How the new Collective Bargaining Agreement affects the Thunder
The new Collective Bargaining Agreement will reshape and re-structure the league for the next 10 years (or six) and the Thunder will have to live in it. Right now, the team is succeeding in the current system, but how will the new one affect Oklahoma City?
By Max Trueblood
Finally! It’s over.
After nearly 5 months of nitpicking over how to split up a nearly $4 billion pie, the owners and players have finally come to an agreement on a new collective bargaining agreement and by now, you’ve probably seen several articles breaking down the new CBA. While not all of it may make sense to the fan who just wants to watch the action on the court and let the finances take care of itself, the mechanisms in the new CBA can and will have an impact on what type of product we will see on the court.
The majority of the salary cap mechanisms can be tough to interpret to the casual fan so the “BRI split” became the hot topic during the lockout and was still analyzed by financial gurus as the lockout came to a close. This determines how much percentage of basketball revenue will go to the players and how much goes to the owners.
While the owners benefit in this new deal as their share jumps from 43% to 50%, this element of the cba doesn’t really make much difference to the fans unless the owners take some of the savings and charge less for tickets.
Despite the BRI split and various reports to the contrary, the players didn’t get totally demolished in this process. The rest of the piece will break down exactly where each side benefits and how it effects the Thunder and league in general.
REVENUE SHARING
I’m going to be brief here because frankly, I still haven’t found any article, tweet or full explanation of exactly how the new revenue sharing rules will work. I’m just as in the dark as you are. I have seen numbers thrown around saying things like revenue sharing will triple in amount to what we had before, will be similar to what we see in Major League Baseball and have the Lakers throwing as much as $50 million into the pot for smaller market teams to share from. Based on everything that I hear, I’m going to assume that we have a system where teams share roughly a third of what they make below or above the BRI average. Here’s how it would go.
Let’s say the league generates $3.9 billion in BRI. Divided by 30 teams and you get an average of $130 million per team. A third of that is $43 million. We’ll put that number to the side for now.
From there, everyone figures out their actual BRI take. Let’s say a big market team like the Lakers make $240 million. Take a 3rd of that and you get $80 million. Subtract the $43 million average and you have a difference of $37 million. That’s the amount of money that the Lakers have to throw into the revenue sharing pot. Given that their annual profit isn’t much higher than that, you can see how this element of the CBA already accomplishes what the league set out to get done as the Lakers will have to reduce payroll in order to regularly crank out the big profit numbers.
On the flip side, let’s say a small market team like Milwaukee only makes $90 million per season. Take a third of that and you have $30 million. That number is $13 lower than the $43 million average so they would hypothetically get a $13 million check dropped in their lap and their regular $10 million losses would now turn into small net profits.
How this affects the Thunder:
Not much. Despite being a small market team, the Thunder regular finish in the middle of the revenue pack due to their rabid fan base.
How does this affects the rest of the league:
This works and is very long overdue assuming the numbers that I and other writers are throwing around are legit. This brings the small markets closer to the big markets in revenue generated and will thus result in less player payroll disparity.
Thumbs up or thumbs down?:
Big thumbs up.
AMNESTY
I’ll start off by saying that I’m not a big fan of the amnesty clause. I’ve always been a firm believer that GM’s should be held accountable for their mistakes but that if we were going to let them off the hook, an allowance of one contract per 5 years be wiped off the books entirely. I wrote as much in my last lockout piece on this site but unlike the amnesty clause, I suggested that the entire contract be wiped off the books with the player no longer receiving compensation so long as he received 3 or more years worth of pay on the deal already.
What the amnesty clause does is wipe the contract off the SALARY CAP but the player continues to get paid the remainder of the contract. The number doesn’t count against the cap and the team is free to spend more free agent money so long as their owner is willing to pony up.
On the flip side, only one contract for the life of the cba can be “amnestied” so there is an element of strategy going on so that is good.
Also, another new twist has been thrown in. Teams with cap space or exceptions left can be first in line to bid for amnestied players. This way, amnestied players can’t just go to the team of their choice. This also throws in an element of strategy that is good for competitive balance. For example, if a big market team has a $3 million exception waiting for one of these players, a below the cap team can just swoop in at $3.1 million and the player would have no choice but to take the large offer. This is also a good thing.
How this affects the Thunder:
Not much and if anything, it hurts them. Thanks to Sam Presti’s excellent player personnel moves, there aren’t any really bad contracts on the team that are subject to the amnestly clause. That could change but for now, this rule doesn’t help the team and since the competition will be able to take advantage of it to a greater extent, it winds up hurting them.
