You've probably heard by now that the new CBA's luxury tax rules will have adverse effects on well-constructed teams like the Thunder and the Heat. One thing that hasn't been discussed in depth is how exactly these teams will be affected by the tax. You probably won't notice any big difference this season or in 2012-13, as the dollar-for-dollar tax rules from the previous CBA will remain in effect for those seasons. It's in the following seasons that you will begin to see the effects.
Remember, the Heat were taxpayers during the 09-10 season. Thus, they will satisfy the repeat offender (exceeding the luxury tax in 4 of the past 5 years) clause by the conclusion of the 2013-14 season, assuming Miami exceeds the tax in each of the next 3 seasons. Starting with the 2013-14 season, teams who go $5 million or less over the luxury tax threshold will pay $1.50 for each dollar they exceed the limit by. Repeat offenders (e.g. the Heat), however, will pay $2.50 for each dollar over the luxury tax limit.
Teams exceeding the threshold by $5-10 million will pay a standard tax of $1.75 or a repeat offender tax of $2.75. The further over the limit teams go, the more punitive the penalties get. For teams $15-25 million over the tax threshold, the repeat offender fee is $4.25 for every dollar. A team that goes $20 million over the luxury tax would pay the league an additional $85 million. In lieu of a hard salary cap, the stricter luxury tax rules were the owners' way of discouraging "super teams" while subsidizing the league's less profitable (i.e. small market) teams. It's safe to assume Heat owner Micky Arison won't hesitate to exceed the luxury tax this season and in 2012-13, as the penalty for doing so isn't nearly as severe as it will become thereafter.
Fast forward to the 2013-14 season. This is where things will get interesting for Miami. Mike Miller has about as good a chance of being on the Heat's roster at that point as I do. He will still earn his $6.2 million salary somewhere, but the Heat will almost certainly exercise their amnesty clause, which allows teams to release 1 player without having his salary count against the team's cap, on him. Assuming that takes place, the Heat still have $69.5 million (almost $57 million of which will go to the James-Wade-Bosh trio) committed to 9 players for the '13-'14 season.
As Ira Winderman mentioned in his column on the Heat's luxury tax situation, Arison is not willing to go too far over the tax in the name of winning. So the question becomes: What will the Heat's roster look like in 2013? Winderman seemed to hint that either Wade, James or Bosh would be shipped out. I don't see that happening, particularly if the Heat win a championship this year and/or next.
If Pat Riley winds up trimming payroll to avoid the sharp teeth of the new luxury tax, the role players will be shown the door first. Think Mario Chalmers, Udonis Haslem (as much as that pains me to type) and Shane Battier. All three have reasonable
(i.e. tradeable) contracts and would be competent rotation players for just about any NBA franchise. And while the departure of any of those role players would create a void in Miami's rotation, losing Wade, James, or Bosh would break up an elite core that will have built 3 years of chemistry entering the '13-'14 season. Frankly, the longer Miami's Big Three play together, the more the Heat can afford to treat the complementary players around them interchangeably.
Should that situation play out, expect the Heat to put a greater emphasis on finding low-cost players via the draft and undrafted free agent signings. You'll see a lot more Terrel Harris types than Eddie Houses. There will always be past-their-prime veterans willing to join the Heat and chase a ring for the veteran's minimum, but a substantial gulf exists between the salary of an undrafted rookie and a 10-year veteran. In 2013, the rookie minimum will be $490,000 while players with 10 years of experience are guaranteed $1.4 million. Throw in the fact that the Heat will almost definitely be a repeat offender tax-paying team, and the cost of adding additional players multiplies quickly.
