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How To Prevent A Catastrophic War Between Owners And Players In 2011

Very dark skies lie on the horizon for the NBA, its players, and for basketball fans.

The NBA collective bargaining agreement (CBA) is to be renegotiated in 2011, and all signs suggest the owners will attempt to make a series of fundamental revisions, including the possibility of a ?hard cap,? similar to what is found in the NFL. The economic crisis cum depression has left some, perhaps many, owners exposed and in apparent financial jeopardy. Revenues are continuously decreasing as some arenas sit half-empty and advertising is drying up. It is almost certain the players will oppose these proposed changes, as they will be all about reducing their incomes to the benefit of the owners. Any way you slice it, to use yet another metaphor, the waters look pretty treacherous for the NBA and its fans in the not-so-distant future.

As fate would have it, I have been reading an advance draft of Ed Garvey?s unpublished memoir over the past few weeks. Garvey was the visionary leader of the NFL Players Association who led the famous 1982 players strike. Garvey was the first to understand that in an industry that is both a monopoly and a monopsony ? the NFL was the only professional football league to sell the product to fans and hire players -- the traditional management-labor system, based upon quasi-competitive markets, is flawed and inadequate. The NFL players put forth the revolutionary demand to have the NFL owners turn over to them 55 percent of the league revenues, which the players union would then allocate to its membership. The players would then have a stake in the league?s success, and labor struggles and conflicts would all but disappear.

At the time, a very unsympathetic sporting press characterized Garvey as a bomb-throwing radical and possible terrorist intent on destroying professional football, if not motherhood and the constitution. Ironically, the NBA adopted one of Garvey?s basic premises when it developed the salary cap a few years later. As then-commissioner Larry O?Brien joked with Garvey: ?When you proposed a guaranteed percentage of the gross revenues, you were a communist. When I propose it, I am an enlightened businessman.?

The soft-salary cap system has served the NBA very well over the past 25 years. It has allowed players? salaries to skyrocket and has kept franchises is the black. It has also allowed teams to retain their stars, and given the sport a stability for fans that has eluded baseball and football in recent years.

But the system is increasingly problematic today because of the economic crisis. As total revenues decline (possibly sharply) for the next several years, in a deflationary environment, the long-term salaries the owners are obligated to pay will weigh heavily upon them, especially those contracts for players who are not producing anywhere near what they are being paid.

?There?s a lot of changes on the horizon,? Timberwolves coach Kevin McHale recently said. ?I think good changes. I think that the whole thing has taken on a life of its own. I think our guarantees are way too long and way too much money. Corrections need to be made. We?re kind of in the Fannie Mae/Freddie Mac era. What do they call them, sub-prime loans? There are some sub-prime contracts.?
In the current system, players rationally want to protect their long-term guaranteed deals, and these are increasingly unacceptable to the owners. They also are going to be understandably reluctant to let their share of the pie decrease. Something has to give.

Is there a solution to this impasse? Can we avoid another deadly players strike or owners lockout, like took place in 1998 or that devastated the NHL and major league baseball over the past 15 years?

The answer is yes, but from the looks of things at present, only if the NBA owners and players are willing to radically change the nature of the CBA to acknowledge the problems that have emerged in these times of depression. Normally, this would be close to impossible, but because we are entering a severe and unprecedented crisis, the opportunity now exists to put the NBA?s salary structure on much sounder footing, in a way that benefits both owners, players, and fans.

To do so, the NBA has to scrap the current system in toto and go the ?full Garvey.?

What do I mean by this? The league needs to eliminate individual contracts between players and teams, and establish a salary structure that encompasses every player. Agents will play a smaller role, but I doubt many people will shed tears over that.

To be accurate, what I propose is a modified ?full Garvey,? because the NFL plan basically distributed income equally among the players. That does not make much sense for a sport like basketball and would be a nonstarter with the players. The operating principle has to be to distribute the income to the most deserving players, with fairness in mind.