How this affects the league:
Maybe I’m just complaining too much but it seemed to me that the entire purpose of the lockout was too create more competitive balance. While I applaud the cba in general as it did accomplish that, the amnesty clause seems to run in the opposite direction. Big market teams can afford to eat large contracts without having their profit margins completely eaten up. Small markets can’t unless they are really far under the cap. Seems like a contradiction of the entire lockout.
Also, while I have no problem with the amount of money that professional athletes make, there is still a large percentage out there that aren’t wild about large guaranteed contracts. Holding a player’s feet to the fire with the threat of one deal being totally eliminated could be seen as a good thing for a lot of fans and would definitely create more incentive for players to not become lazy. Amnesty guarantees the player gets paid in full regardless so it leaves a bad taste in the mouths of a lot of fans.
Thumbs up or thumbs down?:
Thumbs down. It should also be noted that a lot of big markets can avoid the luxury tax by using the amnesty clause. That means less money to the teams that are under the tax threshold, thus less of a payday for what is more often the small market team, again defeating the purpose of the lockout and closing the gap to achieve more parity. While the ability of cap space teams and teams with an exception remaining having first dibs on these players is a good thing, the overall concept of amnesty is below average in my book.
THE MID LEVEL EXCEPTION RULES:
Ah yes, my favorite topic of them all. Again referring back to my last lockout related article on this fine site, I strongly suggested eliminating the mid level exception from tax paying teams. This became a rallying point for the owners. Unfortunately, the players held their ground and this, more than just about anything else in the lockout except for the BRI split, allowed the lockout to last as long as it did. When the dust settled, we came up with a couple compromises of sorts.
While the system isn’t perfect, it works in that teams below the luxury tax can still offer the full mid level exception that starts at $5 million and can be as long as 4 years.
Teams above the tax can only spend what is called the “mini mid level” which starts at $3 million and can only last 3 seasons. This appears to give the non tax teams an advantage although larger offers sometimes don’t stop players from taking smaller offers to go to contending teams so this new twist to the system should be monitored.
There is also a new cap exception for teams who are not only below the tax but below the cap itself. Once you spend all your cap money, you can now spend an extra $2.5 million on a base salary for a 2 year contract.
I like this as I always thought it awkward that teams with cap space seemed to be punished for abiding by the cap rules whereas teams that went sky high above the cap could just keep spending the full mid level exception without having to renounce the rights to free agents or anything like that.
How it affects the Thunder:
Again, not much. The Thunder are going to have a hard enough time figuring out how to squeeze all their talented players within the financial parameters set by the PBC. They most likely won’t be spending any exceptions although things could change.
How it affects the league:
Remains to be seen. On the surface, this is a good compromise to what I’ve wanted to see for almost a decade now. If players take the best offer on the table, more good players will player for teams with lower payrolls and more parity will be reached.
If they go for whatever contract is being offered by contending teams, it won’t be reached.
Thumbs up or thumbs down?:
Thumbs up for now but it’s twitching like an itchy trigger finger. I would have preferred to see all exceptions taken away from tax teams but had they done that, we may have had to wait another year and the prospect of a losing an entire season or two is obviously much worse than a less balanced mid level system.
Also, and I should slap myself for even thinking about the next cba after the garbage that we had to endure over the last 5 months but I’ll do it anyway, the league should consider adding a 2nd mid level to teams below the tax. Since the gap between the cap and luxury tax is usually $12 million and the full mid level is only $5 million, that gives enough room for a 2nd mid level. Give non tax teams 2 mid levels to combat having none for tax teams and you really push competitive balance in a good direction and give the players more money and options in the process.
TAX SYSTEM
Like revenue sharing, the tax system is designed to close the financial gap between the big and small markets. Previously, the system was simple. You pay a dollar for every dollar that you’re over the luxury tax. It will remain that way for the first 2 years of the new CBA but will then have a different setup after that. It will then look like this.
Teams that are 0-$5 million over the cap will pay $1.50 for every $1 that they’re over the luxury tax threshold.
$5-10 million over and you pay $1.75 for every dollar.
$10-15 million over and you pay $2.50 for every dollar.
$15-20 million and you pay $3.25 for every dollar.
There is another changeup that says that if you’re above the threshold 4 times in a 5 year period, all those rates go up by a dollar so for example, a team in the $15-20 million range above the threshold pays $3.25 for every dollar will now have to pay $4.25 for every dollar. Even the Lakers, Bulls and Knicks won’t be profitable if they have to go that high above the threshold. Coupled with the revenue sharing plan and you more or less have what is a hard cap.
