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How a hard cap could hurt the Thunder

by Royce Young on July 4, 2011 at 2:01 pm 53 Comments

Ronald Martinez/NBAE/Getty Images

One of the biggest sticking points in the current labor negotiations is the issue of a hard salary cap. Owners want, players don’t.

(If you’re asking, “Wait, what’s a hard cap?” basically it’s a system where there’s no give over whatever max salary number the league sets. Currently, the league has a “soft” cap meaning teams can go over in certain situations. A hard cap doesn’t allow that.)

Most see a hard cap as a help to small markets. And for the most part, I agree. The playing field financially is leveled as big markets can’t pile up $20 or even $30 million over the cap (hello Mavericks) while smaller markets fear the wrath of the luxury tax.

A hard cap would help out in most ways because New York, Dallas, Chicago and Los Angeles wouldn’t be able to flex their checkbooks and absorb bad contracts at quite the rate they do now. No denying that.

But at CBSSports.com today, I couldn’t help but wonder how a hard cap might actually hurt small market teams, especially one like the Thunder.

I wonder about a team like the Oklahoma City Thunder, one of the smallest market teams in the league. The feeling is that a hard cap would help smaller markets compete because talent would get distributed a bit more evenly throughout the league. With teams unable to pay a bunch of guys on the roster $15 million or go $30 million over the cap line, either players would have to take a serious pay cut or go somewhere else.

Except in the case of the Thunder, a straight hard cap would destroy them.

Kevin Durant just signed a five-year extension that will pay him around $16 million a year. Russell Westbrook, an All-Star point guard at the age of 22, is eligible for an extension and would probably have it if there weren’t a lockout. He’s probably a max player or close to. So that would be another major mark on the cap for the Thunder. Then the other guys — Serge Ibaka, James Harden and Eric Maynor — all eligible for extensions next summer.

If the league has a stiff cap of even $60 million, how can the Thunder dream of re-signing these guys and keeping the core intact?

Answer: They can’t.

That’s been the Presti Plan since day one though. He wanted to draft a bunch of young guys and let them grow together. Let them progress, develop and become a team all together. And when they did, lock them all up long-term and have yourself a contender for the next decade. It’s worked. The Thunder just went to the Western Conference Finals with one of the youngest teams in the league and should be in the mix for at least the next five.

Unless of course they have to let a couple of their big pieces walk.

Again, let’s say the league goes with the $62 million hard/flex cap as proposed by the owners. Durant is hogging roughly $17 million of that. Say Westbrook gets $15 million a year. Harden is probably a $7-9 million a year player in the current system and Ibaka likely the same, maybe more depending on how good they perform next season (Westbrook wasn’t a max player until last year). That’s about $53 million between those four players and that doesn’t count Kendrick Perkins ($6 million), Nick Collison ($3 million), Thabo Sefolosha ($3 million) or Nazr Mohammed ($3.7 million).

The Thunder’s core is most certainly Westbrook, Durant, Harden and Ibaka. Those are the four long-term players Presti has a vision of carrying the team over the next 5-7 years. But with a hard cap, there’s simply not enough room to fill out nine other roster spots if you want to keep those four players. Even in a soft cap system it’s going to be a challenge.

(That’s why I wonder if Reggie Jackson is more of a contingency plan not to replace Eric Maynor, but maybe Russell Westbrook. But that’s for another day.)

Who knows what the NBA landscape will look like when the dust clears in this lockout mess. The players have taken a hard line on a hard cap and supposedly will refuse to back down. The owners though are committed in their efforts to get one. Yeah, it’ll reduce salaries. Maybe the system will stay the same but just instead of Harden getting a $10 million a year extension, he’d get a $6 million one. That’s possible.

But this is the NBA and just because a new salary system is in place doesn’t mean the league doesn’t have impulsive general managers that are ready to snatch away a player like Harden and give him that $10 million a year simply because they know the Thunder can’t go that high. That’ll be the world teams operate in. One where the Thunder Way is no longer the blueprint for small market building success.

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drew.mcneil
drew.mcneil 5pts

well lots of teams would be in this position. isn't the very obvious response to your post that a hard cap would reduce the amount of money that teams ACROSS the league can pay to an unchanging amount of players. payrolls will necessarily contract and players will be forced to settle for less, since no team will have the ability to pay them the amounts that could have expected under the soft cap of the status quo.

james1
james1 5pts

I think Crow is actually a computer.