Both sides will have to compromise, but if they have patience and vision both sides will gain, and the future of the NBA will be on very solid fiscal footing.

What do the owners get with the modified full Garvey? The owners can have their financial flexibility, such that as their revenues decline, their labor costs do, too. They will not get hosed paying massive long-term contracts in a deflationary depressed economy. General managers can build rosters ? make trades, sign free agents -- without any concern about salary. The ?capologists? will be out of work. It will give the players added incentive to see that the league succeed, as they will all be the direct beneficiaries of increased revenues. They will become full partners with the owners.

What do players get with the modified full Garvey? Players can guarantee that they will continue to get the same percentage of revenues they currently get, even if many teams are struggling and eager to shed salaries and pay out well below the cap. They get depression protection, too. Also, players will be able to use free agency more readily, and go to whatever team wants them. Salary concerns will not be a factor at all for individual teams as they recruit free agents. This is a huge victory for the players. It is a mixed blessing for fans, so steps have to be taken to prevent anarchic free agent hop-scotching.

In broad terms, the league should maintain the current amount ? 57 percent of the basketball-related income (BRI) ? effectively allocated to player salaries, when the escrow system is taken into account. This will become a hard cap, with 54 percent of BRI going to the salary pool for players, 3 percent going to an account to cover seriously injured players, and the remaining 43 percent going to management.

The big change the modified full Garvey introduces, is that player salaries are shifted almost entirely away from dead weight long term contracts, the kind of which proliferate in the NBA, to the players who are actually producing on the floor. This gives both sides the flexibility to make the modified full Garvey a success.

Above and beyond the salary pool, individual teams will be permitted to take money from their own revenues to retain their free agents, and also their superstar ?franchise? players. These expenses will be entirely optional, and strictly limited, as I discuss below.

First, let?s be a tad more concrete about what the modified ?full Garvey? approach means. At its heart it means that the league and players set up a salary structure out of the revenues set aside to players that determines every player?s salary.

Let me provide an example of how a modified ?full Garvey? model might work. Let me state emphatically that what follows is simply a prospective model meant to demonstrate how the system could function. This is presented for illustrative purposes, not as the final version to be voted upon. (I round the numbers slightly, so they may not add up exactly.) One could adhere to the principle behind the modified ?full Garvey? salary plan, and use other criteria, such as a player?s experience, in determining salaries. I have used the criteria I think most fair and adequate, but this is obviously a subject for study, debate and negotiation.

For sake of discussion we will use the revenues total for the 2008-09 season. Fifty-four percent of BRI comes to $1.864 billion dollars. That is the pot of money we work with. (Having said that, it should be remembered that BRI is almost certain to decline or stagnate annually for at least the next two or three years, if not longer. In that case the pot is going to be smaller, regardless of what salary plan the NBA adopts in 2011.)

Player salaries will be determined by three criteria:

1. Base/performance pay based upon how many minutes a player plays (70 Percent of total, or $1.305 billion)


2. All-Star pay to reward the better players in the league (20 percent of total, or $373 million)


3. Team pay, to reward players on the best teams (10 percent of total, or $186 million)

Base-Performance Pay: Every team is allocated 12 full salary slots, and then three half-salary slots, for a roster of 15. The three players on the 15 man roster who are on the 12 man game roster the least get the ? of the base salary.

If a player only plays part of a season with a team their salary is prorated accordingly

The players who play the most deserve to be paid more. Most teams have rotations that run no more than ten deep, so the 300 players in the league who play the most should be compensated. The criteria for this allocation is strictly the average number of minutes player per-game, for a minimum of 55 games. (If a player plays less than 55 games, their total number of minutes is still divided by 55 to determine their average. A DNP-CD counts as a game played.) If a player is injured for as much as 30 percent of a season he is not penalized.

