Hard Cap

[giberish]

A hard cap, if used in combination with eliminating the max salary concept, would make it easier for the best run teams to win. Teams that used their payroll wisely would win, and teams that spent stupidly would lose.

That's how it already is, so what are we solving? If anything, what we're doing there is further reducing the margin of error, the size of which is a key sticking point anyway.

Along with revenue sharing (really a separate discussion), some disincentive to throwing around NYYankee money is needed. I'd prefer a strong luxury tax, perhaps with a second tier or a trigger if you're in it routinely. This would allow some flexibility for dealing with having one year with contracts not aligning without having to make drastic moves.

This is off of the original topic, but as I've stated above, I really think that eliminating the maximum salary rules would greatly help with competitive balance. Or perhaps 'equality of opportunity' is a better way of putting it.

As an expample, Orlando has made several bad decisions and generally has not been a well-run team in recent years. Yet they're still one of the best teams in the league because they have Dwight Howard on a league-mandated bargin contract (and an owner willing and able to pay a lot of luxury tax $$ each year). You could say the same about Cleveland before them.

[Curmudgeon]

In baseball, the problem with the luxury tax isn't the payors like the Yankees and Red Sox, it's the payees. The Yankees and Red Sox pay millions in luxury tax, which is then distributed to the small market teams, where the owners simply pocket the money instead of reinvesting it in their franchises. So long as they can dupe the fans by pointing to the big bad Yankees, the owners in Pittsburgh and Kansas City will continue to laugh all the way to the bank.

[DBoys]

In baseball, the problem with the luxury tax isn't the payors like the Yankees and Red Sox, it's the payees. The Yankees and Red Sox pay millions in luxury tax, which is then distributed to the small market teams, where the owners simply pocket the money instead of reinvesting it in their franchises. So long as they can dupe the fans by pointing to the big bad Yankees, the owners in Pittsburgh and Kansas City will continue to laugh all the way to the bank.

I'd agree that baseball's tax needs work. But if you have to go bankrupt to have a real chance to consistently compete, then there's something wrong with your format.

The point you highlight - small market teams using tax revenues to enrich small market owners rather than enhance their ability to compete - is a complaint that is valid at times. At the same time, the very BOTTOM LINE purpose of a tax distribution is to allow small markets to make money while having a higher payroll, so the complaint that small market owners personally benefit from it is incredibly self-serving.

On the other end of things, it can just as justifiably be said that the tax doesn't work because it isn't severe enough to create equal opportunity for each team to win, even if managed with the same efficiency as every other.

[SJSF]

the only was the NBA is going to be good again for all the teams. Is to copy what the NFL and NHL has done. Hard cap and non guaranteed contracts. Its better to have 30 good teams then it is to have 6 great teams. I am all for the lockout so the players get put back in check.

[SJSF]

I am all for a hard cap. This league should not be run by the players but the owners. Owners have to protect their investment. ALso, there are too many players in this league that are way overpaid. Roll back the salaries and to a max being 12m. And make a hard cap being 55m. Right where the cap is suppose to be. This will make the players play harder for their money. ALso, guaranteed contracts need to be partially only guaranteed.

[Agenda42]

Look at the so called "hard cap" in football. Has it made the Bengals better? What about the Raiders? Why do the Patriots, Ravens and Jets go to the playoffs every year? The teams that win in the NFL are the ones with good quarterbacks, that's all. What the hard cap does is make it impossible for a wealthy owner in a small market to lure away one of the premier quarterbacks by paying more than anyone else. That results in less parity, not more.

Your examples aren't very good at proving your point at all. The Bengals had a better QB than the Ravens and Jets for most of the last decade. The Ravens won it all with Trent freaking Dilfer at QB and made the playoffs with Kyle Boller. The Jets have 6 trips to the playoffs in 10 years with a combination of the ancient Vinny Testaverde, Chad Pennington, and Mark Sanchez. None of these guys are elite at their position.

The hard cap certainly does not make it impossible to lure away a premier quarterback by overpaying for a QB. The team currently paying the QB has no advantage in terms of money or years they can offer at all. Elite QBs mostly prefer to stay with their team because the team is built around their abilities and it takes time to build a similar offense in another town.

