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A Comprehensive Look at the NBA's New CBA

by Photo of Moke Hamilton

There’s a lot to know about the new NBA. How does this new deal affect your team?

A Comprehensive Look at the NBA's New CBA

After 148 days of unrest and uncertainty, NBA fans and players alike got some great news on Saturday, November 26th. Shortly after Billy Hunter announced that the NBPA has voluntarily ceded its status as being the bargaining representative for the NBA's players, Thanksgiving weekend brought forth a welcomed surprise.

At about 3:30am EST, Commissioner David Stern, Adam Silver, Peter Holt, Billy Hunter, and Derek Fisher held a joint press conference announcing that the NBA had reached a settlement agreement with the plaintiff-players who filed an antitrust suit against the league in federal courts. The net effect is that the lawsuit will be settled, the NBA players' union will be recertified, and both sides will ratify the deal.

Assuming the NBA and the to-be-reformed NBPA ratify the deal, the league expects to begin free agency and training camp on December 9th. The 66-game regular season will tip off on Christmas Day and will be headlined by the reigning NBA Champion Dallas Mavericks receiving their championship rings in front of Dwyane Wade, LeBron James, and their Miami Heat.

Oh goody!

But just as important as knowing that the 2011-2012 NBA Season will happen is knowing what the difference between the now defunct 2005 CBA and what will become the 2011 CBA.

More importantly, how will the new CBA affect your favorite team? 

Most fans don't care about the BRI split, because that's literally just how the revenue pie is split between the owners and the players. What fans do care about, though, is how the 2011 CBA will affect player movement and the ability of a team to build itself into (or maintain itself as) a contender. 

The first thing to consider is the Amnesty provision that I first mentioned in this space back in September. In short, each team will be allowed to waive a contract that is currently on its books and have the player salary come off of their payroll. That's a significant development if your favorite team has a contract on its books that it would like to purge.

The salary cap will be set at $58 million for this upcoming season. The cap is a function of the league's total revenue. The NBA estimates that its revenue will increase at a rate of 3.5 percent per year. If that holds true, the salary cap will increase as well. For what it's worth, in the 27 years since the NBA instituted its salary cap, it has increased 25 times. The lone exceptions were the 2002 and 2009 Seasons. Over the past five years, the cap has increased an average of $1.7 million per year.

The midlevel exception has been a tool afforded to teams over the salary cap. Under the 2005 CBA, a team that was over the cap was allowed an "exception" and could add up to the league wide average salary to its payroll, despite being over the cap. For the 2010-2011 NBA Season, the midlevel exception was set at $5.765 million. Under the 2005 CBA, teams were free to use the midlevel exception each year. Under the 2011 CBA, teams will be free to use the midlevel exception, but teams more than $4 million over the luxury tax threshold ($70 million for the 2011-2012 season) will be limited to offering a midlevel deal worth $3 million per year, while teams up to $4 million over the tax will be allowed to offer a midlevel deal worth $5 million per year.

Speaking of luxury tax… Under the 2005 CBA, teams were charged $1 for each dollar over the tax threshold ($20M over the tax? $20M tax bill). Under the 2011 CBA, the "mega" luxury tax era will begin with the 2013-2014 Season. Teams will pay at least $1.50 for each dollar they are over the threshold. The higher you are over the cap, the stiffer the tax bill. Just to keep it simple, under the 2011 CBA, a team $20M over the threshold would pay a tax bill of $45M. Yes, you read that right. 

Also important in the 2011 CBA are the new "room exception," "stretch provision," and shorter contract lengths. The room exception is important for a team that uses its cap space to sign a player and reaches the salary cap. Under the 2005 CBA, the team would have to fill out its roster with minimum salaried contracts. Under the new deal, they will have a $2.5M exception to offer after they have reached the cap. The stretch provision will allow a team to cut a player and "stretch" the remaining money due to the player evenly over their payroll over the course of twice the years remaining on the contract, plus one. (A player with 4 years and $18M remaining can be cut and the team can elect to have the player's salary count on its payroll for nine years at $2M each year). Maximum years on a contract decrease from six and five years to five and four.