Players ranked 1-100:      $6 million each

Players ranked 101-200:  $4 million each

Players ranked 201-300:  $2 million each

Players ranked 301-360:  $1 million each

Players ranked 361-450*: $500,000 each

* the last three guys on each team?s 15 man roster

All-Star Bonus Pay: These will be determined by MVP votes and all-NBA team votes. The top 25 vote-getters in the MVP balloting will get paid bonuses. There will be ten all-NBA teams for each conference, so 20 five-man rosters and 100 players (two-thirds of all starting players in the NBA) will get rewarded. The voting procedures will have to be determined in the CBA, with the players and coaches the likely voters. Voting should be done immediately after the regular season so as not to penalize players on lottery teams. The top 100 players will be rewarded, sometimes handsomely.

MVP voting (25 players covered):

1st-5th:     $4.5 million each

6th-10th:   $4.1 million each

11th-15th: $3.7 million each

16th-20th: $3.4 million each

21st-25th: $3.0 million each

All-Conference (100 players covered):

1st team EC & WC: $4.5 million each

2nd team EC & WC: $4.1 million each

3rd team EC & WC: $3.7 million each

4th team EC & WC: $3.4 million each

5th team EC & WC: $3.0 million each

6th team EC & WC: $2.6 million each

7th team EC & WC: $2.2 million each

8th team EC & WC: $1.9 million each

9th team EC & WC: $1.5 million each

10th team EC & WC: $1.1 million each

Team Performance Pay: Players on the best teams should get compensated for contributing to a winning team. These shares are allocated equally to players 1-12 on a roster, with half-shares to players 13-15 in minutes played. Players on the 8 best teams receive compensation, with the better teams getting the larger shares. The groupings are determined by how a team fares in the playoffs.

Players on Teams 1-4: $1.7 million each

Players on Teams 5-8: $860,000 each

If you apply this system to actual NBA players this season, for example, you will see that the players fare well. When you factor in the ?franchise player? bonus, to be discussed below, the truly great superstars get raises: LeBron James, Kobe Bryant, Dwight Howard and Chris Paul will all make at least $20 million. The 20th-25th best player, an all-star but not a superstar, would get in the $12.7 million to $14.4 million range. From there players? salaries would head down to the 100th best player, who is getting in the $7-9 million range, depending upon how his team fares.  

The lower-level starter ? not a top 100 player -- and the first two or three subs off the bench, would make between $4 million and $6.7 million.

The journeyman deep rotation player, the 9th and 10th guy in the rotation, would make around $2 million, plus their team bonus.

The base pay for rookies who don?t play and marginal roster guys would be about the same as it is today, unless they were on a playoff team, then it would be better.

For most players, this will be a better deal. At worse, it will be a wash.

Six examples: From the Big Three to Powe, Perkins and Rondo

Consider the team I follow most closely, the Boston Celtics. Look at how the modified full Garvey system would affect their salaries if it applied this year.

Kevin Garnett is an anomaly, because he has a grandfathered salary of $24 million this season, based on an earlier CBA. His salary next season is $16 million, and that is a more realistic comparison. KG?s salary under the above plan would range from $15 million to $16.3 million.

Paul Pierce and Ray Allen each have salaries of $18 million. Under the above plan, Pierce and Allen would range from $10.5 million to $14.8 million.

So the Big Three lose out, right? Not necessarily. When one factors in the ?franchise? and free agent bonus money listed below, that would possibly add several million dollars to their incomes. These guys do not come out ahead, but they do not lose. And if they each have serious injuries, under my plan, as I discuss below, they would keep their high salaries for two additional seasons.

In addition, if there is any discernible trend in NBA salaries over the last year or two ? a trend almost certain to continue ? it is that players who are not top 20 players overall will no longer be getting max contract deals. No matter what happens in the next CBA, it is unlikely that outstanding players like Pierce and Allen will get paid at the same level as they have been in the past. So they may well come out ahead here.

So who unequivocally wins with my plan? Just about every other productive player in the NBA.

