This lockout is about one thing: money.
The owners have sought cost certainty and want to rid themselves of the dead-weight contracts that hamper their roster maneuverability and are just, plain bad investments. These are guys that want to see a return on their investment — preferably proportional to the amount of their investment. Cost certainty has been a big buzz word for them.
It is unclear whether the deal that appears currently on the table includes that. There will be no hard cap. The exceptions remain. The big thing for cost certainty and competitive balance is the increased penalty in paying the luxury tax. As far as that battle for true cost certainty is concerned, the owners have capitulated.
The new salary cap’s structure is still yet to be determined. One thing everyone seems fairly certain about is that teams will receive an amnesty provision, allowing teams to waive a player and wipe a player from their books. There was one that was part of the 2005 extension/adjustment of the current agreement.
Clearly teams want a way to remain competitive as the league adjusts to the new rules. And an amnesty helps that. But how does it help with cost certainty? How does it increase revenue potential and bring down expenses? Seriously, how?
What the amnesty clause does is say: You get to get rid of a player off of your salary cap so you can spend money again, but you still have to pay the player you just waived his full salary. You can see the contradiction that exists.
The amnesty provision makes sense from the competitive balance side of the argument, but not from the cost-cutting. If you are a team like the Magic and have the option to drop Gilbert Arenas’ $60 million over the next three years and try to replace him with another star player. Even if they sign a player to a $10 million contract, the cap hit may be only $10 million, but the total hit is $30 million, because the Magic would still owe Gilbert Arenas his yearly salary until his contract is up.
In the short term then, an amnesty clause does not help owners as much as the proposed stretch exception. It makes intuitive sense.
But this analysis came under some brief fire when Henry Abbott of TrueHoop brought it forward earlier this week. The NBA, through its interesting new Twitter account, vehemently denied Abbott’s analysis of the amnesty clause. Abbott conceded, somewhat importantly, that all these salaries count toward the cap BRI sets. Thus, you can see why the players and owners are fighting so hard over this split of revenue. It sets the hard cap on how much the players can get paid in a given year.
At the same time, as Abbott discovers, the owners only have access to the money taken out of player salaries and held in escrow until the end of the season under the old collective bargaining agreement. Theoretically, the owners can spend so much more than the players’ split of basketball related income that they do not make up their losses in receiving the money held in escrow.
Would the owners actually spend this much money? Again, theoretically, no. The owners have said they are looking to cut costs. But, then again, what has stopped owners from spending in the past?
This amnesty provision begins to confuse you more and more. Abbott, who started all this mess, finally got an answer:
“The NBA and the union have, sources say, agreed to close the loophole that lets owners spend beyond the limits of the agreed-to share of BRI. What that means is that owners might spend above and beyond the limits of BRI just as I had suggested they might in those confident paragraphs above. This is what Stern was advertising might happen.
“However, if that happens under the new deal, owners will not just forget that extra bill … they will fix it in the following year or years. So under the NBA’s latest proposal to the union, they really were offering 50 percent of BRI over ten years. However, if in the first year the owners paid 52 percent, that would be acceptable, and they’d keep bigger escrows the next year, and essentially put it on the players’ tab. The details remain in flux, but maybe the following year the players would make 48 percent, or maybe for the next two years they’d make 49 percent. By the end of the decade, however, players would have made precisely the agreed-to percentage, even if the owners spent beyond that sometimes.”
So that situation cannot happen then. It appears the league has negotiated itself out of this situation. And it reveals something interesting that is not discussed as much in the negotiations. The BRI split is not calculated on a year-to-year basis. It is a target for the life of the collective bargaining agreement. For all we know, the owners will spend 57 percent in 2012 as they have in the past. But they would have to make that up later in the collective bargaining agreement. At least, that is how I understand it.
I don’t want to call this sneaky, but you can now understand why the players are fighting tooth and nail. Because, by the end of this collective bargaining agreement, it seems to me that they could be receiving under 50 percent of BRI to make up for money spent at the front.
It is all tied together.
So does the amnesty provision make sense? For competitive balance, absolutely.
For keeping to the proposed 50-50 split? Even though the owners would get that 50-50 no matter what kind of contracts they hand out. It is going to be tougher to stay with competitive balance if fewer revenues are heading to the players. The players certainly don’t want this.
The amnesty might not be worth its weight.