minnesota, particularly considering that their next game on Tuesday is back in New Orleans.
So my first scheduling recommendation would be to institute a preference for no-travel and low-travel B2Bs. You may be thinking that it’s difficult to institute a league-wide preference, but it actually isn’t. Currently the NBA partners with KPMG to optimize its schedule based on certain league-defined constraints. A group of league officials (I don’t mean refs) working closely with team marketing and business operations departments provides a list of constraints, such as the Spurs not playing at home when the rodeo’s in town and no team playing 3 days in a row, and KPMG’s system mathematically determines the schedule. Certain of the constraints are absolute while others are mere preferences, which are assigned different penalty values according to their relative priority. The league could simply add a penalty for travel during a B2B and higher penalties for travel greater than say 500 miles and travel a time zone ahead, each of which have a negative effect on rest.
Rather than writing every new scheduling constraint into the CBA, the CBA could guarantee the players’ association a representative on the committee that determines the constraints, with certain related rights and approvals.
I’d also at least explore the idea of shortening the schedule by 5-10 games. Players such as LeBron, Kobe, and Dirk have advocated for fewer regular season games to afford more rest days and require less travel over the course of the season. The NBA’s travel demands are greater than any other major sports league, including the NHL. The reason the NBA schedule is more brutal than the NHL schedule is relatively straightforward: the NHL season starts earlier and therefore fits the same number of games into 1-2 more weeks, resulting in fewer B2Bs and more optimized road trips. The NBA schedule has too many inefficient 1-game home stands and road trips, such as Boston’s 1-game trip to Miami a couple weeks ago or OKC’s alternating home and away games in the opening weeks of 2015-16, that tack on extra travel miles.
As a rule of thumb, every two days added or 1 game removed from the schedule eliminates one B2B. Therefore shortening the schedule to 72 games would limit each team to only a handful of B2Bs, which could all be of the no- and low-travel variety, and completely eliminate 4-in-5s.
Reducing the number of games is often viewed as a non-starter due to the loss of revenue that would result, and of course that’s a very important consideration, though I expect that any revenue loss would be much smaller than commonly perceived. With the new national TV deal taking effect, the majority of league revenue is now independent of the length of the regular season.
That deal alone accounts for 35-40% of the anticipated $7+ billion annual revenue going forward, and the associated national TV commitments could be fulfilled even if the NBA switched to a 58-game, English Premier League style home-and-home-against-everyone schedule. Sponsorships that are largely if not entirely untied to season length account for another 10-15% of league revenue, including Nike’s 8-year, billion-dollar apparel contract, and then you have playoff gate receipts and merchandising on top of that. Even if local TV deals, regular season gate receipts, and other arena revenues are entirely sensitive to the reduction in regular season games, with no positive price effects from the reduction in the supply of games, a 12% reduction in regular season games (from 82 to 72) likely amounts to a 5% revenue decrease at most.
If more rest leads to an even better product on the court, as it likely would, then increased demand might make up some if not all of that shortfall.
Yet I still suspect that cutting 10 games from the schedule would be considered too great a financial risk, so I suggest this alternative possibility: add 1 week to the regular season calendar and reduce the number of games to 76. Teams would then play 4 games against divisional foes and 3 against all other in-conference opponents, rather than playing some 3 times and others 4 times as they do now. Such a change would bring nearly the same advantages as a 72-game season in terms of extra rest and decreased travel, while providing the added benefit of giving “76ers” a double meaning.
3. Relax Trade Restrictions
In a typical season, most team payrolls are above the salary cap but below the luxury tax. I’d say that the CBA encourages this outcome by allowing teams to spend up to the cap and then fill remaining roster spots using exceptions. Even after the big cap spike this past summer, the majority of teams are still over the cap this year.
Since very few teams maintain substantial cap space during the season, just about any in-season trade is governed by the Traded Player Exception—CBA Article VII Section 6(j)—which allows teams without cap room to take on salary in trade, up to a point. Teams over the luxury tax line post-trade can only receive up to 125% of their outgoing salary in trade, plus $100,000. All the remaining teams over the cap but under the tax face a complex set of restrictions, allowing them to receive player salaries
no more than an amount equal to the greater of: (y) the lesser of: (A) one hundred fifty percent (150%) of the pre-trade Salary of the Traded Player, plus $100,000; or (B) one hundred percent (100%) of the pre-trade Salary of the Traded Player, plus $5 million; or (z) one hundred twenty-five percent (125%) of the pre-trade Salary of the Traded Player, plus $100,000.
