Explicating the CBA
2013-03-12
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.
http://espn.go.com/blog/truehoop/post/_/id/22025/inside-collisons-unique-contract-extension
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?
Needs to be a change the cba, that if a team signs a player to a max team, and that was had its bird rights, or was drafted by that team, the max contract should only go against the cap if it was like any other team signing that player to a max contract, it is only right, that team did its research and drafted the right player.
The Grizzlies survived the Paul trade through sheer and utter dumb luck. Marc was a throw-in that no one expected anything from. He was the 48th pick in the 2007 draft. The Grizzlies got the Lakers’ first-round draft choices in 2008 and 2010; guard Aaron McKie, signed for salary cap purposes; cash considerations, and the rights to Marc. With those picks? They drafted Donte Green and Greivis Vasquez. Vasquez was a good pick who they inexplicably traded for Quincy Poindexter, definitely a step backward. In the interim? While they did make a good pick in Mike Conley Jr. (a vastly… Read more »
Tom
Obviously the Cavs are going to compete to get into the playoffs next year without breaking their salary cap flexibility for 2014. The Cavs tanked exactly one season, the 2011-2012 season. This year they were just an improving young team that has gotten better as the year has gone on. The Kyrie injury sucks, but the Cavs did not injure the guy. Can we please stop talking like they are tanking right now? They are losing and Kyrie is injured, but that is way different than actually tanking.
lvmainman – that assumes you know that you’re not getting any further. The Grizzlies weren’t getting any better with Pau, their only chance to get better was to start all over.
Pau Gasol had taken the Grizzlies to the playoffs for 3 straight seasons. So, trading and tanking, to get to the exact same position as before, is not a great trade.
Overall good write-up. It will be interesting to see what approach the Cavs take with Speights, Livingston and Ellington. Each offer us additional depth, but arguably our main focus still needs to be on a SF. Assuming Andy comes back healthy, TZ comes back with 10-15 more pounds of muscle, and TT continues to develop. IF we are able to sign Oden (which things seem that way), that would make Speights the ‘odd man out’. Unless ofcourse we still think Andy has some trade value – which after another season ending injury and the clot, may not be the case.… Read more »
Agree JT. The Grizzlies had gone as far as they could with Pau. Pau wasn’t a top banana, but rather a terrific secondary option. The Grizzlies hit for the cycle with the rebuilding blue. A. Young talent-Marc Gasol. B. Cap room-leds to ZBo. C. Draft picks.-One of which was Greivis Vasquez. D. Lotto tank tickets.-Even thought they blew the Love/Mayo deal.
The Pau deal put Memphis in the position playoffs the past three seasons.
The Pau Gasol trade actually worked out very well for the Griz.
They Griz were able to get Pau’s younger brother Marc, who has been arguably better than Pau for two or three seasons because of his ability to be a two-way player. More importantly, the Griz were able to receive expiring contacts to replace Pau’s bloated one, ensuring them financial flexibility for the future.
I am always confused why people are so down on the Gasol trade from a Griz perspective.
This is an interesting approach, but it almost seems like it’s purposely set up so that everyone can be unloaded after 2014. If it’s really about “just having flexibility” that’s one thing – but if it’s all about structuring everything so that this team is completely bare bones in 2014 – then why even try to win games next season? Put Kyrie, Waiters, Thompson, Zeller, Varejao, Gee, and Ellington out there with a bunch of D leaguers and win 25-30 games and shot at Andrew Wiggins right? In my opinion, the Cavs have had ample opportunity to scout their own… Read more »
The Brandon Jennings example used to highlight the team impact of the max-money-mindset is a good one, and it applies to everyone, almost regardless of market size. Even Kobe Bryant is not immune. If you remember, the Kobe/Shaq Lakers were broken up because Kobe wanted to be “the man”, and get max money. Well, he got his wish….and the Lakers immediately dropped from the contender ranks, with Kobe whining and crying and pouting about how he didn’t have enough talent around him. He had no one to blame but himself. And it would have stayed that way, had the Mitch… Read more »
The CBA, not the article. Great piece and thanks for the shout out and doing the leg work. It almost seems strange that the NBA actually has signing bonuses when the contracts are fully guaranteed with the exception to option years and Javaris Crittenton situations.
Booze, porn and Yahtzee are shown together on a Spanish variety show called LaGrimita y Costel. Along with clowns. Grande mammory glands and clowns are a common theme on Spanish television and a winning formula. If the rest of America knew what entertains Mexicans they would be much more open to illegal immigration.
I’ve read it at least twice, but it’s like Ivanhoe, you remember points here and there but there’s so much intricate detail that you forget the whole.