NBA: Where contraction happens??

Ramblings by JL

Is contraction good for the NBA?

This is not a post about the negotiations that are currently going on for a new NBA Collective Bargaining Agreement. I’m not going to take sides. I don’t care who gets what. At the end of the day, everybody involved in this process is going to go from filthy rich to filthy rich. But please, as a die-hard NBA fan who just wants to see some basketball, allow me to rant for a minute before getting on to my main point. Just SHUT UP! The NBA, the players associations, the owners, the union lawyers … all of you!! SHUT UP! We’re now entering the 128th day of this lockout. I’ve heard the rhetoric “We feel sorry for the fans, the stadium workers, and the team employees.” countless times from both the owners and the players. Each time I hear it, I get more peeved. You don’t care about fans or the people whose livelihoods depend on NBA games being played! This is all about greed! If you really did care, you would’ve realized how lucky you already have it, put your egos aside, and settled on a deal that would’ve started season on time! Look, I understand both of your perspectives. The owners, you want to lock players out and get a better deal because you can. That’s fine! I agree that you have the leverage in these negotiations. So why not get the best deal you can? That’s business 101! The players, you think you’ve already made all the concessions in these negotiations. Your egos will not a lot you to cave any further. You can even paint the picture that you’re holding the line for future generations of players. Fine! That’s an understandable position! So just be honest and tell us that this all about maximizing your profit, your income, your earnings potential, or whatever words you want to use! Don’t insult the intelligence of the fans by telling us how sorry you feel for us! Stop trying to play the public relations game. It just makes you look even more disingenuous. By the way, another rhetoric I’ve heard almost as much, mainly from players, is “This is about standing up for what’s fair”. It seems the players are confused about the distinction between market value and fair value. Don even get me started on what’s “fair value” for people who play a game for a living that has no tangible contribution to society other than entertainment.

All right. Rant over. Now, onto my main point. While I’m not a fan of how both the owners and the players have handled this CBA negotiation process, I do agree that the changes need to be made to the current NBA system. There are definitely teams that are losing money. Smaller market teams do have a competitive disadvantage compared to large market teams. Things that are being discussed right now during the new CBA negotiations will improve the situation. The lowered Basketball Related Income (BRI) split will put more money into owners’ pockets and make the league as a whole more profitable. The more punitive luxury tax rules will further discourage large market teams from simply outspending the small market teams. However, none of those changes really address the real issue that’s causing this lockout: We have too many teams that are losing money. Even with the discussed CBA changes, we will still have too many teams that will lose money.

If the media reports are correct, there is a significant split in position amongst the owners over the CBA changes that are currently discussed. So, if the CBA is agreed to as currently constituted, it will have been with a very small majority on the owners’ side. What this says to me is that if and when the new CBA is agreed to, a large number of owners will not be happy with the deal. So, in 5-6 years, or whenever the new CBA expires, we’ll be in the same place, going through all the same things we just went through over the past couple months. This cycle will rinse and repeat as long as we have a large portion of the NBA ownership losing money. So here is a different way to look at it. Instead of coming up with a CBA agreement that will ensure profitability for every NBA team, why don’t we just keep the teams that can be profitable under the new CBA? Yes, I’m talking about contraction.

I’m not going to take credit for this idea. It has been suggested by many different outlets throughout the years. But the more I think about, the more it makes sense. The way I look at it, NBA teams can be divided up into 3 different categories.

1) Big market teams that will profit no matter what (Lakers, Bulls, Knicks, Mavs, Clippers, etc.)
2) Mid to small market teams that will profit if they produce quality products (Heat, Magic, Sixers, Spurs, Nets, etc.)
3) Teams in markets that just don’t support pro-basketball unless they luck into a superstar (Bobcats, Hawks,
Kings, T-Wolves, Cavaliers, etc.)

Minny drafted KG but they couldn't surround him with enough talent ...

Roughly over the past 20 years, the NBA has expanded into the following markets: Miami, Orlando, Minnesota, Vancouver/Memphis, Toronto, Charlotte. Not all bad decisions. However, the expansions are not without unintended consequences. The NBA talent pool became diluted. The quality of the average NBA game declined. This not only affects the expansion teams, but every team in the league. As the average NBA talent declined, team success became increasingly dependent on having a great player. Based on the points I just made, a team’s financial health became dependent on 1) being in a big market, and 2) lucking into a great player. Since we all know where the major US markets are and there are only so many great NBA players, a large number of NBA teams simply aren’t fortunately enough to achieve consistent success and, therefore, aren’t profitable.