DizzDai
DizzDai 5pts

Crow :Eliminate MLEs? Is that a smart idea? Maybe, maybe not. The details matter. If that class of players substantially decides to move overseas it might not be as good an idea as it seemed. No MLEs, maybe vets lose some incentive and play worse or play more selfish to try to get what is harder to get. Maybe the gap between stars and the rest of the guys become a very negative gulf and team play suffers. Everything can have side effects.

Give those players a league minimum based on their time with league instead.

dragonbug
dragonbug 5pts

@ okc baby
its like KD says about working hard and having skill vs big bucks and just raw talent. in my honest opinion KD and the thunder will have a ring before lebron and the heat.

bouzi4real
bouzi4real 5pts

Lol damn @crow ....just damn son.

okc baby
okc baby 5pts

Reading all this talk about cba/nba negotiations make me admire how Presti n company came about building this team. Thunder decide to grab young talent with superstar and great role players. Loyalty to the core and dynasty blueprint. Instead of just throwing money in guys faces like Big Market teams. That first ring will be so gratifying and admirable.

Cpt. C-note
Cpt. C-note 5pts

@ Crow
You rule!

dragonbug
dragonbug 5pts

andrew :Good lord Crow. Go walk the dog or something!

@ andrew
lol

andrew
andrew 5pts

Good lord Crow. Go walk the dog or something!

Crow
Crow 5pts

While the details matter and are still to be sorted out, I think it is probably ends up that this season and next season "might" be better chances for the Thunder to win big than 3-4 years from now. In line with my preference to focus on the near-term over that long-term "sustainable" future Presti has designed for.

Crow
Crow 5pts

Harden and Ibaka would probably when the time came be shooting for more than $7-9 million a year on their next deals under the current system. What they can get under the next CBA might be held to $7-9 million. It could possibly still be higher. Depends on the system and what they do in year 3 and 4.

Crow
Crow 5pts

(I'd assume a good number of teams already have revenue incentives for direct sales staff and maybe a few top execs but they could probably be made more intensive and broader. Team profit/loss incentives might be most appropriate for top execs but they might be useful more generally given that past revenue growth was apparently not enough to produce the desired outcome.)

Crow
Crow 5pts

(Fox bids for local deals but does so across the nation)

Crow
Crow 5pts

More equal spending would be desirable to most fans and perhaps it can be done right. But a lot of the recent NBA CBA moves have backfired.

If a team with a carefully lot of lower salary players plays and wins a title are fans going to applaud or change the channel and be bored? They got bored with the last Pistons group and they weren't totally thrilled with the Spurs.

If the lockout lasts long, it might hurt the next round of national TV deals. The NBA has had 3 main bidders recently (TNT, ESPN and FOx). If it were to go to just a serious 2 they will lose a ton of bargaining power and money.

Crow
Crow 5pts

Would the league be as strong as it is right now without recent huge money financed titles by the biggest local market Lakers and perhaps the next biggest national fan-base Celtics? I doubt it.

Is it more about money and entertainment or equal competition? A lot of the past suggests the NBA has been more about the former than the latter.

Crow
Crow 5pts

Impose a hard cap and expect increased competition and maybe you have more big markets who fail to have as much court success as their fans at accustomed to and maybe that backfires into revenue declines there offset a good share of hoped for but not guaranteed increases elsewhere and maybe it leads to weaker national TV ratings, especially in the playoffs.

The NBA being dominated by big market teams is not something that just happened by chance or is cute. It is the way it is to some degree because that was allowed and it worked to hold onto to national TV to the extent that they have. If there had been a hard cap earlier there probably wouldn't have been the 80s glory years that saved the league in some eyes.

Crow
Crow 5pts

Eliminate MLEs? Is that a smart idea? Maybe, maybe not. The details matter. If that class of players substantially decides to move overseas it might not be as good an idea as it seemed. No MLEs, maybe vets lose some incentive and play worse or play more selfish to try to get what is harder to get. Maybe the gap between stars and the rest of the guys become a very negative gulf and team play suffers. Everything can have side effects.

Crow
Crow 5pts

If ESPN can sell insider subscriptions, it might be possible for teams to do something similar. If they offered good stuff not available elsewhere. I know there are various level of access benefits to VIP ticket holders team to team but what is done right now might not be the outer limit of activity or revenue production. This might a fairly dangerous path but it is a further suggestion that creative / good management probably shouldn't get to the point where they say many are losing money.

It all comes back to Stern and the owners proposing and taking deals the last 2 times that weren't as smart for them as they thought they were.