The NFL system effectively takes market size out of the equation for success. That's a good thing. Also, the hard cap results in much more player movement than the NBA soft cap. If you look at the various Patriot teams that have been elite in the past decade, they have had to completely reinvent themselves in order to stay on top, because teams offer their free agents big money and they can't match all the offers. The net result here is that bad teams frequently become good teams quickly when their management gets their act together. The NFL system has its problems, too, but I believe it produces more competitive balance than the NBA system on the whole.

[sportscrazy]

A hard cap, if used in combination with eliminating the max salary concept, would make it easier for the best run teams to win. Teams that used their payroll wisely would win, and teams that spent stupidly would lose.

That's how it already is, so what are we solving? If anything, what we're doing there is further reducing the margin of error, the size of which is a key sticking point anyway.

Sham if there is a hard cap.. do you agree that it will be set very high ($90 Million) while decreasing at a large amount every year to end up at $55-60 Million just so teams like the Lakers that spent as though there is a soft cap can catch up to the new system?

[So Cal Blazer Fan]

Sham if there is a hard cap.. do you agree that it will be set very high ($90 Million) while decreasing at a large amount every year to end up at $55-60 Million just so teams like the Lakers that spent as though there is a soft cap can catch up to the new system?

According to the recent article in the Sporting News http://aol.sportingnews.com/nba/story/2011-05-16/sbj-nba-proposes-45-million-hard-salary-cap, the owner's latest proposal has a 2 year phase in period towards a $45 million hard cap.

Other sources (Marc Stein, et al.) also report that the owner's proposal wants significant reductions in existing contracts, reductions in future raise % amounts, lowering of rookie scale contract amounts and making all contracts either unguaranteed or partially guaranteed. These, along with a possible amnesty program, are designed to help teams get to that $45 million level by the 2013-14 season.

[sportscrazy]

Sham if there is a hard cap.. do you agree that it will be set very high ($90 Million) while decreasing at a large amount every year to end up at $55-60 Million just so teams like the Lakers that spent as though there is a soft cap can catch up to the new system?

According to the recent article in the Sporting News http://aol.sportingnews.com/nba/story/2011-05-16/sbj-nba-proposes-45-million-hard-salary-cap, the owner's latest proposal has a 2 year phase in period towards a $45 million hard cap.

Other sources (Marc Stein, et al.) also report that the owner's proposal wants significant reductions in existing contracts, reductions in future raise % amounts, lowering of rookie scale contract amounts and making all contracts either unguaranteed or partially guaranteed. These, along with a possible amnesty program, are designed to help teams get to that $45 million level by the 2013-14 season.

I just don't think the owners get the players to agree to a $45 Million hard cap... My guess is it ends up closer to $60 Million, but the owners get their hard cap with no MLE or LLE, no MAX salary, an amnesty program and other big changes. I also think the big market owners and rich owners will fight to get a very high starting hard cap ($90 Million) that goes down $10 Million a year for the next 3 years and lands at $60 Million.

That's the closest thing I can see the four sides agreeing to. (the four sides being big market owners, small market owners, star players, and mediocre players)

[fpower]

Also, the hard cap results in much more player movement than the NBA soft cap.

Tons of free agency movement, very little trading. Personally, I prefer trading and a soft cap.

[ranger001]

I just don't think the owners get the players to agree to a $45 Million hard cap... My guess is it ends up closer to $60 Million, but the owners get their hard cap with no MLE or LLE, no MAX salary, an amnesty program and other big changes. I also think the big market owners and rich owners will fight to get a very high starting hard cap ($90 Million) that goes down $10 Million a year for the next 3 years and lands at $60 Million.

That's the closest thing I can see the four sides agreeing to. (the four sides being big market owners, small market owners, star players, and mediocre players)

Most of the owners are losing money spending less than 60 million so there's no way they decide on a 60 million hard cap unless it starts there and decreases. The players would be happy with 60 million but its not up to them its up to the guys who are paying their salaries.

[Agenda42]

Most of the owners are losing money spending less than 60 million so there's no way they decide on a 60 million hard cap unless it starts there and decreases. The players would be happy with 60 million but its not up to them its up to the guys who are paying their salaries.

Only 8 teams are spending less than $60 million, and if you trust the league's accounting of who is and isn't losing money I have a bridge in Brooklyn to sell you.