So what can we do to remedy the current landscape? Contract the teams in markets that just don’t support pro-basketball. As harsh as this sounds for fans in Charlotte, Atlanta, Sacramento, etc., it is just too difficult for an NBA team to turn consistent profits in those markets. You simply can’t have “hoping for the next Dominique Wilkins, Chris Webber, Kevin Garnett or LeBron James” as your business model. I believe 20-25 teams is the ideal position for the NBA to be in. Now, let’s look at how contraction will address the 2 major issues of the current CBA negotiations.

Profitability

Not only does contraction directly improve NBA’s overall profitability position, it also concentrates the player talent pool. Overtime, the average NBA team will be able to put a better product the floor. Teams in markets like Philly, New Jersey, Phoenix, Detroit will be able to improve their revenue with increased fan interest. In addition, there are less teams cutting up the revenue sharing pie. If we keep going down this road, the smaller market teams that are left will have better revenue sharing, better NBA product to attract local fan base and an improved profitability position. I think this one’s pretty straight forward. You get rid of your least profitable teams. It’s like a corporation closing down its least profitable subsidiaries to improve its financial position.

Competitive Parity

Before I talk about this one, let’s take a step back and dispel a great myth that seems to be going around: that the big market owners can just throw money around and sign all the great players like MLB. That is simply not true! The perceived competitive disparity in the NBA today is not caused by big market owners’ deep pockets. It is caused by small market teams making personnel decisions for financial reasons. Let’s break this down. Under the current CBA, there is a soft cap and a luxury tax cap. The soft cap is the point at which you can only add players through exceptions: (mid-level exception, veteran exception, draft picks, trades). The luxury tax cap is the point from which every additional salary dollar you spend, you will need to pay the same amount in tax penalties. The luxury tax cap was put in place under the previous CBA to discourage owners from spending too much, and encourage parity. The luxury tax cap is what’s causing the competitive imbalance today, and causing some owners to cry about their inability to compete. Well, it’s not like a team can just go into luxury tax territory whenever it feels like it. Once a team is over the soft cap, there are really only 3 ways to go into the luxury tax:

1) Resigning own players (Larry Bird Exception)
2) Mid-Level Exception
3) Trades

#1 doesn’t really come into play with competitive parity. One can argue that if a big market team and a small market team both have impeccable player drafting records, the big market team would have the advantage by simply resigning all of its players at market value. However, that is not a realistic situation. I can comfortably say that no championship team has been fielded in the modern era by simply hitting and retaining draft picks (OKC Thunder could buck that claim one day, but they haven’t won yet). I will argue that #2 has minimal impact on competitive parity as well. The theory here is that a big market team has the financial ability to add to its roster through the mid-level exception every year, creating an advantage. My argument against that theory would be to simply list the players that have signed for the mid-level exception: Jermaine O’Neal, Mike Miller, Ron Artest, Trevor Ariza, Josh Childress, Anthony Parker, Shawn Marion, Steve Blake, Antonio McDyess, etc. You’re going to tell me the players on that list are supposed to give the big market teams a competitive advantage?

Finally, with #3, under the current CBA, teams need to match salary at the 125% clip when trading. In other words, big market teams can take in 1.25 times the salary it’s sending out with every trade. This is where the competitive disparity between the big market and small market teams comes in. Look back on some of the big trades that have vaulted big market teams into championship status, thus driving the conversation for competitive imbalance. Gasol to Lakers, Garnett to Celtics, Chandler to Mavs (obviously to a much lesser extend), etc. What’s the consistent theme in these trades? Small market teams not competing trading with big market teams willing to take on salary in return for cost savings. You know how I’m sure of this? Go look up the crap return they got for these stars! When teams are not profitable, finances become a factor when making personnel decisions. The big market teams are in the best position to take advantage when this situation arises. This is what’s driving the perception that small market teams can’t compete against the deep pockets of the large market teams.

Well, what if the small market teams are no longer in financial peril, and are competitive? Who out there is going to be handing these big market teams star players for just cost savings? Financial trades will be eliminated. You now have to give talent for talent, leveling the field greatly. This is what you’ll see transpire if contraction occurs. The biggest competitive advantage for the deep pocketed big market teams will be taken away, and all this talk about competitive disparity will no longer be valid (Teams with bad management will still claim it’s there, but they’d be wrong).

Unfortunately, this will never happen because, while contraction benefits the NBA on the whole, it doesn’t benefit any of the individual parties involved. David Stern will never go for it under his watch. Owners will never agree to their own team being contracted. Players will never agree because it takes jobs away from them. Such is life. Changes take sacrifices, sacrifices people won’t be willing to make in this case. Maybe when David Stern retires.

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