NBA Salary Cap Part 2: Solution

This is Part II of a two-part series.  To read Part I, click here.

So now you know how the new CBA is hurting competitive balance in the NBA. The small market teams just can't hold on to their own stars that they've developed. But before we address the issue, let's examine what we want an idealized NBA to look like.
No league is more popular or more balanced than the NFL. Part of this is because teams have roster sizes of 53, compared to 15, and just intrinsic differences between the game of basketball and football. But a large portion of this parity is owed to the fact the NFL features a hard cap, while the NBA features a soft cap with a luxury tax. The NFL playoffs almost always features a last place team from a year ago, and turnover rate for playoff teams is almost half. Seemingly every team in the league has a shot (except the Jaguars, but I digress).

The New York Jets just traded their best defender, Darrelle Revis to Tampa Bay because he was too expensive during a rebuild. A New York team traded their best player. To Florida. Because he was making to much money. This would never happen in the NBA. But a hard cap does not discriminate, and roster management is determined by your savvy, not by the size of your check book. Small market teams like Green Bay have won a title recently and are always contending. The best franchises are competitive every year, even if they aren't quite a mortal lock to make the playoffs.

If a hard cap is out of the question, I think the NBA should scrap the max contract. But only scrap the max contract for teams trying to resign their own players, a la achieving full "Bird rights." This way Orlando can offer over 30 million dollars annually to keep their star center Dwight Howard, while Houston can only offer around 20. This also likely prevents the formation of super teams like the Heat's big three, as one of them would have to take a serious pay cut to fill out a roster. If Cleveland could offer LeBron 35 million a year while Miami could only offer 20, he might be less inclined to leave. It might not be all about the money for Lebron, who can make another 20 million a year off the court, but for guys like Carmelo, Chris Paul, Dwight Howard, it could be a huge incentive to resign.

You always hear the incumbent team can offer so much extra money, but that's deceptive. They can offer an extra year, but take that away (elite players will just get a max the next time around and make up the extra year) and the difference is a lot smaller. That, combined with favorable tax rates in states like Texas and Florida, can completely mitigate the difference.

Let's look at Dwight Howard. The contract he signed with the Rockets is worth about $88 million over four years with an early termination option (ETO) after three years. This means Howard can activate his ETO and just resign with the Rockets, assuming they still want him, and resign for more money. In fact, in three years Howard is eligible for his five year max deal that he passed up in Orlando. So yes, its a gamble that Howard will command that max contract three years down the road, but Dwight can still get max money even though he didn't re-up with the team that drafted and developed him. Does this seem like the new CBA is working?

Now in my ideal NBA, Houston can only offer four years (like in the real NBA), but Orlando could offer six. Or seven. Hell, they could offer eight. Orlando can offer whatever they want, since they have full Bird rights. They could offer 30 million a year, if they so chose. But the key here is only the max deal amount counts against the cap. So if Orlando wanted to offer 30 a year, it would only count against the cap as 22 a year.

Another issue is a free agent signing with a new team can obtain a max deal in three years, less than the length of max deal. The issue with the bird rights is they apply to non-max guys as well (see Jeremy Lin) as they allow a team to go past the cap to sign their own player. A player should have to ride out the full length of his contract before these full Bird rights activate.

With David Stern retiring soon and Adam Silver stepping in, a new CBA could be a perfect time to make major changes. But, does the NBA feel the need to make these changes during a new height of popularity? Only time will tell.


This is Part II of a two-part series.  To read Part I, click here.

NBA Salary Cap Part I: The Problem

This is Part I in a two-part series.  To read the conclusion, click here.

After amnestying former math major Metta World Peace, the only contract on the Lakers books for 2015 is Steve Nash. In today's NBA, cap space is sacred. GM's wheel and deal, trying to clear their books so they can offer another max contract.

To contend it used to be an NBA franchise had to get bad enough to get in the lottery, get lucky enough to win it, draft carefully for years, and develop their players. The San Antonio Spurs, Thunder, and recently the Indiana Pacers, are examples of this philosophy. But the Heat, Knicks, Lakers, Rockets, and KG era Celtics are examples of a new way to rebuild- to varying degrees of success. It used to be the best franchise were card counters, playing the odds to the best they can. Now it’s just about buying out the best hands.

Draft picks are no longer the most sacred asset for building a contender. There's been a paradigm shift. Now draft picks are levied to get precious cap space. The Knicks give away draft picks like candy. Yet the team has gone from a bottom feeder to top two in the East, while only hitting on one pick in the process- Iman Shumpert. The Rockets look to be in the middle of a similar situation, if you swap Carmelo Anthony for Dwight Howard and Shumpert for Chandler Parsons. Although the jury is still out on their latest picks, the least important vertex of the drafting-free agency-trading triangle has undoubtedly been drafting.

This is unfathomable in any other sport (except maybe for the Yankees). The same goes for the two time defending champion Heat. Although Dwayne Wade was home grown, LeBron James, Chris Bosh, and Ray Allen, were all free agent signings or sign and trades. The Heat's most important draft pick among building this dynasty (besides the ones they traded away) was Norris Cole. The Rockets will have two players making max money on their books who were both drafted and developed by smaller market teams.

Could This Ever Happen?

Now the Lakers are taking a similar gamble. They believe there is a chance they could sign Lebron, Melo, or both and are willing to sacrifice the entirety of the 2014 season to do so. Whether they have a chance at either is a topic for another column (spoiler alert: no).

The Nets are going for it. So much, in fact their salary commitments for next year exceeds $100 million, in a league where the cap is set under $60 million. Brooklyn won't be under the cap until the 2016-17 season, and it will be interesting to watch how newly acquired Paul Pierce and Kevin Garnett gel. Their owner is crazy rich, and teams like San Antonio, OKC, Indiana just can't go that deep into the luxury tax, as Brooklyn will be paying over 70 million dollars in luxury tax alone. The Nets total payroll obligations could touch $180 million. A team will be paying one hundred and eighty million dollars in a league where the cap is a third of that.

Although the goal of the new CBA was supposedly to help the balance of the NBA and prevent the big market teams from buying the best players, it seems to have done the opposite. It is certainly not impossible for small markets to win (as the Spurs just demonstrated), but their margin of error is a lot smaller. Even if a major market team has been plagued by bad drafting,it is easier for them to contend then their small market counter parts.

The result is major market teams are at a huge advantage. More troubling, small market teams are not keeping their home grown super stars. The luxury tax penalties are steep, but not steep enough to deter big markets for dipping into the tax to get another max guy. It's like an electric fence that hurts small market teams disproportionally when they try to run through it. 

The max contract is hurting the NBA. Or not. Ratings are up, and one of the best finals ever was played. The NBA has a real villain in the Miami Heat. Does David Stern or Adam Silver really want to change a winning formula?

This is Part I in a two-part series.  To read the conclusion, click here.