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Non-Economic

It's hard to tell if this is dishonesty on David Stern's part, or ineptitude from the Associated Press, but there's something about fishy about this: "If the players accepted the framework, Stern said the only key areas left to be negotiated would be non-economic -- the length of player contracts, drug testing and minimum age." On what planet is the length of a maximum contract a non-economic issue? Once you impose a salary cap across an industry, naturally enough rewarding players with longer contracts becomes one key way of attracting personnel. It's pretty clearly the case that many, many, many NBA contracts are "too long" in that it really doesn't make sense for teams to make the sort of unconditional commitments they're often making to their players. But that's just another way of saying that in an uncontrolled market, a lot of guys on long contracts would just be making more money-per-year. Eliminating the cap-generated distortion in contract lengths by shortening the max length is very much an economic issue. It's a way of lettings owners spend less money and leaving players with less money.

May 25, 2005 | Permalink

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Comments

I think that under the assumption of a cap and floor, which I believe the NBA has, the length of contract only affects the distribution of money among the players, rather than how much the players get in toto.

Posted by: Ugh | May 25, 2005 3:16:18 PM

Ugh, those constraints probably only apply to players who are still active in the league. For older players, the reality is as Matt has described- the out years are given in place of more money.

Posted by: quietstorm | May 25, 2005 3:36:35 PM

I think Ugh has it right. By "economic", Stern is referring to the the things that affect the amount the players get in total, not the amount any particular player gets: percentage of the revenue to be spent on player salaries, level that the luxury tax kicks in, etc.

Posted by: Al | May 25, 2005 3:38:49 PM

I think I was saying that over the term of any given Collective Bargaining Agreement that has a cap and a floor, the total amount of money going to members of the players' association is the same no matter what the length of the contract. For example, suppose a CBA of 6 years and each year the league must spend between $50 and 55 million on player salaries. It shouldn't matter if the maximum contract length is 6 years or one, the players (as a whole) would get the same amount of money each year. Sure, the Kwame Brown type player would get less money under the one year system because it turns out he sucks, but that money would go to some other player. I think that's what Stern means when he says the contract length is not economic.

Maybe I'm misunderstanding the constraints.

Posted by: Ugh | May 25, 2005 3:43:21 PM

I agree with the first commenter. If the Penny Hardaways and Erick Dampiers of the world were not tied to long-term contracts, then (within the salary-cap framework) owners could more efficiently redistribute high levels of pay to players who have contemporaneously demonstrated their high performance or ability. In the current system, bidding wars induce long contracts for players who likely will not play at a commensurate level over the entire course of the contract...

Posted by: next big thing | May 25, 2005 3:44:07 PM

"It's a way of letting owners spend less money and leaving players with less money."

No. Ugh explained why this is wrong. I believe every team pays right around the cap. The NBA is just so profitable that it is not smart to scrimp on player salaries. Every dollar you spend on a few more oohs and aahs more than pays for itself.

This is only an issue because the long contracts benefit established players who are more likely to get the long guaranteed contracts. They are the players who dominate the union, and the players with the most influential agents.

What has the agents worried is that Stern is proposing a very simple (but lucrative) fixed salary structure. The NBA uses profit sharing. The cap is set by total league profits, and every team pays the cap. Agents don't get money from the owners and give it to players, they get money for their players by taking it from other players. Stern suggests that with a simple set of short-term contracts, agents can be put out of the picture. This would give an additional 3.5-4% of the money to players. This increment, suggests Stern, would be worth more than the potential benefit of the windfall longterm deal.

At first I thought that it was a good idea, but there is a flaw. Agents don't just negotiate NBA deals for the players. They also negotiate their endorsement deals. If they're cut out of the NBA profits, they will demand a bigger cut of the endorsement deals. This will disproportionately hit the big-name players. These are the players who sell the tickets. They are a minority in the league, but they are the moneymakers.

It is actually quite clever. Stern is playing off the majority against the stars. If he creates enough tension, he can use it the next time the profit sharing ratio is negotiated.

Posted by: Njorl | May 25, 2005 3:52:08 PM

Isn't the cap in the NBA "soft" (ie full of loopholes)? Anyway it is still an economic issue even if it only affects the way money is distributed amnong the players.

Posted by: James B. Shearer | May 25, 2005 4:21:52 PM

Another thing to consider, when he says length of contract is Stern also referring to the initial rookie deals? If so it is very much an economic issue since it affects how soon a player can become a FA.

If the NBA had a hard NFL style cap it would be simply a matter of how a fixed amount of money is divided between the players, but since the NBA cap is "soft" with almost as many loopholes as the tax code length of both initial rookie contracts and subsequent FA contracts have a significant impact.

Posted by: Eric | May 25, 2005 4:41:21 PM

- The cap is indeed soft.