How this affects the Thunder:
It depends on what type of ride James Harden and Serge Ibaka take management on. I’m confident that ownership will pay what needs to be paid to keep the core intact and if it means diving into lux tax territory then they’ll do it but at some point, they will have to get below the tax. I’ll say that they go as many as 3 years in a row above the threshold but will then find a way to get under in year 4 to avoid the extra dollar that would make this team unprofitable.
How it affects the league:
It’s good. I think we have most likely seen the last of $100 million payrolls and since parity and competitive balance was the goal of the lockout, this system has achieved that.
Thumbs up or thumbs down?:
Thumbs way up.
GUARANTEED CONTRACTS AND CONTRACT LENGTH
The players held strong on this issue and props to them for doing so. Contracts are guaranteed in MLB and the NHL and even the NFL has around 60-70% of their deals guaranteed on top of large signing bonuses. Basketball is one of the most popular sports in the world. 200 million people in China alone play the sport and it’s played on every continent.
Look at NBA rosters. 20% of the league is foreign born and over 30 different nations are represented in the league. Getting a job on an NBA roster isn’t the easiest thing in the world to do as these are truly the greatest athletes in the world and thus justifies having their contracts guaranteed.
Let’s also remember that no other sports league has a limit on contract length. NBA players signing with their own team can now only get 5 years maximum as opposed to 6 in the old deal and free agents changing teams can now only get 4 years as opposed to 5. When you look at the Angels signing of Albert Pujols to a 10 year, $250 million deal, a 5 year guaranteed contract with a maximum allowable salary doesn’t look so bad.
It should also be noted that the deals don’t have to be guaranteed. The owners create guaranteed contracts by bidding against themselves for the services of players. For example, many New Orleans fans were upset when James Posey got a 4 year contract but it was the Celtics who originally offered 3 years. The Hornets then had to decide whether or not Posey was worth a 4 year risk and they obliged. Nobody held a gun to their heads. In their minds, the reward outweighed the risk so Posey can pretty much justify his deal based on the doings of the owners and not his own player’s union.
For those who still disagree with me…be careful what you wish for!! If you take away guaranteed deals, large and attractive markets will just waive as many players as need be in any given big time free agent summer and you will have nothing but superteams being created. Free agents will conspire to become available in the same summer and the big markets will do the obvious thing and waive whoever needs to be waived in order to fit 2 or 3 of those superstars under their cap. It would be the worst thing that ever happened to the concept of parity and competitive balance.
How this affects the Thunder:
It’s good for them too. They have shown a knack for drafting and developing high character players who won’t get lazy just because they just signed a long term deal.
How it affects the league:
While guarantees are obviously good for the players, having one less year on the contract not only works for the owners but works for the players in that one less year makes it more likely that there will be more teams with salary cap space and thus will mean more free agent money for them as well.
Thumbs up or down?:
Thumbs up for all involved.
MINIMUM PAYROLL, EXTEND & TRADE AND MISCELLANEOUS STUFF
Teams previously only had to spend 75% of the salary cap if they were rebuilding or having financial problems. This was the case last year with the Sacramento Kings as their financial problems have been well documented. Now, teams will have to spend 85% of the cap in the first 2 years of the new CBA and 90% in every year after that.
This is good for the players as it obviously means more money but it makes sense as well to the league. If they are going to preach parity and competitive balance then it only makes sense for the floor to go up if the ceiling is going to come down as well. Instead of a situation where the Kings spend $43 million and the Lakers spend $100 million, we will see something more like the Kings at $50 million and the Lakers in the $80-90 range. Not perfect but an improvement.
The extend and trade is still alive as well. This means that teams will be able to resign a player and trade him in order to maximize the return on any given deal. For example, if a star player no longer wants to play in a market but is one year away from free agency, teams will be hesitant to trade for him knowing that he could leave via free agency and they’ll be left with nothing to show for the players that they sent out. By doing the extend and trade, teams will now be comforted in knowing that they have a guy for at least 2 or 3 years and have time to build a good team to entice him to stay for longer than that. Plus, it works for the team trading the players as they will now get good players in return since the other team knows it has the player locked in for 2 or 3 more years.
Lastly, no more “Big Z” loopholes. I’ve pushed for this as well. When the Cavaliers traded Zydrunas Ilgauskas to Washington for Antawn Jamison, the Wiz turned around and waived Big Z and he then went back to Cleveland. The Cavs basically got Jamison for nothing. That won’t happen anymore. A team can’t bring back a traded player until the following season.
All in all, this new CBA works for both sides but more importantly, works for the fans as well. While not perfect, something had to get worked out in order for us to have a season. A shortened basketball season is better than no basketball at all.
Max Trueblood has studied NBA business for the last 16 years and is a contributor to Daily Thunder.