There's more… But I'm sure your head hurts by now.

What the NBA has done here is a slam dunk.

David Stern secured a deal for his owners that will see them gain almost $3 billion over the next 10 years. That will cause franchise values to skyrocket. More importantly, the amnesty and stretch provisions will help teams that have mismanaged their payrolls get themselves out of trouble (I'm looking at you, Orlando). And shorter contract lengths mean more security for owners. The length of time of being stuck with a bad investment decreases.

So, who are the biggest winners in all of this?

That's easy. It's obviously the NBA owners. They've got effective protection from one another and a much bigger slice of the pie. After them? It would have to be the fans. The new system will ensure that the likes of Larry Hughes and Juwan Howard don't end up sitting on some unlucky team's payroll for seven years, occupying precious salary cap space.

But what about specific teams? 

Group 1: The Victims

These are teams that have been victimized by foolish management and/or misfortune. The new system will allow teams to erase past mistakes, stay under the tax threshold, and reallocate their resources. The Portland Trailblazers are a relatively young team with loads of talent. Brandon Roy will probably be waived under the amnesty provision and enable the Trailblazers to keep their core intact (if they so choose). The same can be said for the Orlando Magic. Gilbert Arenas is certainly going to be their amnesty casualty. Had it not been for the amnesty provision, the Magic would have been stuck with Arenas' burdensome contract until July 2014. Instead, if Dwight Howard does defect Orlando, they could find themselves being a major player in free agency in the Summer of 2012; their payroll could be as low as about $35 million. The Atlanta Hawks, Memphis Grizzlies, and Philadelphia 76ers all could end up being major beneficiaries here, as well. Remember, the amnesty provision can be used only once, but at any point during the life of the 2011 CBA. Joe Johnson, Rudy Gay, and Elton Brand—for sure—are all on watch.

Group 2: The Toilers 

These are teams that are trying to build contenders. The New York Knicks and Chicago Bulls immediately come to mind, but the Oklahoma City Thunder belong here as well. The new "room" exception will be an invaluable tool for any team that seeks to build a contender based on a "Big 3" model. It's no secret that Carmelo Anthony and the New York Knicks have targeted Chris Paul with their cap room in July 2012. But clearing the cap space means the Knicks would have to rescind the bird rights of Landry Fields and not pick up the option of Toney Douglas. If they do that, they can realistically clear about $13M to offer to Paul. However, with this new exception, instead of filling out their roster with minimum salary contracts—like the Miami Heat did—they have a good shot of retaining either Fields or Douglas using the room exception. The same can be said of the Chicago Bulls and Oklahoma City Thunder. Rose-Deng-Boozer and Durant-Westbrook-Harden can all be maintained and paid. The major difference now, is that the room exception will afford these teams additional flexibility for acquiring talent. Just to remind you: a team that is under the cap can use their cap space, hit the salary cap, and then use the new $2.5 million room exception.

Group 3: The Pretenders

The worst place that an NBA team can find itself is in the middle of the pack. Ideally, you'd either want to be contending for all of the marbles or have a low payroll and tons of draft picks. The Utah Jazz ($55 million), Cleveland Cavaliers ($55 million), Milwaukee Bucks ($52 million), Phoenix Suns ($49 million), and Minnesota Timberwolves ($48 million) are all teams that have payrolls too high for rebuilding teams. The reason they all win, though, is because tax teams, big market teams, and "The Toilers" will essentially be cutting them hefty checks. If the Cavaliers amnesty Baron Davis, for example, they would only have about $22M committed in the Summer of 2012. For the Cavaliers, revenue will be down, but the hefty luxury tax bills paid by the "haves" of the NBA would help to fund the development of the team. The Jazz, Bucks, Suns, and Timberwolves will all find themselves in similar predicaments. 

