Blog Entry

Hard cap could mean hard times for small markets

Posted on: July 4, 2011 12:05 pm
Edited on: July 5, 2011 9:37 am
Posted by Royce Young

NBA owners want a hard cap. It's probably one of the three biggest reasons we're stuck in a lockout right now. Owners want a hard cap, or at least one they're trying to disguise by calling it a "flex cap," and the union has basically said they will never, ever accept a hard cap.

And when the hard cap topic is brought up, people always wonder how a $55 million hard cap would affect a team like the Miami Heat. Between Dwyane Wade, LeBron James and Chris Bosh, those three soak up about $47 million on the Heat payroll. And that's just for 2011-12. In 2013-14, that number will be about $58 million, so even the suggested $62 million "flex cap" the league talked about would leave the Heat only $4 million to fill out their roster.

The super-together, we're-a-real-team Mavericks? Yeah, their total payroll added up to nearly $90 million last season, third highest in the league. That's about $30 million over the current salary cap but because it's a soft cap, it was fine. (Fine in the sense it didn't break any rules, but still, pretty outrageous.)

The feeling though with this hard-cap business is how much it'll affect teams like the Lakers, Heat, Bulls and Knicks. Now their greatest assets -- money and market -- don't mean as much because in a hard-cap system, signing multiple big contract stars just isn't an option. Victory for the small markets, right?

I'm not so sure about that.

I wonder about a team like the Oklahoma City Thunder, one of the smallest-market teams in the league. The feeling is that a hard cap would help smaller markets compete because talent would get distributed a bit more evenly throughout the league. With teams unable to pay a bunch of guys on the roster $15 million or go $30 million over the cap line, either players would have to take a serious pay cut or go somewhere else.

Except in the case of the Thunder, a straight hard cap would destroy them.

Kevin Durant just signed a five-year extension that will pay him around $16 million a year. Russell Westbrook, an All-Star point guard at the age of 22, is eligible for an extension and would probably have it if there weren't a lockout. He's probably a max player or close to it. So that would be another major mark on the cap for the Thunder. Then the other guys -- Serge Ibaka, James Harden, Eric Maynor -- are all eligible for extensions next summer.

If the league has a stiff cap of even $60 million, how can the Thunder dream of re-signing these guys and keeping the core intact?

Answer: They can't.

That has been Thunder GM Sam Presti's plan since Day 1, though. He wanted to draft a bunch of young guys and let them grow together. Let them progress, develop and become a team all together. And when they did, lock them all up long-term and have yourself a contender for the next decade. It has worked. The Thunder just went to the Western Conference finals with one of the youngest teams in the league and should be in the mix for at least the next five.

Unless of course they have to let a couple of their big pieces walk.

Last season the cap was set at $58.04 million and the Thunder were one of only five teams under that number. While a lot of smaller markets prefer not to bust into luxury tax territory, most likely OKC would be there after those key pieces were extended. So while they're under now, that probably wouldn't be the case in the future.

Reality is, a hard cap might have more of an affect on the little guys, which is who the league wants you to think it desperately wants to protect. But basically, with a hard salary cap system, building through the draft and letting a core grow together is no longer the way to go. Put together a roster with five good players that need extensions and you're out of room after three. Maybe you can get four, but how do you add another nine guys to fill out a 13-man roster?

What we might see is the Maverick Plan instituted as the way to win in the NBA. Now again, they totaled nearly $90 million, but I just mean the idea. Grab one star player and fill in the rest with a couple rookie-level contracts and a bunch of aging veterans willing to take $5 million or less. The Mavs had one star and everyone praised them for it. But in a hard-cap world, that might be best philosophy.

Because a team of Durant, Westbrook, Harden and Ibaka probably can't exist just as one of LeBron, Wade and Bosh can't. Doesn't exactly seem right, does it? The idea is a hard cap would help restore some competitive balance and the bigger markets wouldn't be able to just dwarf the small ones by going $30 million over the cap like the Mavericks did. The Thunder would never do that.

At the same time, while the playing field might be leveled in terms of payroll, it could come at the cost of breaking up the band and redefining how a small-market team must build.

Every team that's using the draft to build -- which is the sound and socially blessed way to structure a team -- would have to reconsider. The Cavaliers might've just committed 80 percent of their future cap to Kyrie Irving and Tristan Thompson if those two pan out. Same for the Jazz with Enes Kanter and Alec Burks. The future for those teams might be just enjoying the four years you get with them on their rookie contracts and then choose one to keep. I don't really think that's what the NBA has in mind, but that's going to be what happens. Small markets probably will take the brunt of a hard cap much harder than the big ones. Or at least the good small-market franchises that understand how to build.