This provision boils down to the following chart, courtesy of Larry Coon’s CBA FAQ #84:
I find these salary-matching requirements to be overly restrictive. Based on the above chart, it’s actually quite difficult for non-taxpaying teams to make 1-for-1 player trades, particularly when relatively low-salaried players are involved. A $1 million player can’t be traded for anyone making more than $1.6 million (150% + $100,000), meaning that you can’t acquire a former mid- 1st round pick by dealing a minimum-salaried veteran or even by dealing a late 1st rounder from the same draft class.
For a more concrete example, let’s take a look at the Raptors. You might be surprised to learn that the league’s most efficient offense thus far isn’t Golden State but actually Toronto. Yet thanks to a lack of rim protection the Raptors rank 20th defensively and therefore still look like longshots to knock off the Cavs and reach the Finals. The Raptors have reached this point with a phenomenal backcourt—Kyle Lowry, DeMar DeRozan, Cory Joseph, Terrence Ross, and Norman Powell have all the guard minutes covered—and a questionable rotation of big men.
As a result, the Raptors may be interested in trading last year’s first round pick (#20 overall), Delon Wright, a point guard who showed a lot of promise in limited minutes as a rookie but hasn’t played yet this year due to offseason shoulder surgery. There are probably plenty of teams interested in Wright who would be willing to send over a decent rim-protecting big man in return. Unfortunately it’s unlikely they’d be allowed to complete such a trade straight-up. Less than 20% of the players in the league could be traded for Wright 1-for-1 under the existing rule.
Wright’s $1,577,280 salary dictates that any returning player must earn between $984,853 and $2,465,920 for cap purposes this season. He couldn’t be traded for Willie Cauley-Stein ($3.55M) or any other player taken in the top 10 picks of his draft class, nor (on the other end of the spectrum) could he be traded for anyone playing on a 1-year minimum contract, presuming the Raptors’ trade partner is over the cap. For instance someone like Terrence Jones, a 4-year veteran on a minimum contract with the Pelicans, only has a $980,431 cap hit despite an actual salary of $1.05M [the league pays the remainder of his salary] and thus can’t be traded straight-up for Wright.
In order to trade Wright for a rim protector, the Raptors likely would then need to construct a larger deal, which includes other players purely for salary purposes—an outcome that I find problematic for multiple reasons. When you include players for salary purposes, a deal becomes less efficient. Rather than each team exchanging a less-valued player for a more-valued player, with the likelihood of a better opportunity with greater playing time for all involved, a team will often end up trading away a player it values more highly than the receiving team. That’s bad for both the team and the player. Moreover, unbalanced trades are particularly worrisome given that every team in the league has reached the full 15-man roster limit. Any unbalanced trade requires some player to be waived, often based on salary considerations more than any other factor. Strict salary-matching requirements represent extra obstacles to an already-difficult process, making beneficial trades less likely to occur.
In this rising-cap environment, there’s yet more reason to relax salary-matching constraints. Considering the massive inflation over the past few years, you likely can’t even trade a player signed in 2014 free agency for a similar player signed in 2016.
To address this issue, I propose simplifying the constraints on non-taxpayers by allowing them to receive in trade:
the lesser of (A) two hundred percent (200%) of the pre-trade Salary of the Traded Player, plus $500,000; or (B) one hundred percent (100%) of the pre-trade Salary of the Traded Player, plus $10 million
Under such a rule, the Raptors could trade Delon Wright straight-up for half the players in the league rather than under 20% of them. His new range for salary-matching ($538,640 to $3,654,560) would encompass not only the veteran minimum but also the rookie minimum, as well as Willie Cauley-Stein and anyone drafted after him.
The inflection point would move from $9.8M to $9.5M, or in other words, the new chart for non-taxpayers would look like this:
I’d continue to limit teams over the luxury tax post-trade to 125% of outgoing salary, plus $100,000. That way, taxpayers would be much more meaningfully restricted in their operations, compared to all the teams that operate over the cap but under the tax.
*Note: I originally intended to write a 2-part series on proposed changes to the CBA, but the parties suddenly reached an agreement while I was working on Part 2. My other changes would have been (4) strengthening ties to the D-League, (5) wearable technology / biometric tracking guidelines, and (6) a cap-smoothing mechanism.
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