|Despite playing just five games last season, Brook Lopez may get a max deal from the Nets. (Getty Images)|
The anniversary of NBA owners imposing a lockout came and went with little fanfare -- or with lots of it, depending on your perspective. At 12:01 a.m. ET on July 1, the floodgates opened and it was back to business.
But was it business as usual, or the beginning of a tectonic shift in the financial and competitive models that will drive the sport for years to come?
Lucrative contract offers were handed out. Superstar trade scenarios were explored. Players who'd been lavished with millions in free agency only a couple of years ago were shopped for pennies on the dollar. Stars were congregating in big markets again, prompting small-market executives to privately grumble that the lockout was for naught. To the naked eye, nothing had changed.
But beneath the surface, so much really has changed about the NBA's business model, and so many unknowns remain about the path forward. The 149-day lockout consumed 20 percent of the 2011-12 season -- and with it, nearly a half-billion in revenues -- while costing the players an estimated $3 billion in projected salaries over the next decade. With Year 1 of the NBA's harsh financial reset in the books, it's time to take the temperature and discern whether it was all worth it.
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In the first 72 hours of the league's first, full-fledged free-agent negotiating period of the new collective bargaining agreement, owners handed out approximately $400 million in contracts -- roughly the amount of revenues lost as a result of the lockout. And the conga line of big-name stars trying to land in major markets continued with the Nets' acquisition of Joe Johnson and re-signing of Deron Williams, the Lakers' acquisition of Steve Nash and Dwight Howard's ongoing quest to land in Brooklyn with Williams, which has failed for now.
Max offers were verbally extended to restricted free agents Roy Hibbert and Eric Gordon, who have only one All-Star appearance on their collective resumes. Brook Lopez got a four-year max deal from the Nets; he and Gordon played a combined 14 games last season due to injury. George Hill, a nice player, got a five-year, $40 million deal to stay in Indiana. Restricted free agent Nicolas Batum got a verbal offer from Minnesota purportedly averaging $11 million a year.
"Crazy," one rival executive said of the Batum offer, which as of Friday had yet to be extended in writing as the Trail Blazers stood ready to match. "Players are getting overpaid worse than they ever have."
But there's more to the equation than sheer dollars. With shorter contract lengths, increased revenue sharing and a steady flow of cap room across the league, officials from the NBA and the National Basketball Players Association are collectively hoping the free-agent market will be annually vibrant and open to all teams regardless of market size. It's only Year One of the lockout-induced reset, so it's too early to conclude the rich are getting richer. The best that can be said is that the new rules haven't made them any poorer -- yet.
According to league salary figures, the Lakers' sign-and-trade acquisition of Nash, 38, with a three-year, $27 million deal pushed their total payroll and tax obligations for next season to $105 million for nine players. If the Lakers kept Kobe Bryant, Pau Gasol and Andrew Bynum, they'd have $90 million in committed payroll for the 2013-14 season -- resulting in a $44 million tax payment under the new rates. So their tax payment alone would be $5 million shy of the projected league minimum payroll for that season.
Portland's offer for Hibbert was particularly troubling to small-market executives, who viewed it as a strong-arm tactic by one of the league's richest owners, Paul Allen, to poach talent from a low-revenue team. The Trail Blazers' bid for Hibbert forced the Pacers to max him out with a comparable offer of $58 million for four years, thus pushing Indiana dangerously close to tax territory if it wants to keep David West or replace him with a comparable player to remain competitive.
But one isolated signing or temporary thrust into tax territory isn't proof the new CBA is flawed. Whether Gordon winds up in New Orleans or Phoenix, it will be an example of a small-market team spending money -- one of the goals of the new deal. The same goes for Batum and Minnesota vs. Portland, Allen's deep pockets notwithstanding.
Eleven teams had at least $10 million in cap space this summer, a collective pool of spending room perhaps rivaled only by the LeBron James free-agent summer of 2010. And with shorter contracts being an important pivot point in the new CBA, teams with ample cap space and the tools to use it if they choose will be the rule, not the exception. Under the previous CBA, there were 16 five-year contracts signed per year on average, not counting rookie-scale extensions. Last year there were six, and thus far this summer there have been four -- Deron Williams (Nets), Ersan Ilyasova (Bucks), Jason Thompson (Kings) and Hill (Pacers).
|Nash's $27M deal puts L.A.'s payroll and tax bill for '12-13 to $105M for nine players. (AP)|
In fact, the inability to change owner behavior is one of the reasons the NBA had a lockout in the first place. With marching orders from owners complaining about mounting losses and a broken business model, commissioner David Stern and his lead negotiator, deputy commissioner Adam Silver, sought the imposition of a hard salary cap in the labor negotiations. Why? Simply because the luxury-tax system implemented as a supposed cure after the previous lockout in 1998-99 did not have the intended effect of suppressing spending by the elite teams. In the last season of the old agreement, seven teams were taxpayers. The top two, the Lakers and Magic, had $90 million payrolls -- twice the league minimum.