Who knows what the NBA landscape will look like when the dust clears in this lockout mess. The players have taken a hard line on a hard cap and supposedly will refuse to back down. The owners though are committed in their efforts to get one. Yeah, it'll reduce salaries. Maybe the system will stay the same but just instead of Harden getting a $10 million-a-year extension, he would get $6 million. That's possible.

But this is the NBA and just because a new salary system is in place doesn't mean the league doesn't have impulsive general managers that are ready to snatch away a player like Harden and give him that $10 million a year simply because they know the Thunder can't go that high. That'll be the world teams operate in. One where the Thunder Way is no longer the blueprint for small-market building success.

Maybe the players have a point, huh?

Since: Jun 28, 2007
Posted on: July 5, 2011 8:54 am

Hard cap could mean hard times for small markets

I would root for the owners, but they are the ones that were giving $30M contracts to the likes of Darko Milicic and Drew Gooden...

Since: Jul 28, 2008
Posted on: July 5, 2011 7:54 am

Hard cap could mean hard times for small markets

Thank you!  I was thinking the same thing while reading this.  You're exactly right about this guy missing the point.

Since: Feb 11, 2009
Posted on: July 5, 2011 6:46 am

Hard cap could mean hard times for small markets

I just do not see how either side will get out of this one.  The hard verses soft.  The amount of money we are talking about can and should kill NBA basketball as we know it.  Damn! Just damn! THe problems I see with this could be endless, but here are a few.  First, less money for players means more opportunity to go overseas and make a good payday there.  This hurts the talent pool for what is considered the best basketball league in the world.  Second, dynasty is a lost word.  We will have no more.  Players want a payday and for what they do they deserve it.  But, how can you ever get a LeBron/Wade/Bosh superteam ever again?  Not happening!  Last, how can the teams get down to the hard cap amount?  How many teams are actually under the cap now? 3 maybe, maybe more, maybe less.  Who knows.  I do know the Heat, Celtics, Lakers, Thunder, Mavericks... are all over.  So are over a lot (Lakers 100 million to a cap of 60 million... WOW!).  This wil kill this league.  Everyone should make money, a good living.  With this stoppage, no one will.

Since: Sep 22, 2006
Posted on: July 5, 2011 3:00 am

Hard cap could mean hard times for small markets

This guy NEEDS to go "all MacLaughlin Group" because he clearly doesn't understand economics or logic.  The issue isn't "soft" or "hard" cap--it's where the cap is set.  If the cap were "hard" and set at $60m, then everyone would have to come down to that figure--it couldn't "destroy" the Thunder, because those players won't make more elsewhere, whether on an extension or a new contract.  What would happen under a hard cap--and why the owners want it--is that player salaries would drop.  Plain and simple; he's got that part right.

There would, however, clearly have to be some sort of grandfather clause or something to deal with present contracts that simply won't fit, but a hard cap means lower salaries all around.  Even if there are "impulsive general managers" who would give Harden $10m, they would have to try to fit OTHER players in under the cap, and with a hard cap, you couldn't.  You just couldn't.

And this is where he's missing the point: the old contracts and a new cap system won't fit together.  The "hard cap" would have to be either implemented gradually (tough to do) or much higher than the owners want it to be.  A $60m cap wouldn't, as he points out, allow ANY team to keep the players it has.  He wrote it: there were only TWO TEAMS under the $58.2m cap this year.  So if it's $60m, three teams would be able to field 12 players.  Clearly not workable without overall reductions, so if there's a hard cap implemented immediately, it isn't going to be $60m.  And if it is, there isn't going to be a single GM, impulsive or not, with the ABILITY to offer a James Harden $10m.  Basic math.

Also, the rookies won't get the contracts they're getting now with a hard cap in place, so the whole point about the Cavs and Jazz is irrelevant. If there's a hard cap of $60m, even Cleveland isn't going to be able to devote 80 percent of it ($48m) to two rookies.  And there would probably be a rookie salary structure in place anyway, so ... fuggitaboutit.

You cannot, and should not, compare present-day apples with future oranges, especially as the oranges are of unknown size and quantity.  That's Econ 101, buddy.

Since: Mar 8, 2008
Posted on: July 5, 2011 2:47 am

Hard cap could mean hard times for small markets

They didn't actually pay this guy to write this article, did they? What a muddleheaded mess!   