Crow
Crow 5pts

If teams are so afraid of major contract mistakes and can't stop taking those risks and can't eliminate them, hypothetically they could go (if allowed) to the insurance or financial derivative markets and see if they could buy some sort of performance insurance. The offerings might be expensive and not that appealing but then again it could work for some teams in some situations.

Crow
Crow 5pts

I've tended in the past to be cautious about the Thunder's immediate prospects, in part because of youth, but if anyone puts them as favorite to win the West or even the championship next season I won't immediately or loudly disagree. They are in the mix and could even be leading edge.

Crow
Crow 5pts

For fans. Hopefully both sides will move enough to allow most or all of the season to occur. It probably will work out eventually.

If it didn't work out after 1 lost season and if no real change occur much after that, I'd be somewhat intrigued by about the possibility of the players forming their own league that they own fully or with TV and / or corporate sponsors.

The NBA dominates its market space and has lots of power because of it, but it is not 100% immune from a very damaging or fatal mistake.

dragonbug
dragonbug 5pts

it especially pains us as thunder fans cause we got to see our guys almost go all the way, so now were like @__@ YES!!!!!!! . im so anxious to see how our guys improved. I know russ has been working out, in his vegas interview he talked about how sore he was *thats good* and we havent heard anything on perk yet but im betting hes losing weight and healing up. Plus i wanna see what this new thunder facility looks like :P

Crow
Crow 5pts

Yeah, that is the bottomline.

dragonbug
dragonbug 5pts

i just hope everything gets settled. i want a season :( .

Crow
Crow 5pts

The two sides and the media are focused on the main give / take issues but I wanted to show that there are other strategies out there that could possibly also be a part of the overall long-term solution.

Crow
Crow 5pts

Not really. I haven't gone on a jag as often in the last 3-6 months but I've gone on longer in the more distant past. I probably won't go on long ones in the future but I made an exception here.

Another thing they could do is sell more vanity fractional ownerships, like the deal Magic Johnson got for his share of the Lakers. It would be the new super-sky box level of status symbol.

dragonbug
dragonbug 5pts

lol jesus crow. this has to be a new record for you :P

Crow
Crow 5pts

Over time, allow, maybe even encourage the move some of the weaker performer small market teams to the most promising currently unserved markets.

Crow
Crow 5pts

Make team and league executive pay partially based on team or league profit or loss.

Crow
Crow 5pts

Allow teams to accept buyout payments from foreign teams if the player agrees to go there.

Maybe allow teams to loan players for 90 days for money.

Crow
Crow 5pts

Make players kick in 25-50% toward their contract insurance premium. The risky guys pay more because they cost the system more.

Crow
Crow 5pts

If you really wanted to go aggressive they might lower the minimum age back to 18 and put together a high-class junior league and try to get some good TV deals for that and take money from the NCAA. You'd have to go in real big on this, a simple re-cast of the D-league wouldn't do it. But if you got 50 or more of the top 100-150 young players it might work.

Crow
Crow 5pts

Pooling some types of executive talent at the league level rather than having 30 sets of experts out at teams might offer cost saving opportunities and might reduce lagging performers.

Crow
Crow 5pts

Limiting max contracts to 3 years might be a pretty good idea, assuming other contracts get limited to 4.

Crow
Crow 5pts

If you can't eliminate guaranteed contract years or even partially by "fiat", try instead to get limited giveback penalties for single seasons for not meeting specific or perhaps fairly standard statistical measures that year.

Crow
Crow 5pts

Sell even more league-sponsored reality TV products.

Crow
Crow 5pts

If you don't eliminate the D-league, move it to China or Europe, on its own or integrated with leagues there and perhaps make more revenue off it.

Crow
Crow 5pts

Give teams the option to move 6 home games out of their home market and let them decide whether they can make more money that way and possibly increase their market reach for TV and merchandise.

Crow
Crow 5pts

Consider adding some sort of new start of the season special event. Maybe a single elimination tournament of last season's conference finalists. Or move the rookie-soph game there for greater highlight on the new talent and maybe the dunk contest there too at a time when people are starving for highlights instead of being pretty jaded.

Crow
Crow 5pts

The D-league is not essential. At some point the WNBA could possibly be spun-off and required to be fully self-financing if it is not already.

Conceivably teams could pay some late summer / early fall exhibitions anywhere around the world if the revenue prospects were sufficient.

If you were really pressing all the buttons you could mostly or entirely wipe out pre-season and add a few regular season games and / or space the existing regular season out a bit more to get more weekend games and have less weekday games that people might skip because they are too close together or too inconvenient.

