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.

Blogger Roundtable: The Best Commissioner in Sports

For the first Blogger Roundtable event of the semester, we asked some of our newest Sports Business Society bloggers the big question.  Who do they think is the"best" commissioner in sports today.  It was up to them to decide what "best" meant, and they came up with a variety of choices and explanations (along with one notable omission).

Read what they had to say after the jump:


Kevin Cole (CALS '15)- Roger Goodell, NFL

It is hardly uncommon to hear a negative sentiment about one of the commissioners of the four major pro sports leagues in America. Whether it is a function of media portrayal, individual personalities, the nature of the position, or some combination of factors, David Stern, Gary Bettman, Bud Selig, and Roger Goodell descriptions more often touch on words like 'arrogant', 'out of touch', or 'despot', than they do 'likeable'. However, setting popularity aside, the success that each has experienced with their respective league varies quite a lot- And in terms of league popularity, it's hard to argue with the job that Goodell has done for the NFL. 



Courtesy of www.businessinsider.com.

When Goodell began his reign atop the NFL in 2006, the league had already long been the standard for American professional sports. During his tenure, the NFL has remained at the top in the U.S., while furthering it's brand internationally. The global success is reflected by the influx of non-American NFL players (Ziggy Ansah, Margus Hunt, and Bjoern Werner all were taken in the first two rounds of this year's draft), games played on foreign soil (London, Toronto), foreign fan clubs, and the international coverage of the Super Bowl. 

 Goodell's rule has not been controversy free, however. His practice of being judge and jury for NFL suspensions and fines, along with the crackdown on excessive celebrations have been instrumental in earning the "No Fun League" moniker and simultaneously paint Goodell as a dictator. Needless to say, the replacement referees were nothing short of a disaster. However, while he has displayed iron-fisted tendencies, Goodell's has been relatively even with his punishments. His strict penalties not only hit players, but have extended to front offices and owners who have attempted to skirt the league's salary cap rules (see Redskins, Washington and Cowboys, Dallas, 2010). In summation, Goodell has held organizations, players, and coaches accountable for their actions under rules that he considers to be fair and just.

Matthew Hakimian (ILR '17)- Roger Goodell, NFL

Since taking the reins from longtime commissioner Paul Tagliabue in 2006, Roger Goodell has stood head and shoulders above every major American sports commissioner in large part due to his steadfast ways and persistent actions.   Various issues have arisen thus far throughout Goodell’s tenure that he has handled fairly well. Prior to the 2011 season, against all odds, Goodell remained cool in the face of pressure and was able to help orchestrate a deal between the NFL team owners and the NFL Player’s Association which saw the establishment of a new collective bargaining agreement, and effectively avoided any missed regular season game in which each team would have certainly lost its fair share of revenue.

Moreover, Goodells has been a major supporter of player safety, which can be seen by the disciplinary actions he has handed down. Whether its through weekly fines to players such as Ndamukong Suh or James Harrison for illegal hits, or dropping down steep penalties on an entire organization such as the New Orleans Saints, Goodell has made a firm effort to protect the welfare of the players. More recently, the National Football League was able to strike a $765 million deal with a group of ex-players over concussion-related brain injuries. The agreement certainly could not have been made without the headship of Commissioner Goodell, and it was immediately seen as a big win for the NFL to have finally gotten this situation resolved. Whether it has been through his efforts to relocate an NFL franchise overseas or awarding New York/New Jersey with the first cold weather Super Bowl in 2014, Goodell has continuously sought to innovate his league. 

Sebastian Perez-Vargas (ILR '17)- David Stern, NBA

It's easy to find faults in every commissioner, but that's the benefit of hindsight analysis. Focusing on the positives, though, you have to marvel at what David Stern has done with the game of basketball since his appointment in the mid-1980s. 

Out of all of the American sports, basketball is the one that has globalized to the greatest extent --  to the point that it is the 2nd most popular sport globally. If any sport is going to challenge soccer internationally, it's going to be basketball, and that all started with Stern, MJ, and Nike in the 1980s. It's not just because of MJ, though. Other stars such as Kobe Bryant and LeBron James are enormous figures around the world. Stern has been at the center of all of this, pushing the game of basketball beyond American borders through marketing and outreach campaigns. 

The effect has been not just American basketball players penetrating international markets, but international players impacting the NBA -- from Yao Ming to Dirk Nowitzki to Manu Ginobili. More generally, the fluid and selfless European style of play has impacted the way basketball in the US is being played. The reigning two-time NBA champions, for example, follow a very European "smallball" style, with no real post presence. The globalization of the game of basketball that has occurred under David Stern has had an impact on the NBA both on and off the court.  

Jon Levitan (ILR '17)- Bud Selig, MLB

Major League Baseball’s Bud Selig is the best commissioner in America sports. Selig is not without his flaws, the 1994 strike, which cancelled the entire postseason and World Series, was disastrous, and he was late to realize the massive PED problem on his hands. Despite these flaws, Selig has done a remarkable job keeping his players happy while at the same time creating a system of incentives that maintains a level of parity, even as teams like the Yankees and Dodgers payrolls’ expand. Baseball’s wage system comes far closer to a true free market than any of the other American sports, and its few restrictions on unhinged capitalism, like the revenue sharing program and the luxury tax, make it possible for poorer teams like the Rays and Athletics to experience consistent success. 

This wage system, which guarantees all contracts and doesn’t restrict their length or cost, allowed MLB to be the only major sport to survive the most recent wave of CBA expirations without a lockout. While his sport doesn’t have the worldwide appeal that basketball does, Major League Baseball is beginning to grow the sport in non-traditional baseball countries like Brazil and Italy, which will allow the talent pool to grow, further increasing the levels of parity in the game. Selig should not be judged on mistakes like his handling of the steroid issue, which caused short-term problems for the game, but rather on his salary system, that simultaneously rewards players fully for their performance, yet also makes it possible for poorer teams to stay competitive with the financial powerhouses.

Well that's what our bloggers think. Do you agree? Did they miss somebody? Leave your comments below and answer the poll at the top of the blog to show us what you think.