But even without a hard cap, behavior started to change last season, when the NBA had its fewest tax-paying teams (six) in six years. Effectively, that number was five, since the Hawks sold a draft pick to Golden State at the trade deadline for enough cash to cover their tax bill. According to league salary data, the NBA collected the lowest amount of tax revenue last season since the dollar-for-dollar tax was implemented in 2002-03, and the top-spending team had the lowest payroll in 10 years (the Lakers at $85.7 million).
And while big-name players like Jason Kidd (Knicks) and Ray Allen (Heat) are still managing to find their way to major markets, they're going with big pay cuts and, in some cases, by means that won't be available starting next summer. The sign-and-trade arrangements that sent Nash to the Lakers and Marcus Camby to the Knicks will be off-limits to tax-paying teams starting in July 2013 -- Phase Two of the reset.
Phase One was a 12 percent across-the-board reduction in player salaries, which was accomplished last season with the players' guaranteed share of basketball-related income (BRI) declining from 57 percent under the old agreement to 51.2 percent. Most of the reduction was achieved through a change in owner behavior and agent expectations, as negotiated salaries came in slightly above the players' guarantee -- about 53 percent of BRI, according to CBSSports.com estimates. The difference was taken care of through the escrow system, with the owners keeping a portion of salaries withheld to bring the players down to the guaranteed amount.
In truth, salaries had been headed in that direction for more than a year, as negotiated salaries in the final year of the old agreement came in slightly below the 57 percent guarantee, resulting in the players getting the entire escrow amount back plus a check to cover the shortfall. The players are guaranteed 50 percent of BRI starting next season, when the league and union project revenues will be $4.3 billion. Revenues came in at about $3.4 billion last season, according to CBSSports.com estimates -- a 10 percent decline that was a remarkable success, considering the league lost 20 percent of the season to the lockout.
Phase Three will be by far the most interesting and potentially transformative one next summer, when tax-paying teams will no longer be allowed to acquire players in sign-and-trade transactions and the steeper tax rates kick in. In conjunction with that will be a repeater tax that will levy an additional $1 to the already increased rates at each $5 million increment above the tax line. A team that exceeds the tax line for a third time in four years will be hit with the repeater rates -- $2.50-per-dollar for the first $5 million above the line, $2.75-per-dollar for the next $5 million, etc., all the way up to $4.75-per-dollar for a team that exceeds the tax threshold by $20-$25 million. For example, a repeat offender that exceeds the tax by $20 million will owe $65 million in tax -- an outrageous amount equal to the projected average payroll for next season.
Not even the Lakers or Knicks will pay that. Will they? Big-market teams may choose to go for it with a big tax bill in any given year, but the odds of the same 5-6 teams exceeding the tax line year after year seem slim. Once again, owner behavior in response to a new system will be the ultimate test of whether the lockout was worth it and whether the changes will achieve their desired goals.
How the new rules ultimately will influence the so-called Big Three model of team-building will perhaps be the most fascinating aspect of this transition. The Heat's championship was built that way, and Miami isn't showing any signs yet of backing down with James, Dwyane Wade and Chris Bosh on the books for a combined $56.8 million in the first super-tax year of 2013-14. Ditto for the Knicks, who are on the hook for a combined $58.2 million the same season. But the boldest and most aggressive owner in the league, the Mavericks' Mark Cuban, is reacting differently -- pulling back from a top-heavy payroll approach he has said will be flawed under the new rules.
"Because of the new set of rules, there's going to be a different market for pricing players," Cuban said at this year's Sloan Sports Analytics Conference in Boston. "And when there's a different market for pricing players, you've got to introduce a different methodology for building a team."
Having been directly involved in the owners' strategy for the new deal, Cuban dumped Chandler in a trade with the Knicks before last season rather than pay him $12-$15 million annually on a new contract. His attempt to use the room to attract Williams from the Nets failed in part because players like Williams can no longer achieve the max contract length of five years by changing teams. (Oops.) Undaunted, Cuban replenished the roster temporarily by adding center Chris Kaman with a one-year, $8 million deal, claiming forward Elton Brand for one year at $2.1 million (with the 76ers, who amnestied Brand, paying the rest of his $18.2 million contract), and trading for Darren Collison and Dahntay Jones -- both of whom have contracts that expire next summer, when Cuban will again have ample cap room to reboot.
What the final product will look like after the reboot -- not only in Dallas, but also in New York, Los Angeles and Miami, not to mention Minnesota, Sacramento and New Orleans -- will tell us whether the lockout gave us a new business model or just business as usual.