Crow
Crow 5pts

Fight the scalpers by requiring the tickets of at least the lower half of the lower bowls to be issued in the name of people, groups of people and companies and only allow reassignment and game entry thru a team run process and block those trying to re-assign beyond a standard of 25-50% reassignment. By reducing scalping, the NBA probably would yield more revenue and would have a better balance sheet. They could perhaps reduce some ticket prices or reduce increases but they probably wouldn't.

Crow
Crow 5pts

Total up the salary, benefits & expenses of the top 50-100 league office executives and cut that back by whatever amount the players get cut.

Crow
Crow 5pts

Requiring second round picks to take a minimum salary deal with no option to get more would hurt some teams who tried the stash strategy.

If they keep the MLE, they could especially target making that only partially guaranteed or limited to no more than 2-3 years. Make it a risk proposition- more money than journeyman and more to come but you have to earn it every year as opposed to getting it and then maybe not feeling that pressure.

Crow
Crow 5pts

They could try to cut the maximum agent percentage allowed.

They will probably eventually sell the Hornets and give owner a bit of a windfall.

It is at least conceivable to structure the sale of new franchises to very eager prospective owners in a way that would provide current owners a net gain.

The league has some other assets to sell if it wanted immediate owner cash flow improvement, like their share of the China league.

They still have the option to put corporate logos on uniforms and probably make some new money.

Crow
Crow 5pts

Requiring second round picks and undrafted players to take a minimum salary deal with no option to get more might be a way to save a bit of salary outlay but then you would turn off a lot of foreign players (and some domestic players) and the league might not want to do that given its marketing strategies and aims.

Cutting 1st round salaries 10-30% is probably going to happen.

Cutting back somewhat on the degree of luxury with the travel some might save some money. Per diems might get eliminated.

Crow
Crow 5pts

They could phase in a hard salary cap. If it were phased in over more than 3 years the big spenders could transition more easily. If the phase in is really long they might not have to shed salary as quickly. They probably will still benefit from their excess awhile longer. Amnesty will help them and amnesty for more than one player would help even more.

Crow
Crow 5pts

Things might not be quite as bad for the Thunder.

The max contracts are set at 25, 30 and 35% of today's low level soft cap depending on years of experience.

Durant is in the first experience tier and is scheduled to make $13.6 million next season with raises of about 1.4 million per year. He isn't scheduled to make over $17 million til 2014.

With more experience you could 'til now get a higher deal.
If the owners win a hard cap, they could scale new max contracts to be the same levels as now or more likely they will be scaled lower. Maybe only 1-2 tiers instead of 3 but probably lower salaries however they structure it.

They could try, as they have suggested, to change past contracts and put those already signed deals including max deals (and including KD's) on a lower scale but that seems less likely than other changes.

If the first experience level max went back to $10-12 million then Russ would also get less than projected above, whether he gets the max or not, and the effect would trickle down somewhat for others.

The general point is still true that paying 4-5 guys highly would be difficult under a hard cap at the level they are suggesting.

The Perkins signing may or may not look as good after the new CBA gets signed as it could make re-signing Harden and / or Ibaka tougher or impossible. Presti went ahead before these details were fleshed out. Some other teams did too but still others deferred.

A hard cap though will reduce competition for players from other teams to some degree. If it becomes harder to give 2 max deals or almost unthinkable to give 3 at or near the max then guys who aren't ranked high enough will get less.

I think there are only about 25 guys who have the max right now for next season. It will be tougher to join that group.

TaoMaas
TaoMaas 5pts

Caleb : I also believe that presti has chosen the guys he has picked for their character and I think most are more committed to this team than we realize… That my be a homer dream though

I think you're right. I think Presti has picked guys who look at the bigger picture.

Caleb
Caleb 5pts

But wasn't that what the majority of the experts feel will be the thing that doesn't hold? That's what I saw in the last write up atleast... I just don't see the players budging on a hard cap... I hate how half of those guys said they think the owners and players will not allow any games missed and the others said it's likely to miss the whole season with all the differences still intact... I also believe that presti has chosen the guys he has picked for their character and I think most are more committed to this team than we realize... That my be a homer dream though

DizzDai
DizzDai 5pts

I really hope the MLE disappears.

Trackbacks

  1. The Thunder and the luxury tax | Daily Thunder.com says:
    November 12, 2011 at 4:30 pm

    [...] wrote about how a hard salary cap could potentially destroy the core, but the league’s latest proposal includes a stiff luxury tax for teams that spend over the [...]

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