Just for fun, let's say the Heat are $9 million over the luxury tax and need to add a player to the roster. Veteran Free Agent X is willing to take that $1.4 million minimum salary. But adding him would put the Heat $10.4 million over the tax, and the team's status as a repeat offender would mean that they would pay $3.50 for every dollar over the tax they go. Thus, the Heat's luxury tax bill alone would skyrocket to $36.4 million. Contrast that with what it would cost to sign a 2nd-round or undrafted rookie. Paying him the $490,000 minimum, the Heat would stay under the $10 million mark. Thus, their repeat offender multiplier would be just $2.75 instead of $3.50. In that scenario, the Heat's luxury tax payment would be $26.1 million. So the actual cost of adding
$1 million in salary could be as high as $10 million for a repeat offender. The financial implications lead me to believe that Arison and Riley will choose to keep the Big Three together, but cut costs around the fringe of the roster. It's not an ideal solution, but it might be the only way for the Heat to maintain its status as championship contenders.
For those of you wondering, Harris is a restricted free agent after this season. Should he continue his steady play (I know, it's only been ten games), he could be lured away by a lucrative offer similar to the scenario that played out when Wesley Matthews left Utah for Portland after his rookie year. That's looking pretty far into the future, but it seemed apropo given the highly speculative theme of this entry.
Following are the opening day rosters for NBA Tip-Off ‘11. The season begins tomorrow (Dec. 25th)with five games:
ATLANTA Jason Collins Willie Green Kirk Hinrich Al Horford Ivan Johnson Joe Johnson Tracy McGrady Zaza Pachulia Jannero Pargo Vladimir Radmanovic Donald Sloan Josh Smith Jerry Stackhouse Jeff Teague Marvin Williams
BOSTON Ray Allen Brandon Bass Avery Bradley Marquis Daniels Keyon Dooling Kevin Garnett JaJuan Johnson E'Twaun Moore Jermaine O'Neal Sasha Pavlovic Paul Pierce Rajon Rondo Greg Stiemsma Chris Wilcox
CHARL0TTE DJ Augustin Bismack Biyombo Derrick Brown Matt Carroll Boris Diaw DeSagana Diop Gerald Henderson Corey Maggette Byron Mullens Eduardo Najera Tyrus Thomas Kemba Walker DJ White Reggie Williams
CHICAGO Omer Asik Carlos Boozer Ronnie Brewer Jimmy Butler Luol Deng Taj Gibson Richard Hamilton Kyle Korver John Lucas III Joakim Noah Derrick Rose Brian Scalabrine CJ Watson
CLEVELAND Omri Casspi Semih Erden Christian Eyenga Alonzo Gee Daniel Gibson Luke Harangody Ryan Hollins Kyrie Irving Antawn Jamison Anthony Parker Samardo Samuels Ramon Sessions Mychal Thompson Tristan Thompson Anderson Varejao
DALLAS Rodrigue Beaubois Brian Cardinal Vince Carter Brendan Haywood Dominique Jones Jason Kidd Ian Mahinimi Shawn Marion Dirk Nowitzki Lamar Odom Jason Terry Delonte West Sean Williams Brandan Wright
DENVER Arron Afflalo Chris Andersen Corey Brewer DeMarre Carroll Kenneth Faried Rudy Fernandez Danilo Gallinari Jordan Hamilton Al Harrington Kosta Koufos Ty Lawson Andre Miller Timofey Mozgov Nene Julyan Stone
DETROIT Will Bynum Austin Daye Ben Gordon Jonas Jerebko Brandon Knight Vernon Macklin Jason Maxiell Greg Monroe Tayshaun Prince Rodney Stuckey Charlie Villanueva Ben Wallace Damien Wilkins
GOLDEN STATE Andris Biedrins Kwame Brown Stephen Curry Monta Ellis Charles Jenkins David Lee Dominic McGuire Brandon Rush Ishmael Smith Klay Thompson Jeremy Tyler Ekpe Udoh Chris Wright Dorell Wright
HOUSTON Jeff Adrien Chase Budinger Goran Dragic Jonny Flynn Jordan Hill Courtney Lee Jeremy Lin Kyle Lowry Kevin Martin Marcus Morris Chandler Parsons Patrick Patterson Luis Scola Hasheem Thabeet Terrence Williams
INDIANA Louis Amundson Darren Collison Jeff Foster Paul George Danny Granger Tyler Hansbrough Roy Hibbert George Hill Dahntay Jones Jeff Pendergraph A.J. Price Lance Stephenson David West
L.A. CLIPPERS Chauncey Billups Eric Bledsoe Caron Butler Brian Cook Reggie Evans Randy Foye Ryan Gomes Blake Griffin DeAndre Jordan Travis Leslie Chris Paul Trey Thompkins Mo Williams
L.A. LAKERS Matt Barnes Steve Blake Kobe Bryant Andrew Bynum Derrick Caracter Devin Ebanks Derek Fisher Pau Gasol Andrew Goudelock Jason Kapono Josh McRoberts Darius Morris Troy Murphy Luke Walton Metta World Peace
SELECT READ MORE TO SEE THE OTHER 17 TEAMS IN THE NBA
Welcome to the latest NBA edition of Bizball Radio with Seth Everett and Maury Brown!