- Reducing max contract lengths will indeed have the effect of reducing total player revenues.

- It's time for David Stern to go.

Posted by: Petey | May 25, 2005 4:42:49 PM

I disagree with the commenters. First, although there is a cap and a floor they are pretty far apart. Teams salaries can vary wildly. The Charlotte Bobcats for example spend on salaries half of what the average team spends and a 25% of what the Knicks spend. So, changing the conditions of salary negotiation can have a dramatic effect on how much money players in toto receive. More, if players become free agents at an older age and with a shorter term contract, it's definitely an economic issue for the player. Shortening contracts, shortening players careers (aka: minimum age), etc. certainly have an economic effect and so they are economic issues.

Posted by: Carlos | May 25, 2005 4:46:32 PM

Yeah, the NBA is absolutely a soft cap. In fact, you can go over as much as you want (i.e. Knicks or Mavericks), you just have to pay a luxury tax. Most teams end up somewhere around the cap, but by no means is it a hard cap a la the NFL. Not to mention the low and mid level exceptions or the Larry Bird Rule.

I seem to recall Stern saying that all the issues in the CBA were economic. And obviously they are. If an age limit is imposed it will be a result of fringe, veteran players thinking it will help them keep their jobs. Contract length, obviously, is an economic issue. Everything, except maybe drug testing though you could suggest that imposing drug testing could help overall league revenue (or maybe even hurt it), has to do with money. I think it must have been a simple case of poorly chosen words, and like Ugh said, having to do with total revenue given to players.

I think there are some incorrect assumptions here, though. The fact is that almost every player in the NBA is overpaid based on value. The ones who aren't are the stars (you could say someone like Shaq or KG is worth a third or so of the cap) or those who haven't hit free agency yet (Lebron, Dwyane Wade etc.) Players who have great years in the middle of low grade contracts doesn't really occur. The people who get long term contracts are either stars who have already reached their plateau, people with potential who are already being paid as if they were stars, and people who end up underperforming their contracts. So, basically, no NBA players end up in bad contracts. If there is any chance you'll be a star, you generally end up with a max-type deal. And if you bust out and have a much better year than ever before, you're generally unlikely to be in a long term contract. So no one is really getting underpaid for performance, though tons of players are getting overpaid.

Posted by: b. schac | May 25, 2005 4:48:54 PM

b. schac: Rookies (at least really good rookies) or players in their rookie pay scale contracts are usually underpaid. It could be said that the excessive pay in the later years is a compensation for the reduced pay in the earlier years.

Posted by: Carlos | May 25, 2005 5:12:31 PM

It looks like a simple "find 'economic' and replace with 'financial'" would have rendered this post unnecessary. Unless, of course, you were just looking for a pretext to bitch about contract length limits.

Posted by: diddy | May 25, 2005 5:15:16 PM

In fact, you can go over as much as you want (i.e. Knicks or Mavericks)

This isn't correct. You can only go over the cap to sign your own player or for one of the exceptions.

Posted by: Al | May 25, 2005 5:17:21 PM

Yes, I agree with diddy. (Hey, aren't you trying to buy the Knicks?) From the economist's perspective, everything is economic.

Posted by: next big thing | May 25, 2005 5:22:27 PM

You can only go over the cap to sign your own player or for one of the exceptions.

Priceless, Al.

Posted by: Quiet Storm | May 25, 2005 5:30:30 PM

Hey, purely from a selfish fan's standpoint, I like Rick Barry's suggestion: every player gets guaranteed money between 1-2 million a year, and then the rest of the revenues designated for player salaries (which implies a hard cap) gets distributed to teams based on the number of wins, and how far the team advances in the playoffs. Individual players would negotiate over how large a percentage of the teams "win revenues" they would receive.

Yeah, I know it will never happen, but it would go a long ways to ramping up intensity during the regular season. I thnk even Michael Olowakandi might break a sweat.

Posted by: Will Allen | May 25, 2005 5:58:05 PM

Carlos-

I said that exact thing in my previous post, read it over.
"The ones who aren't [overpaid] are...those who haven't hit free agency yet (Lebron, Dwyane Wade etc.)"

Al-

I meant you can go as far over as you want in terms of total money spent. There is no hard cap in terms of how much money a team is allowed to spend, only on who they can spend it on and how.

