Today I begin my first attempt to study the NBA Collective bargaining agreement like it’s Revelations, Hamlett, Invisible Man, or a Lena Dunham telenovela. So let us open up the book of (Larry) Coon, and get into our Socratic circle.
The Small Market Dilemma
The 2011 lockout of NBA players was ostensibly about three things.
- Preventing NBA teams from signing idiotic long term contracts, like Gilbert Arenas at six years $124 million, seven years $127 million for Jermaine O’Neal, and five years $70 million for Larry Hughes.
- Preventing players from “forming super teams like the Heat.”
- Allowing “small market” teams to compete with “big market” teams.
By limiting most contracts to four years and by providing harsh disincentives to overpaying multiple players in the form of a a tiered salary cap system the NBA has gone a long way towards accomplishing the first two goals. But when it comes the big market, small market disparity, the new NBA labor agreement may actually make things worse for small market teams.
Let’s take a look at specific examples of recent note. First, Brandon Jennings recent comments on his impending free agency from this article by Marc J. Spears of Yahoo Sports.
“If I take the qualifying offer and become an [unrestricted] free agent there is no way I am coming back,” Jennings told Yahoo! Sports on Friday after practice. “There is no way.”
Jennings considers Milwaukee a “great sports town” and has enjoyed his time there, but in order to keep him long term, Jennings said the Bucks’ offer must be lucrative and there needs to be changes in the roster and the organization to make it championship caliber.
Brandon Jennings wants a lucrative contract to stay in Milwaukee, and he wants the roster to be championship caliber. What is perplexing is that he and many NBA players don’t seem to realize that these are somewhat mutually exclusive things. The more money the Bucks pay Jennings, the less money they have to pay other players.
The recent Josh Smith trade drama is another example. According to the Atlanta Journal Constitution, Smith feels he is a max player. The max in the NBA comes from the fact that a team can re-sign its own free agent for more than what other teams could pay them. Smith could sign a four year $70 million contract with another team, or he could sign a five year $94 million contract with the Hawks. The Hawks, unwilling to pay that much after massively overpaying Joe Johnson, are naturally skeptical of doling out that much money.
The James Harden situation from before the season started, is another example of where a team was unable to find common ground with a player. In this case, Harden turned down a four year, $54 million dollar extension from the Thunder. At that point, the Thunder felt that Harden had priced himself out of their range. Houston, after the trade, gave Harden the “Max” a five year, $80 million dollar extension.
If the Harden situation is any indication, there is no “home team discount” in the NBA. Teams can sign their own Bird Free Agents for five year deals instead of four year deals with 7.5% annual raises as opposed to the 4.5% annual raises other teams can offer. What is happening in all three cases is that the CBA, while designed to help small market teams, is actually hurting them. Since they can overpay, the players’ and their agents can try to force the team that has the players Bird Rights to pay more or threaten to leave the home team with nothing when the player leaves via free agency. The home team has no recourse in this situation but to overpay the player or play chicken and dare the player to take less money to leave. So far, general managers have been blinking first. Teams have been leveraged to pay free agents more, or trade them for lesser assets. There is no “home team discount.” There is only a home surcharge.
It will be interesting to see if this trend continues for Josh Smith and Brandon Jennings, and what this will mean for the Cavaliers in the future. Goal #2 is butting up against goal #3 hard core. Teams like Oklahoma City will have a very hard time keeping more than a couple very good NBA players. The harder luxury tax penalties will force them to move players like Harden. It will be hard enough to keep “super” teams together, but for small market teams that can’t (or won’t) pay the stiff fines, it may preclude them from fielding consistently competitive teams entirely. (Though this is part of the reason that people conjecture that LeHeWhoShallNotBeNamed will end up back in Cleveland — because his current team can’t afford to pay all their superstars what they’re worth).
Signing Bonuses and Extensions
Earlier this week, Cavs the Blog commenter Corey Hughey had an interesting thought on Marreese Speights.