Group 4: The Youngsters 

There are a few teams out there that have already begun their rebuilding projects and have a few pieces to show for it. The Charlotte Bobcats, Washington Wizards, and Sacramento Kings get major consideration here. The "stretch provision" in the 2011 CBA will help these teams in the event that any of their young pieces—Kemba Walker, John Wall, or Jimmer Fredette—get too rich of a contract. Although the new system will be more restrictive, you can always count on a few bad contracts being given out. After Kemba's rookie deal expires, let's say Michael Jordan offers him a 5 year contract worth $70 million dollars. If, after the second season, Kemba underperforms, the Bobcats would have the luxury of "stretching" the remaining $42 million owed to Kemba and having the salary count over seven years. That flexibility could—and, at some point, will—make a huge difference for some team. It will likely be a team that makes a bad gamble on a young player who shows promise. The Los Angeles Clippers would certainly find themselves in this group if anyone believed that Donald Sterling would actually open up his checkbook to retain his promising young core of Blake Griffin, DeAndre Jordan, Eric Gordon, and Eric Bledsoe. For Clippers fans, let's see how the new CBA brings forth a new era with regard to the Clippers' management.

To sum it all up. The NBA's new system is one that will be marked by less guarantees for the players and more flexibility and security for its owners. It should come as no surprise to anyone that the players ended up giving back a lot. The system has been very good to them since Billy Hunter's arrival in 1996. And now, after a terrible economic downturn in the United States, David Stern made good on a letter of credit he promised to his new age owners like Ted Leonsis, Robert Sarver, and Dan Gilbert. He got them a new system that will make it much easier to compete and much easier to erase mistakes.

For sure, the fans benefit here as well. Eddy Curry and Gilbert Arenas type deals will still happen, but now, fans won't hopelessly watch a promising young core waste away because their team is stuck with an overpaid underachiever that directly prohibits them from getting help.

And what about the losers?

The biggest losers are the teams that have traditionally paid the luxury tax and those that will pay the tax in order to build a contender. The new system will makeit incredibly expensive to field a payroll exceeding the luxury tax by $15 million. While it is important to consider that the luxury tax threshold will increase along with BRI and the salary cap, certainly, teams like the Los Angeles Lakers, Dallas Mavericks, and Boston Celtics might be more reluctant to add to their payrolls and keep their championship cores in tact. Consider that the Mavericks are only $7 million below this season's tax threshold of $70 million, not including new contracts for free agents who were a part of their championship core—J.J. Barea, Tyson Chandler, DeShawn Stevenson, and Peja Stojakovic. Brendan Haywood is almost certain to be a casualty of the amnesty provision, but even still, keeping his core in tact will cost Mark Cuban a considerable sum in luxury tax bills. The Boston Celtics find themselves in the same predicament when you consider that their payroll sits right on the brink of the luxury tax threshold, not including new contracts for Jeff Green and Glen Davis. And for the Lakers? Shannon Brown has proven to be an important part of their rotation, but with a payroll already $20 million above the tax thresholds, if the Lakers found themselves in the same predicament in 2013, it would cost them $12.75 million to offer someone like Brown a $3 million salary. With the new tax rules, a team that exceeds the cap by $20 million would pay $9.75 million in taxes on said $3 million salary..

Over the next three years, the Miami Heat will find themselves in the same predicament since their super friends will cost them 47, 51, and $56 million, respectively.

Winning seven championships may have just gotten a little more difficult.

Well… Maybe not that much. You see, those that understand basketball know that true parity will never exist in the game. Only five guys play at once and one guy can dominate a game in every facet. That's something unique to the game of basketball. If you put Michael Jordan or Shaquille O'Neal on a team full of slouches, they'll have a chance to win 50-55 games. Mega luxury taxes and stretch provisions won't ever change that. Parity? That's debatable. 

What isn't is this: the 2011-2012 NBA Season will happen. It will be the dawn of a new economic era in the NBA. And after 148 days of uncertainty, Saturday's news came not a moment too soon. 

Yes, the 2011-2012 NBA Season will happen, and at this point, that's all I really care about.  

Comments (1)
  1. Eric A.'s profile

    Eric A.

    November 30th, 2011 @14:35

    JD, huh? Any plans to take that bar?

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