From what I can tell, the league is pulling some seriously funny business to get to their "the NBA lost $300M last season" claim. First, they're depreciating their arena assets at twice the rate used by the IRS for tax purposes. Second, they're accounting interest on debt taken on by owners to purchase their teams as further losses. Third, they're counting all the teams that made money as making $0 when adding everything up to get their total losses number.

Essentially, I haven't seen anything from the NBA that makes me believe you can't solve the problem with a stronger revenue sharing model.

[DBoys]

From what I can tell, the league is pulling some seriously funny business to get to their "the NBA lost $300M last season" claim. First, they're depreciating their arena assets at twice the rate used by the IRS for tax purposes. Second, they're accounting interest on debt taken on by owners to purchase their teams as further losses. Third, they're counting all the teams that made money as making $0 when adding everything up to get their total losses number.

Source? or basis? These are extreme assertions and if anyone else has made them, I've missed it. And are you sure "interest on debt" definitely pertains to acquisition costs?

In fact, based on the things you assert, the only solution needed would be honesty ...so, when you posit solutions to solving the problem, it sounds like you do believe there is a problem. That points to a disconnect somewhere between your assertions and your bottom line ideas.

PS - Your revenue-sharing concept is a solution only if you have a vast majority of highly profitable franchises and don't have a league collectively losing money by the boatload.

[ranger001]

Only 8 teams are spending less than $60 million, and if you trust the league's accounting of who is and isn't losing money I have a bridge in Brooklyn to sell you.

Are you seriously suggesting that nba owners are falsifying their accounting records?

From what I can tell, the league is pulling some seriously funny business to get to their "the NBA lost $300M last season" claim. First, they're depreciating their arena assets at twice the rate used by the IRS for tax purposes.

Arenas do tend to depreciate quickly. Have you investigated this and found that the depreciation rate is too much?

Second, they're accounting interest on debt taken on by owners to purchase their teams as further losses.

Interest on debt has to be paid. Its money going out the door. How are you suggesting that it be shown in the books?

Third, they're counting all the teams that made money as making $0 when adding everything up to get their total losses number.

Source?

Essentially, I haven't seen anything from the NBA that makes me believe you can't solve the problem with a stronger revenue sharing model.

And Stern said there will be revenue sharing. However when the teams collectively lose money then revenue sharing will just make everybody a loser.

[Agenda42]

Are you seriously suggesting that nba owners are falsifying their accounting records?

Truth, lies, and statistics. The NBA has made no false claims. That is different than saying they are presenting a balanced view of the accounting.

Since people asked, I will try to dig up the links I got each of the claims I cited.

[Agenda42]

Arenas do tend to depreciate quickly. Have you investigated this and found that the depreciation rate is too much?

http://www.irs.gov/pub/irs-mssp/sport.pdf

Yes. See "Recovery Periods" on sports assets here; this is training material for IRS employees. Now, NBA teams vary their accounting of arenas quite a bit, but in my research I didn't find anyone depreciating their arena over a period longer than 20 years.

Arena depreciation has a further bit of trickiness in that most NBA teams built their arena with public financing. How much of the depreciation of the arena should be accounted to the team, and how much to the public's declining value? In the league's accounting, 100% of arena depreciation hits the team's books, regardless of the share of the stadium purchased with public money.

As for the scope of the difference you could see between the league's figures and other figures, listen to the commissioner here:

Our numbers are what our numbers are...You could argue about interest payments or not. Depreciation, when you buy a scoreboard for $10 million dollars, you have to take it one way or the other. You’re not allowed to expense it so that you have five years of $2 million a piece, for example...The interest is real interest. So, if we’re arguing between the players’ numbers between whether we’re losing between 370 mill as a league or 200 mill as a league, that’s an argument we’d love to have.

http://www.welcometoloudcity.com/2011/2 ... e-business

You can see that how you interpret the numbers results in a massive difference in operating losses, and also that the commissioner recognizes that the league's depreciation math is not the only correct accounting possible.

Interest on debt has to be paid. Its money going out the door. How are you suggesting that it be shown in the books?

Debt that you take on to purchase an asset should not be accounted as impacting the profitability of that asset. A lot of owners choose to massively overleverage when purchasing the business; much of this is about taxes, but it also allows the league to make stronger sounding arguments than the underlying financial reality.