Posted by: b. schac | May 25, 2005 6:07:15 PM

Seems like one issue here isn't being discussed: shorter contracts will probably mean greater player movement -- something it seems (at first) the League generally wants to discourage (the creation of the Larry Bird Rule, plus rhetoric of team consistency, and the endless bemoaning of the "free agent era" and all). The League-wide results of more player movement are interesting to consider. Most obviously, it leads to less team continuity and fan familiarity, and, perhaps, to less cohesive team play (doesn't it seem that coaches and GMs are endlessly using the excuse of "new players" trying to work themselves into the system, or do I just think that because I'm a C's fan?). Less obviously, but more interestingly, though, it seems to me that more frequent player movement actually significantly reduces the importance of good GM-ing to team success: bad GM-ing (i.e. Scott Layden and Isaiah Thomas) is less penalized (you get out of your bad contracts faster), and good GM-ing (not getting into bad contracts in the first place, or signing great players to longer contracts) is less rewarded. As the significance of GMing is reduced, the total money a team is willing to spend on player contracts becomes increasingly more significant. Hence, the shorter contract plan seems to advantage big-money and big-market teams, like the Knicks and the Lakers, while disadvantaging the inverse characteristics. (Maybe this is one of Stern's motivations for pushing the proposal?) Also, will greater player movement create more hectic scenes like the one we're seeing in Cleveland, with mass firings and endless fretting over the whims and desires of fickle superstars who may bolt if their every wish isn't granted? Some interesting things to consider...

Posted by: JedediahLeland | May 25, 2005 6:34:29 PM

3 words:

"No Guaranteed Contracts"

Oh man...my butt puckers just imagining it.

Posted by: Magickal Rod | May 25, 2005 9:08:27 PM

Wow, I was way off. I guess I can't just repeat everything I hear on sports-talk radio or I'll look like an idiot. Just imagine if the same thing were true of political talk radio! ...Oh yeah.

Posted by: Njorl | May 26, 2005 9:30:52 AM

Team salary info
http://www.insidehoops.com/nbasalaries.shtml

Cap info
http://www.insidehoops.com/nba-salary-cap.shtml

Pretty amazing how team performance does not correlate positively to salary. Of the 4 teams left, Miami is the highest paid. They are 15th out of 30.

Posted by: Njorl | May 26, 2005 9:39:06 AM

I'm rather surprised that most people in this discussion are so calmly discussing the Salary Cap like it's no problem at all. Would any of you find it acceptable if your company colluded with all the other companys in its industry to impose a cap on payrolls, and a "maximum" on your salary? Particularly if the profits of the company would take a dive if you went somewhere else?

The salary cap was agreed upon by the NBA and the Players Union in the 70s (i.e, pre Bird and Magic) only after the NBA opened up its books to the Union to show that most teams were, in fact, losing money. Implicit in that agreement was that the Cap would be removed once the NBA was profitable. They're way more than just "profitable" now, so it's funny how that never happened.

Stern played this "it's the agents that are the problem" game last time, and I thought then that it smacked of racism, as if Black players and a Black head of the Players Association couldn't think for themselves. I'm glad to see that Billy Hunter called them on it this time, even though it seems to have been met by the media with a yawn.

Remember, IOKIYADS.

Posted by: Noel | May 27, 2005 12:59:07 AM

"I'm rather surprised that most people in this discussion are so calmly discussing the Salary Cap like it's no problem at all. Would any of you find it acceptable if your company colluded with all the other companys in its industry to impose a cap on payrolls, and a "maximum" on your salary? Particularly if the profits of the company would take a dive if you went somewhere else?"

You can't apply that kind of reasoning to sports. No other businesses rely on competition for their profitability. Ford doesn't need GM to do well. Ford would like GM to shrivel up and die. Ford would like all other carmakers to collapse. NBA teams are not in that position. All sports leagues need some collusion in their ownership. The manner in which they collude should be open, and approved by the players unions (unlike baseball up to the 1970s). If players do not agree with owners, they are free to sell their services to somebody else, and start a new league. Hockey is considering it now.

Posted by: Njorl | May 27, 2005 9:55:11 AM

Njorl,

But wouldn't Ford and GM do well if they colluded to shut out other competitors, much the way Coke and Pepsi do at supermarket displays?

Certainly sports owners *can* collude, but that doesn't make the product better, either for their employees or the fans.

The other big difference between sports leagues and other businesses is that the value of the team is almost entirely wrapped up in the value of the players (though this does vary from league to league; I'd say baseball has the most value in its players, football the least). There are almost certainly thousands, if not millions, of people who can do your job without any great loss of productivity. There are less than 100 people (and maybe less than 10, and sometimes none) who can replace a major league player.

Also, what value the team has that isn't wrapped up in the players is wrapped up in the fact that the league has a virtual monopoly (with the MLB an actual one). The only thing an owner needs to do to turn a profit on a team is to simply buy it. If they wish to turn a bigger profit, they can invest to make it more successful, but that in turn means investing in players, so you see that the value of the team is still in one of those two areas.

Never take the owners at their word. The sports press has been docile for decades, and never questions anything they say.

Posted by: Noel | May 27, 2005 7:55:59 PM

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