Leon Powe has become a solid and important contributing rotation player off the bench for the Cs. He may never be a starter in the NBA, let alone an all-star, but there is going to be a place for him. He is in his third year and has a salary of $797,000. By the above plan, Powe?s salary this season would be between $4 million-$5.7 million depending upon how the Cs did in the playoffs.

Kendrick Perkins has become a quality center for the Celtics. He will possibly make the all-Defensive second team this year. He has already been in the league through the rookie salary system and now makes $4.1 million. By the above plan, factoring in that Perkins is one of the best five centers in the eastern conference, Perk will make between $7 million and $9.1 million.

Rajon Rondo has emerged as a tremendous point guard in his third season. His salary is $1,315,000. He is among the best four point guards in the east, a likely member of the all-defensive team, and could conceivably end up in the top 25 in MVP voting. By the above plan, Rondo?s salary would be between $9.4 million and $14.8 million.

Defenders of the status quo acknowledge these guys are underpaid, but say they will get theirs down the road. Later in their career they will get what they are worth. Well, why shouldn?t they be paid what they are worth now? They have earned it now. What if they rip up their knees or get in a car crash and never get to cash in down the road? Then they are out many millions of dollars. And if they are good down the road they will keep getting paid exactly what they are worth down the road. The only way they lose is if they could sign a huge long-term deal and then begin to play at a much lower level, a la Wally Szczerbiak, Raef LaFrentz, Jerome James, Eddy Curry, Baron Davis, etc. etc. Do we really want a salary structure that funnels money to guys who are ridiculously overpaid and/or over the hill at the expense of the guys who are playing well?

Isn?t that insane? Especially in a time when total revenues are contracting, and those dead weight contracts are still on the books, taking money away from deserving players?

Seriously Injured Players:

There is one aspect of the modified full Garvey system where the players have legitimate concerns: What about players who get seriously injured, such that they miss most of a season or even have their careers derailed? Without a long-term deal, Grant Hill, for example, would have lost a fortune to injuries, through no fault of his own. It is one thing for a veteran player to get a lower salary because his play deteriorates, but it is another thing for a player to get clobbered because he is injured.

In this modified full Garvey plan, three percent of BRI -- $103 million ? is set aside to pay the salaries of seriously injured players. If a player misses over 50 games due to injury, they are automatically eligible for a salary that is 100 percent of the previous year?s salary, or the average of the previous three seasons? salaries, whichever is higher. If a player misses over 35 games, they are eligible for 90 percent of the previous year?s salary, or the average of the previous three seasons? salaries, whichever is higher. If injuries persists another year, and the player does not play more than 40 games, the player gets 80 percent the second season. Again DNP-CDs count as games played; this is for guys who are truly injured.

So seriously injured players get two full seasons of pay at close to their peak salary after they have stopped being productive players. After two years the player should both be healthy and back in action or else the recipient of insurance benefits for a career-ending injury. In combination, the players are very well covered.

If the modified full Garvey system were in effect now, Elton Brand as a free agent could have moved to any team that wanted him without any concerns about the salary cap. Let?s say he decided upon the 76ers. If he suffered a career ending-injury, he would have had two more seasons at close to his peak pay. Then he would have had his insurance policy. He would never have to work a day again in his life, nor, possibly would any of his heirs. And the 76ers would not have his contract albatross around their neck.

This will be especially good news for you productive young players. Let?s say Rajon Rondo earned $12 million under the modified full Garvey system this season. Were he to rip up his knee in the June 2009 NBA finals and not be able to return for two seasons, he would be paid an additional $22 million before he would either be healthy to return or enter retirement. Under the current system he would make pennies compared to that and be in a far worse situation.

Two issues arising from this model:

There are many problems that emerge from the modified full Garvey model, which would need to be resolved. Two spring immediately to mind.