In this basketball edition of Bizball Radio with Seth Evertt and Maury Brown, they talk extensively about the new NBA labor deal and ask, "If the NBA lost this much of a season, does the deal truly work in a way that corrects the financial issues?" Also, with Seth a Syracuse alum, they talk the Bernie Fine scandal and whether ESPN is upholding journalistic integrity.
It was 3am ET Saturday morning when it was announced, but never let it be said nothing good happens after midnight. The NBA and the players have reached a tentative agreement to end the 149 day lockout that has placed the entire 2011-12 season. To do so requires that the players reform as a union and drop their anti-trust lawsuit. It also requires ratification of from the owners and the players. For the players, it will be a simple majority of the 430 player body while for owners it requires a majority, or 15 of 29 owners as the New Orleans Hornets are currently owned by the league.
“We expect our Labor Relations Committee to endorse this deal, this tentative agreement,” said Commissioner David Stern early this morning. “We expect our Board of Governors at a meeting we will call after that, to endorse the deal. And we expect that a Collective Bargaining Agreement will arise out of this deal as well.”
"We thought it was in both of our interest to try to reach a resolution and save the game," NBPA executive director Billy Hunter said.
According to The AP, participating in the talks for the league were Stern, Silver, Spurs owner Peter Holt, the chairman of the labor relations committee, and attorneys Rick Buchanan and Dan Rube. The players were represented by executive director Billy Hunter, president Derek Fisher, vice president Maurice Evans, attorney Ron Klempner and economist Kevin Murphy.
The league said that decertification of the union and the ensuring antitrust lawsuit that would have tied the sides up in court and could have resulted in $6 billion in treble damages to the owners was not the reason for the sudden movement in negotiations, but it seems that was clearly a large reason for the deal getting done.
And, it almost didn’t. NBPA outside counsel Jeffrey Kessler, who has raised the ire of David Stern and the league’s owners was quietly moved out as lead negotiator in favor of Jim Quinn who was involved in the 1998-99 lockout, although Quinn was not there in the final negotiating session. According to Yahoo Sports:
The negotiating session nearly came undone in the early moments on Friday night when Players Association counsel Jeffrey Kessler told Stern and the NBA’s negotiating team through a speaker phone that the players wanted to move back to a 51 percent revenue split, a league source told Y! Sports. Stern, labor relations committee chairman Peter Holt and deputy commissioner Adam Silver termed the proposal “unacceptable,” and soon left the conference room.
Specifics aren’t being released at this time as the sides continue to hammer out the final pieces of the deal. The owners were willing to move off a 50-50 split of Basketball Related Income (BRI) and reportedly have accepted a 51-49 split. In the former CBA, players were receiving 57 percent of BRI. On top of that, a strengthening of the Luxury Tax will take place.
"I think it will largely prevent the high-spending teams from competing in the free-agent market the way they've been able to in the past. It's not the system we sought out to get in terms of a harder cap, but the luxury tax is harsher than it was. We hope it's effective," deputy commissioner Adam Silver said.