Since: Nov 23, 2008
Posted on: July 5, 2011 1:48 am

Hard cap could mean hard times for small markets

Oh yea, the small market teams will lose big with a hard cap. Did you see the past weekend in the NHL? The small market teams went on a feeding frenzy, simply because the big boys have already spent close to the hard cap. It works both ways.

Stop talking in theory when reality is right under your nose, and says the exact opposite of your arguement. 

Since: Feb 16, 2010
Posted on: July 4, 2011 11:06 pm

Hard cap could mean hard times for small markets

Silly rabbit, Trix are for kids! Royce is dead wrong for the reasons that have already been posted.

Problem is, players should negotiate for money and rights but the CBA have already given them all the rights so they all fight for money. Salaries go up, lockout ensues. This cycle will continue unless players are given options. Hard cap, No max salaries, soft rookie payscale, no max years, and most of all no guaranteed contracts. Players can negotiate a guarantee @ the negotiating table.

Another thing is players should be able to kinda force trades. We don't want another Allen Iverson deal. Players should be able to put themselves on an auction-block. If a player feel mistreated or misused he can threat to auction himself and teams would rather trade him than get nothing back.

With this system you may see Blake Griffen sign a 10 year $100 million deal. If he busts, cut. If he becomes Lebron, the team either renegotiates or Blake says I bet the Wizards will pay more. Players will always earn thier complete and exact value.

Since: Dec 5, 2006
Posted on: July 4, 2011 10:58 pm

Hard cap could mean hard times for small markets

There seem to be some questionable assumptions here.

First, Royce, you assume that max salary limits will remain the same as the old CBA. That does not appear to be the case. Look for a max salary of $10 or even less. There might even be some roll backs of current contracts.

Second, you assume a hard cap of $55M while the latest NBA proposal was for $2B guaranteed, or $67M per team. The flex cap of $62M would allow a $5M overage before it becomes a hard cap.

Third, you assume that a young building team like the OKC Thunder will keep all its players and extend them. History tells us this is not likely. Instead it is more likely that Westfall will seek a team where he can be number one. It is likely that James Harden will want too much money to stay (see Jeff Green trade). It is also historically established that savy veterans (Perkins) will be needed to provide leadership to take the team beyond the Western Conference Finals. The mix must change to work.

The hard salary cap will require some shifts in strategy for all teams but the Thunder will be no more damaged than any other. It is also likely in light of the most recent NBA proposal that there will be a lead-in phase that allows teams to get to a hard cap state after a couple or three years. OKC was always going to have to divest itself of talent that was ready to move beyond the rookie contracts. Portland has dealt with the same issues and will need tp reduce their core to move forward. Memphis is also going to have difficulties and likely will look to trade Rudy Gay. But Miami, LA Lakers, NY Knicks, NJ Nets, Chicago and Orlando will have an even tougher time getting under the cap. The effect is to drive down demand and thus, drive down salaries.

The hard cap system generally needs non-guaranteed contracts. As this issue has already been surrendered by the NBA, the length of contracts will likely be limited to three years or four for Bird Rights players. Even then, look for contracts to have the final year as a team option. The landscape has changed with the drastic change in the economy. We are in a depression with greater economic risk ahead than behind. Under these conditions the NBA is better off shut down then to continue to pay what it has been paying.

Since: May 23, 2008
Posted on: July 4, 2011 10:51 pm

Hard cap could mean hard times for small markets

The writer misss the point.  With a hard cap, salaries would decrease.  The OKC doomsday scenario would not happen, or atleast not as severely.  The NFL enjoys competitive balance wih a hard cap, and they are the top league in the U.S. by a wide margin.  NBA players are WAY overpaid! 

Exactly! How is he trying to play this senario like these guys would be signing for these mega contracts. If Durant is signed for 16 mill. And every team has a guy like Durant it's unlikely the Robin to the Batman guys would be getting $16 mill. It's not that complicated and I can't believe a writer would be able to pass a piece like this by an editor.

Take a look at the NFL and NHL. Most of the stars sign with their teams before they even hit FA.

Since: Jul 4, 2011
Posted on: July 4, 2011 10:10 pm

Hard cap could mean hard times for small markets

The writer misss the point.  With a hard cap, salaries would decrease.  The OKC doomsday scenario would not happen, or atleast not as severely.  The NFL enjoys competitive balance wih a hard cap, and they are the top league in the U.S. by a wide margin.  NBA players are WAY overpaid! 

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