First, there are logistical issues of when and how players get paid. For the base salaries and the injury fund, the league could collect the money and make all the payments, in collaboration with the union, or by itself. Or the individual teams could pay their own players, and receive funds from the league (or make payments to the league) if their player budget is greater (or lesser) than the league average. Teams would not be penalized for having lots of all-stars or benefit by having a roster of duds, since payment of salaries will be done out of a centralized system. There is no incentive for a team to have a low-paid roster. When the players would get paid is another matter to be resolved. But this is why lawyers were invented. It is solvable.

Second, there is the transition from the current system to the full Garvey. It will be tricky at points, because the old contracts will have to be grandfathered in. Again, this is where the lawyers get a chance to fatten their billings. The sooner this deal is agreed upon, the easier the transition can be mapped out.

Free Agency

There is one major problem with the modified full Garvey system as it presented so far: players technically will be free agents after every season and can go to any team that will take them. This would be nice for the players in the short term, but it would be a nightmare for the quality of play, for fan enthusiasm and commitment to their teams, and ultimately to the growth and popularity of the sport. The hallmark of the NBA system of the past 25 years has been its ?Bird? rule, which has permitted teams to hold onto their best players. If the great players of the league, not to mention the not-so-great players of the league, are switching franchises every year or two, the chaos would be potentially disastrous. I, for one, would lose interest in the sport, and I am a registered NBA fanatic. Fans need to identify with a team core of players or else the league?s popularity will flounder. This is important for all the stakeholders.

Because free agency would not be about raising a player?s income as much as it would be about finding a more enjoyable work location, this is an area where a compromise is possible. This is what I propose.

When a player is drafted or joins an NBA team for the first time, he remains property of that team for four seasons. (He obviously can be traded or released long before four years is up, and if he is released he is can join any team that wants him. Same as today.)

Any other player who signs a contract with an NBA team, meaning any free agent who joins a new team or extends his stay with his current team, is also obligated to stay four full seasons with the team before exercising free agency again.

So right away, we will have stability built into the system. Players spend the first four years with one team, and then make four-year commitments to the same team or a new team thereafter.

They can be released at any time by their teams and become free agents and their clocks start anew. They can be traded, and because of the modified full Garvey system, they can be traded to any team regardless of anyone?s salary.

Once a player has been in the league for ten seasons, or turns 31 years old, whichever comes first, they have the right to limit their obligation to a team to three years when they re-up or move to a new team.

But that is insufficient.

In addition, teams should be allowed to spend $6 million annually of their own money to pay bonuses to their own free agents to make them formally commit to remain with the team. A team cannot use this money on other teams? free agents, only their own. (The figure is set by making it equal to 10 percent of BRI. Again, though, this money, unlike the salary pool and injury pool, comes from the teams? own bank accounts.)

After a player has fulfilled his four-year apprenticeship, his old team can offer him some or all of the annual $6 million budget to remain on the team. If the player accepts, he is making a commitment to remain with the team and forego free agency for an additional four years. (For the sake of planning and stability, a team can ?extend? a player after his third season, which effectively keeps him with the team for eight seasons.) The team is making no commitment to keep the player for four years; the player can be released or traded, but he gets to keep the bonus money. If a player is traded to another team, his rights to be extended by the team that trades for him go with him. It is in effect a four-year contract.

To be clear, if a team gave a player, say, a $3 million bonus to remain with the team, it would pay the player one-time a total of $3 million for the four-year commitment. It would not be an annual gift. The player would have to wait for four seasons to pass by before he could be a free agent and be eligible for another retention bonus.

Therefore, if a player decides to leave his old team, bonus or no bonus, and he signs with a new team, he makes a commitment not to file for free agency until he has played four seasons with the new team. Such a free agent who shifts teams is ineligible to collect a bonus from the new team until he has played four full seasons for that team. This gives the old team a decided advantage, but the money involved is not so great as to make players stay in places when they want to leave town. The lure of increased playing time is powerful in the modified full Garvey system. The new team can trade the player, and if it does his four year commitment is traded with him. Of course, the team can release him at any time, at which point he would be a free agent with a fresh clock.