The question is, is it enough? As I reported for Forbes in July, audited numbers show that the league lost $1.5 billion over the last 5 years. The players have said that increased revenue-sharing needs to occur as some clubs are turning a healthy profit (see graph below based off the Forbes valuations) which will now be occurring.
The graph below, and link to the associated table show the reasons why.
Whether 51 or 50 percent of BRI, the league did not get a hard cap, and other concessions had to be made. That’s part and parcel with the negotiating process. The new deal will be 10-years in length with an option for either side to opt out of the agreement after 6 years. With that in play, one might assume that by the fifth year of the deal, we’ll know whether the system is functioning to the satisfaction of the league and union. After nearly losing the season (and the possibility of much of their fan base), those watching the NBA as an industry can certainly hope it’s all enough to get the league on financial track.
Welcome to the latest NBA edition of Bizball Radio with Seth Everett and Maury Brown!
In this NBA edition of Bizball Radio with Seth Evertt and Maury Brown, they dig deep in the the NBPA decertification and what that means for the league. They go in-depth into NBA's model and ask, if the season is lost, will the fans come back? They also talk about owners looking at a complete "reset" of negotiations, and whether the timing the decertification was done poorly.
Welcome to the latest NBA edition of Bizball Radio with Seth Everett and Maury Brown!
In the second NBA edition of Bizball Radio with Seth and Maury, they discuss the NBA canceling another two weeks of the regular season due to the lockout, how they see the NBA as “broken” and wonder, would it be better or worse for the league to contract two or more teams to get competitive balance righted.
Along the way, the two talk about how the NBA stacks up to the other sports leagues in terms of the ability for just a handful of teams to have a chance at the postseason, whether the owners be “self-regulating” or whether, as the rules are now, if you can win at all costs, and have the money, should you be able to?
The Celtics, TrailBlazers, Paul Allen, the Spurs, LeBron James, Chris Paul, DeWayne Wade, the Miami Heat, and how the relocation of the Seattle SuperSonics play into the mix are all part of an excellent podcast this week.
Welcome to a new edition of Bizball Radio with Seth Everett and Maury Brown!
The labor situation in the NBA has dragged on and with it, the NBA preseason and two weeks of the regular season have been canceled. The NBA and NBPA had a 14 hour meeting with Federal mediator, George Cohen on Tuesday night, and meetings picked up again early Weds. morning. But, is the NBA sound? Seth and Maury take on the subject asking whether "settlement" really solves the NBA's financial problems, whether two or more teams should be contracted, and the overall health of the NBA.
When talks broke off on Monday between the NBA and NBPA, one of the issues that the sides were said to be far apart on was the amount of Basketball Related Income (BRI) each side would get/wanted, out of the new labor agreement. It has been said that the owners wish to a true “partnership” with the players, moving the BRI split to 50-50 as opposed to 57-43 as it is now with the players getting the larger share.
But, in speaking to an insider close to the negotiations, that’s not the case.
During an earlier meeting one of the union representatives raised the 50-50 split as a possibility – an idea, not a proposal. Last Tuesday, the owners and the union had a sidebar meeting and agreed to see if they could sell the deal. It wasn’t driven by one side or the other, but rather something that could possibly be sold in negotiations.
Stern was said to make this his last effort on the BRI split, but the media has latched onto the idea that the league was at 50%, the union is at 53% and with it, there is the divide.
That was never really the case. Where we are at on BRI is the owners at 53% and the union looking more at 47% for the league, a much larger divide of 6% as opposed to the 3% that has been portrayed in the press through the 50-50 BRI discussion.
Bottom line is, the BRI issue is still looming, and it’s likely to be one of, if not the, most critical big-ticket item to helping to get a deal done.
Where Are We On Revenue-Sharing?
Increased revenue-sharing has been a key aspect of a new labor deal that has somehow drifted off the radar. The NBA isn’t getting too deep into specifics, but here’s what we do know….
