All locked out and no place to go, Part 5: Conclusions

… or How I Stopped Worrying and Learned to Love the Lockout

Well. It seems like the players have been winning CBA negotiations for decades now, and it might be time for them to lose one. The players’ pay has been increasing with time, but somewhat faster than league revenues have been – hence the increase in BRI splits. This has played into negotiations as though it was the owners’ fault that they spend so much.

Unfortunately, the system in place, with so many cap exceptions, means that smaller and even mid-market teams have to gamble and give high value and long term contracts to players who may not deserve them, due to the excess of artificial cap space every year. This is the only way for them to keep up with the big market teams. This has evolved to a point where something like the Miami Heat is possible – without cap exceptions, they would never have been able to put a team around those three players, and in coming years, those exceptions will allow them to build a dynasty almost by default. And of course they will use every penny they can – a team trying to compete tends to do this.

With the combination of competitive factors, a constant supply of players and ever increasing demand for them (represented through increasing amounts of available money – exceptions – to pay them), the current salary cap structure is unstable and will eventually yield a scenario where the league as a whole is losing money. Whether you believe this has happened yet (as the owners claim) or not, it is inevitable under this system.

So the owners will take their chance here to stabilize the system. They will insist on a hard cap or very stiff luxury tax. In the case that they relent on the luxury tax, they will demand a high escrow percentage – probably in the 20% range to cover all possible salary growth (or simply keep the risky overage clause, hoping to make it to the next negotiations before it goes nuclear). And in either case, they will push to get the system back to its equilibrium – where it started in the 50-50 range.

It is easy to say that the owners’ concessions thus far in the negotiations mean little. However, consider the difference between the hard cap they proposed and the luxury tax they are now proposing. One means no growth in BRI over time, the other means potential for the same problems over again. That is a real concession. If they go down to a stiff but not ridiculous luxury tax, they will have made a real significant concession there.

Look also at the 50-50 split offered by the owners. When the players started at 57 and the owners at 46, everyone said the players were being selfless – not asking for a raise – and the owners being greedy – cutting salaries by 20%. But once again, if you look deeper, there is a reason the players weren’t asking for more than 57% – they are already winning money hand over fist at that percentage, because they’ve learned that with the soft cap system in place, eventually they will surpass their escrow limit and earn more than the CBA allows them to. And there is a reason the owners were asking for 46% – with the soft salary cap in place, they know that very early in the new CBA, that number will effectively rise to 50% and higher if a more robust escrow system or luxury tax isn?t put in place. Consider that if the real status quo is 50-50, the owners asking for 54% and the players asking for 57% is cast in a very different light.

So since the owners backed off the hard cap, we’ve seen them start to attack exceptions again. A miniature MLE, eliminating sign and trades, restricting Bird Rights to teams that have had the player for at least one season, possibly eliminating the bi-annual exception. And the players have agreed with a few of these, and will probably make their stand on the escrow percentage – if they can keep it low, say at 8%, even with reduced exceptions they should be able to surpass whatever level of BRI they are entitled to within the next few years, especially if they can eliminate that year-by-year correction in the previous CBA (which was an unsustainable band-aid solution for the problem the exceptions caused the owners).

The Way I See It Ending

All in all, I fully expect the owners to come out of this one winning pretty much whatever they want. They’ll certainly come out looking that way, even if the players do win some major points.

The ownership will probably give in on:
– the salary rollbacks and the hard cap (since the players see it as a blood issue);
– instituting an insane luxury tax (instead using the one they have proposed, without the addendum that the tax triples if you exceed the threshold 3 times in the span of 5 years – although I like that rule);
– increasing the escrow percentage too much (it may go back to 10%)

In exchange they will likely get:
– much reduced exceptions (MLE, LLE, reduced raises);
– a BRI split of 50% (as it should be);
– retain the ability to take back any overage the next season

They have to be careful with that last condition, as it is effectively a larger ratio of escrow, but without preempting the costs – they are recovered the year after, and it can have a snowball effect similar to the exceptions. The players will likely oppose it, but they really are at a disadvantage, and the only way the owners take off that band-aid is if they get an actual solution – a hard (or hardish) cap.

Of course, that’s this time around. I fully expect the owners to push even harder for a hard cap the next time around, unless the escrow covers the overage every year of the new agreement. Once this CBA is done, the players will probably push for more exceptions, after six years of reduced salary. And the owners will probably give it to them if they can get a hard cap, even at say 60% of the BRI, with a smaller amount guaranteed to the players. That would stabilize the system and tie player salaries to revenues for good. The year-over-year corrections would be eliminated, thus protecting the existing contracts from rollbacks.

My Perfect World

Actually, a middle ground solution that I think would work wonders is a flex cap system, so to speak. The players have already rejected an offer of a flex cap, but of course, that doesn’t mean anything – things change when you’re not getting paid. My idea is a soft cap defined at 50% of BRI, a guaranteed 50% BRI to the players at minimum, and a hard cap (and maximum pay to the players) at 60% of BRI.

No year-by-year raises (or deductions) would exist in player contracts – you get your raise in the next contract you sign (this would have to be offset by increasing the signing value of max contracts). A reduced MLE, Bird rights (limited to players at least one year with the club), minimum salary and rookie scale exceptions (rookie salaries probably cut to 2 or 3 years to appease the players) as well as a reduced trade exception (say, 110% rather than 125%) would be needed to exceed the soft cap. No LLE or S+T would exist, and there would be no exceeding the hard cap under any circumstances.

This gives the players the potential to earn 60% of BRI – more than they are now, and in a league with good parity (competitiveness top to bottom), the owners may get very close to this level of spending. The players are guaranteed at least 50%, which is what they will probably settle for this year anyway, but have earning potential above that when the league is going well financially and many teams are in the playoffs. In those years when costs are too high or attendance is suffering, the owners can cut costs, knowing that they will pay out only 50% to the players, and the league can weather any storm that comes its way. And in the boom years (which should be most years, if the projections are correct) the players can earn more than they were able to under the last CBA. Long term, the hard cap keeps the system stable.

With the reduced value of the MLE and no player raises, it will take longer for teams to get stuck up against the hard cap and not be able to retain their players, giving teams a chance to win a few trophies before the system catches up to them. Everybody wins.

Final Notes

All of this discussion of course ignores the other issues up for debate, such as the internal revenue sharing the league will impose (outside of the CBA if they have their way, included in the CBA if the players get their way) and any other system changes to encourage parity that may be agreed upon (such as non-guaranteed deals, but that will never happen – the players would take a hard cap before relinquishing their guarantees), but those are secondary and are not driving the lockout.

I expect the situation will be resolved in time for a partial season – sometime in December if I had to bet. Of course, I still wouldn’t be surprised if the lockout stretches for an entire season or ends tomorrow – it all depends on how stubborn the players decide to be, because the owners are going to be stubborn. I expect the majority of players are not prepared to wait out the owners, and as such it should come to an end when the paychecks aren’t rolling in. But it would take a psychic to really know – there are so many factors in play, such as just what the owners decide to really ask for, and how unified the player body truly is.

Anyway, I hope you enjoyed this run-down of where we are, and I look forward to any questions, comments, or corrections you might have. I’ve done my research, but there’s a good chance someone knows something I couldn’t find – so feel free to join in if you think there are other factors involved, or something else more important to the discussion.

Finally, how do you think this lockout ends, keeping in mind the way past lockouts have gone and how the progression of the agreements over time have impacted the league? Do you have a suggestion for a fair and equitable deal for both sides, that can grant the money and flexibility the players want and the league viability and profits the owners want?

Thanks for reading!

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