Teams can bank their bonus money to use in a later year. But it can only use the bonus money on its own players. It does not need to spend the bonus money.

Players will still exercise free agency, and a player who wants to play on a specific team will be able to do so, assuming the team wants him. But this will give teams leverage to plan ahead and keep their core together. It will connect fans to their teams. And the modified full Garvey system will make it unlikely that a team will collect an inordinate number of great players, because the system gives players incentive to be on teams where they will have the opportunity to play. The franchises in the smaller and/or less desirable locales will remain attractive.

The Superstar Premium

This free agency system has one flaw: the cash bonuses will be attractive to most players, and an incentive to stay put, but they will be less of a lure to the genuine superstars. Because superstars have such an inordinate influence over the outcome of basketball games compared to other team sports, it is imperative that the CBA be structured in such a way as to permit small market teams to retain them. Otherwise, they will logically end up disproportionately in places like New York and Los Angeles where marketing opportunities dwarf those found elsewhere.

The solution: allow every team to "franchise" one player, a la the NFL, and allow the team to pay that player $6 million annually out of its own pocket above and beyond what he would earn otherwise. (The figure, with the free agency retention bonus, is set at six percent of BRI.)  Unlike the NFL, the ?franchised? player would have to agree to the designation. If the player declines the offer, he can go elsewhere as a free agent. But he would not be eligible to be someone else?s franchise player until he had played for that team for two years. (If a player gets the franchise tag, he is ineligible for the retention bonus funds mentioned above. That money can be used on the team?s other players.) A franchise player can only be traded with the player?s permission, because the franchise designation cannot be traded.

If a team retracts a player?s franchise status ? say, perhaps to shift it to someone else, or just to save money ? the now ex-franchise player has the right to become a free agent immediately.

If a team does franchise a player, and the player agrees, the team would lose its next first round draft choice. This way teams, especially rich teams, will not use the franchise tag indiscriminately. It should be reserved for the LeBrons and Howards and Bryants and Wades and Pauls, the guys who are first-team all-NBA superstars capable of leading teams to NBA championships. What it means is that these guys will generally be making incomes in the $20 million - $23 million range based on current revenues, even if playing away from the lights of Broadway. Nice work if you can get it.

If a team offers a player franchise status, and he rejects it and leave for another team, the team is eligible for a bonus first-round draft pick in the middle of the first round, immediately after the lottery picks.

All franchise maneuvering and free agency bonuses should be restricted to the off-season. It should be emphasized that both the free agency bonuses and the franchise premium are voluntary to teams and paid out of their own pockets. In truly hard times, teams can opt to not participate, and this could be a Godsend for a struggling franchise in need of liquidity. A team could remain formidable if it elected not to pay out any bonuses for a few years. But the expenses are such that it is probably most teams would find these expenses worth it business-wise, especially in flush times.

It is also worth noting that general managers would need to fine-tune their skills to work with the free agent bonuses and franchise accounts as they build their rosters. It would give player agents justification for their existence. This would give amateur GMs, like yours truly, plenty to chew on as we follow the teams and the sport we love.

Conclusion

The modified full Garvey salary system is offered as way for NBA owners and players to be protected from economic stagnation and depression, and for the revenues generated by the NBA to be distributed to the most deserving players.

The numbers I provide herein may be misleading because the total BRI is almost certain to decline in the coming years, but it gives a good sense of what salaries would be like. It is a system that would work in good times and bad times, making teams solvent and players well-compensated.

It is a radical system that would have been laughed off only a few months ago. But we are entering desperate times where conventional approaches no longer work. The NBA owners and players need to be open-minded and creative and look long and hard at the modified full Garvey plan. It looks to me like the most rational, stable, flexible and fair solution to the difficult problems before them. And it sure beats a lockout or strike based on trying to modify the present deeply flawed model that appears impervious to reform. Such a work-stoppage might do grave long-term damage to the sport, and still not resolve the underlying problem.

 

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