In a Sept. 30 press conference, Commissioner Stern said that the league was in need of a “better economic system” and that out of an earlier work session there was a decision to have “robust revenue-sharing that will be at least triple what this year’s is, and by the third year likely four times” what it is now. Stern went on to say that the formula was still being “tweaked” and that the owners and the union were being made abreast of it. In terms of how much transparency has been given to the union, Stern said that “they know precisely” what is being done on the revenue-sharing front.
The deal isn’t down on paper… yet. As mentioned by Stern, it’s still being worked through – the actual method of how that increase in revenue-sharing mentioned as “at least triple” and eventually “four times” is being hammered out.
As to how revenue-sharing plays into the grand scheme of a new labor agreement, at least from the owners side, it’s not critical to the circumstances. “As we’ve said before, revenue-sharing doesn’t change the aggregate economics,” said Deputy Commissioner Adam Silver. “The union understands that, as well.”
Unable to reach an agreement with the players, the NBA announced late Monday that the first two weeks of the regular season have been canceled.
“Despite extensive efforts, we have not been able to reach a new agreement with the players’ union that allows all 30 teams to be able to compete for a championship while fairly compensating our players,” NBA Deputy Commissioner Adam Silver said.
David Stern added that there is no chance that games will be made up, thus solidifying that the league will not see an 82 game season. No further meetings are scheduled between the NBA and NBPA.
The core issues continue to center on the split of Basketball Related Income (BRI), and the Luxury Tax. The owners are looking for a 50-50 split on the BRI, while the players have stood fast to not going any lower than 53 percent of BRI. The last CBA had players receiving 57 percent of BRI. The league saying that increased cost of doing business, along with the cost for player salaries resulted in $300 million in losses last season.
The owners are said to have increased revenue-sharing as part of their last offer, but the league has not said what the details are. A hard cap, once sought by the players, has been forgone in a strengthened Luxury Tax. Both the BRI split and the Luxury Tax are the key pieces that the sides are far apart on.
The loss of the first two weeks of the regular season could be result in as much $200-$250 million in losses.
The deal the sides are working on is reportedly a seven-year agreement. While the losses over 2 weeks, or more, seem high, that pales in comparison to how a projected $16.8 billion is split over the life of a new CBA. In that, owners have a keen investment in sticking to the 50-50 split.
It should be noted that the NBA is taking a page out of the NFL’s playbook. The owners worked off the same tangent saying that if the players truly wanted to be partners, they should have an equitable split.
There had been rumblings by player agents that they were seeking the NBPA to decertify, thus throwing the labor battle into the courts. With the sides saying that no talks are now scheduled, decertification of the union could be a very real possibility. Derek Fisher, the president of the NBPA said after talks broke off tonight that decertification is still very real.
Stuck in the crossfire are the NBA’s network partners, ABC, ESPN and TNT. All three have provisions in their contacts with the league in which they are paying for games, even if they are not played. All told, rights fees from ABC, ESPN, and TNT total approximately $930 million a year. The NBA will have to reimburse the league for any lost games, with interest, but it leaves a serious programming hole. "We obviously have contingency plans put in place," said David Levy, president of Turner Sports before the lockout kicked in.
Back to the games lost, the league announced that refunds plus interest are available for all NBA season-ticket holders for all preseason and regular-season games that are canceled.
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You've probably heard by now that the new CBA's luxury tax rules will have adverse effects on well-constructed teams like the Thunder and the Heat. One thing that hasn't been discussed in depth is how exactly these teams will be affected by the tax. You probably won't notice any big difference this season or in 2012-13, as the dollar-for-dollar tax rules from the previous CBA will remain in effect for those seasons. It's in the following seasons that you will begin to see the effects.
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It was 3am ET Saturday morning when it was announced, but never let it be said nothing good happens after midnight. The NBA and the players have reached a tentative agreement to end the 149 day lockout that has placed the entire 2011-12 season. To do so requires that the players reform as a union and drop their anti-trust lawsuit. It also requires ratification of from the owners and the players. For the players, it will be a simple majority of the 430 player body while for owners it requires a majority, or 15 of 29 owners as the New Orleans Hornets are currently owned by the league.
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