The recent Nets purchase is a good example here -- somehow, an asset purchased at $300M was financed almost completely with debt, and the franchise now has $30M in debt servicing costs a year. In terms of team financial viability, they're in quite good shape -- they're losing a bit of money now and will almost certainly be very profitable in 2 years. Right now, the league accounting model says the team is losing $50M+ this season, but if Prokhorov chooses a different financing model for his purchase, the team could be down to as little as $10M in losses.

I have no problem with accounting interest on debt that is taken on in the course of business operations, that's a fair way to assess business viability. The financial health of the owner shouldn't have any bearing on the viability of the underlying business model, though -- a team is not entitled to more operating profit because its owner has a lot of debt.

Third, they're counting all the teams that made money as making $0 when adding everything up to get their total losses number.

Source?

Forbes here: http://www.forbes.com/lists/2011/32/bas ... _land.html

Forbes has 17 teams as having net operating losses of a combined $145M. You add some amount of depreciation and interest to obtain a number in the $200-$370M range that Stern claimed, with the league's $300M being the about midpoint of those two numbers. However, the profitable side of the business is very profitable -- the 13 profitable teams made a combined $328M in operations.

I would contend that the players have a good point when they say the problem is chiefly not with league revenue and expenses, but rather in league revenue sharing.

[ranger001]

1. Depreciation.
Seems to me if the IRS is good with what the teams use then its ok. It seems the players are saying its already paid for so why is it still on the books? Those are the accounting rules, you can't depreciate it all in year 1. As regards public money it usually comes in the form of a loan/grant, I don't know of any teams where the public owns the arena.

2. Debt
Paying off debt doesn't impact profitability but interest on debt certainly does. The IRS is not going to let the teams' debt payments impact profit. The interest on that debt though certainly impacts profit and is standard accounting.

3. Total losses
If Forbes is correct(which I think is a big if) the players can use that but you can never have 100% profit sharing. If team A drafts well, markets well, trades well and its fans support it extremely well then it deserves to make more money than team B which does everything poorly.

[Agenda42]

2. Debt
Paying off debt doesn't impact profitability but interest on debt certainly does. The IRS is not going to let the teams' debt payments impact profit. The interest on that debt though certainly impacts profit and is standard accounting.

I agree that it's proper accounting to mark down all interest on your debt as losses. However, if you make a bad business decision by taking on too much debt to make your assets profitable, that's not the players' responsibility.

3. Total losses
If Forbes is correct(which I think is a big if) the players can use that but you can never have 100% profit sharing. If team A drafts well, markets well, trades well and its fans support it extremely well then it deserves to make more money than team B which does everything poorly.

Certainly Forbes' numbers are questionable, but the NBA has provided even less to support their claimed losses and they've got a dog in the fight.

[ranger001]

2. Debt
Paying off debt doesn't impact profitability but interest on debt certainly does. The IRS is not going to let the teams' debt payments impact profit. The interest on that debt though certainly impacts profit and is standard accounting.

I agree that it's proper accounting to mark down all interest on your debt as losses. However, if you make a bad business decision by taking on too much debt to make your assets profitable, that's not the players' responsibility.

The players can't tell the owners how much money they should or should not have borrowed or tell the owners how to run the business unless they have an ownership share. As an employee I can't go to my CEO and say "just cut the shareholders dividend in half then you can double my salary". If the players want a say in the management of the team then they should have their salaries based on profitability instead of being guaranteed. I doubt they want to go down that road.

Certainly Forbes' numbers are questionable, but the NBA has provided even less to support their claimed losses and they've got a dog in the fight.

The NBA has provided full details of their numbers to the players, they're just not going to release it publicly.

[Agenda42]

The players can't tell the owners how much money they should or should not have borrowed or tell the owners how to run the business unless they have an ownership share. As an employee I can't go to my CEO and say "just cut the shareholders dividend in half then you can double my salary". If the players want a say in the management of the team then they should have their salaries based on profitability instead of being guaranteed. I doubt they want to go down that road.

I have no idea how you get from the players' current position to that statement.

I think the players have no interest in being involved in managing teams, but I am certain they don't want to be held responsible for the bad business decisions of others.

The NBA has provided full details of their numbers to the players, they're just not going to release it publicly.

The players dispute the owner's interpretation of the numbers, and I don't have access to the numbers, so it's hard to use them to evaluate the NBA's claims from an outside perspective. Thus, I express skepticism.