Does anyone recall the extension that the Thunder gave to Nick Collison? Basically they had cap room so when he signed the extension he got a signing bonus the first year when they still had cap room so Collison got the entire signing bonus the first year instead of it being prorated throughout the contact…. Grant would theoretically be able to give Speights a $4 million signing bonus this year and a little on top of his 2013-2014 salary.
After a good bit of research, I discovered that the Cavaliers can not do this. The Collison contract was an extremely rare case that can only be done if a player extends and renegotiates his contract at the same time, and if the GM is a giant nerd.
What OKC did in this case was renegotiate the last year of Collison’s current contract to give him a 10.5% raise payable in a lump sum signing bonus, plus 20% of his contract extension payable in a lump sum signing bonus. (in the new CBA those amounts have been dropped to 7.5% and 15% respectively). Those bonuses only affected the cap for that year. But, only players on the third or fourth year of a four year contract can re-negotiate, so Speights is out of the running on this, since he only signed a one year deal in 2012 with a player option for a second year that can be exercised this summer.
An interesting tidbit from the salary cap FAQ though, “In the special case of a multi-year contract that is entirely non-guaranteed, the entire signing bonus is applied to the first season of the contract.” Could the Cavs sign players to non-guaranteed contracts next year and apply large guaranteed signing bonuses in order to do it?
So what if the Cavs offered Speights 4 year, 24 million dollar contract, with an average salary of 6 million, but completely non-guaranteed base salaries except for the $3.6 million dollar signing bonus (which is a maximum of 15% of the contract) and a guaranteed first year salary. Speights gets $8.95 million to play next year and the contract is structured so that the most money dips in 2014 (to leave max room for you know who), goes up in 2015 and 2016 (more assuring the Cavs dump him by then), This would be in 4.5% jumps, so the first year would be $5.1 million in 2013 (plus the bonus), $4.87 in 2014, $5.1 in 2014, and $5.33 in 2015. Damn. This is more exciting than booze, porn, and Yahtzee mixed together.
An even more interesting scenario might be if they convince him NOT to opt out, but to sign an extension instead (I believe if he doesn’t opt out his bird rights re-set next year, correct?) Then the decreases/increases per year are around %7.5 (because he’s on a bird contract).
If the team is under the cap when the extension is signed, then the signing bonus may be paid before the first season of the extension (i.e., it can be paid right away). When this happens, the extension is treated as a renegotiation (see question number 59). The signing bonus is charged to team salary in all remaining years of the current contract and the extension, in proportion to the percentage of salary in each season that is guaranteed (as described in the previous paragraph). If all remaining years of the contract and the extension are entirely non-guaranteed, then the entire signing bonus is charged to the season in which the extension is signed. The signing bonus cannot exceed 15% of the total salary in the extension, and the portion of the signing bonus charged to the year in which the extension is signed also can’t exceed the team’s cap room.
So let’s say the Cavs did a three year extension to Mo Speights contract next year at 3 years, $20 million (extension), and gave him a $3 million dollar bonus, with each season giving Speights 7.5% escalators to his base pay. In this case, the contract would be escalators so that the lowest salary would be in 2014 of the extension, thus helping keep Speights in 2014 and sign a free agent. In this scenario, Speights makes $7.5 million in 2013 (his $4.5 million base salary, plus his $3 million dollar bonus), which is guaranteed, then in 2014, his cap # is an un-guaranteed (or team option) 5.26 million, which is still palatable but can be waved to make room for you know who. This might take a lot of convincing to get Speights to sign. The advantage with the non-guaranteed contract is that the Cavs can waive him at any time if they need the money to sign someone else, and also that the the signing bonus money gets assigned to 2013-2014 instead of the length of the contract. The Cavs could even give Speights an early termination option in 2015 so that he can leave if he outplays his contract, and so that he can can hit free agency when teams have the most money to spend.
Your head spinning yet? Would you like to go into 2014 tax code changes? The crux of the idea is that the Cavs would overpay free agents in 2013-2014 in order to have the contracts be non-guaranteed in future years, giving them the option to dump those players if the right free agent comes along, or keep those players if free agency doesn’t work out. Livingston and Walton could be signed this way too. Thoughts?