Expiring contracts as a loophole

[chakdaddy]

In another thread I mentioned how I think the league probably frowns upon players with expiring contracts turning into currency and trade ballast.

If the salary cap and the need for matching salaries in trades is intended to keep teams from exceeding the salary cap, ultimately trading a guy's expiring contract is exploiting a loophole and circumventing the cap. Teams dumping salaries for expirings, and teams adding high salary players despite never getting under the cap really contributes to the kind of salary inequity the cap was designed to avoid.

I wonder if they would ever consider changing the rules with matching salaries - for instance, requiring that the total value remaining on the contract match rather than the yearly salary. Doesn't seem feasible at all - it would probably allow yearly salary cap totals to go all over the place if they trade a couple of small long term contracts for a big short term one.

Just a funny thought I had, since I doubt the league ever intended the kind of salary dumps we've seen rumored (although of course, they loved the Gasol trade.)

[FGump]

Note that:
1 all trades are essentially even-money in the short term so this sort of trade is not the mechanism that RAISES a team's cap
2 expiring contract trades merely shift future salary from one team to another ...in and of themselves, they aren't causing a team to exceed the cap.
3 an expiring contract trade is merely a mechanism that allows teams to prioritize talent or cap room according to their own agendas

If the NBA ever wanted to start dampening over-the-cap spending, there are plenty of ways to do it that are better imo ..if it was my league
1 I'd start by making the cap charges on all contracts flat regardless of how they are paid out
2 all bonus clauses would be treated as "likely" and charged to the cap ..if unearned, they get credited back to future contract years
3 next I'd shorten the max length of a contract
4 finally I'd phase out MLE/BAE exceptions where once a team's cap number goes over the tax line they can't use the MLE ...or where if a team pays tax in one year, they are hard-capped the next year where they can only use the MLE/BAE if they'll end up under the tax line for the year - and if they are under the tax line the next year, then once they use that MLE/BAE after having paid tax the prior year, they are hard-capped from all spending (including Bird rights) that takes them over the tax line

[chakdaddy]

Note that:
1 all trades are essentially even-money in the short term so this sort of trade is not the mechanism that RAISES a team's cap
2 expiring contract trades merely shift future salary from one team to another ...in and of themselves, they aren't causing a team to exceed the cap.

True, but what it does do is polarize the salaries further into low salary teams and high salary teams. If the high payroll team allowed the guy to expire, they would "return to baseline" and things would even out. In a way, when teams trade an expiring contract, it's just like the old days of 'salary slots' except they do it a year before the contract expires.

If a team really wanted to wanted to circumvent the cap, they would keep loading up on MLE guys every year, and packaging them when they expire to use as salary dumps. I don't think any team has really tried to abuse this, but eliminating MLE for teams over the luxury tax would nip it in the bud. MLE just seems awfully high these days anyway.

Another idea would be to use some kind of BYC calculation on EXPIRING contracts, since the salary may be expected to decline sharply just like it increases sharply in the first year of a BYC.

Anyway, I don't think any of this would be a good idea or that anyone would really want to fix these problems; just daydreaming about how the salary structure and cap have become big accounting games.

[Dunkenstein]

the salary structure and cap have become big accounting games.

The mission of every team's front office is to most effectively use anything within the salary cap rules to put together the best team it can. You may think of it as a game, but to them it's a business, a serious business, and they'll use any legal means at their disposal to achieve that mission.

BTW you incorrectly use the phrase "circumventing the cap". Circumvention is something that is illegal. Trading a player with an ending contract is totally within the rules and is in no way circumvention.

[chakdaddy]

BTW you incorrectly use the phrase "circumventing the cap". Circumvention is something that is illegal. Trading a player with an ending contract is totally within the rules and is in no way circumvention.

I never meant to imply that anything was illegal or even shady; I was just musing that IN A LOOSE SENSE, trading an expiring contract is a loophole that allow you to add salary.

When a contract expires and the team is still over the cap, the general idea that the ability to sign someone else and maintain that payroll level is lost - that was presumably the intent when the salary slot rule was eliminated.

But teams can get around, or "circumvent" that limitation by trading the expiring contract. I guess if you have some very specific meaning of "circumventing the cap" I misused it. But losing an unwanted FA and replacing him with a highly paid player, all the while remaining over the salary cap, in a sense does get around or circumvent the restrictions of the salary cap.

Obviously it's not illegal or particularly immoral or anything like that; but the use of player's contracts as cap currency and trade chips is very minimally unsettling - the trading of a lousy player who has a short/small contract for a good player who has a longer/bigger contract is probably not what was envisioned when the stipulation for matching salaries in trades was created.

It's all legitimate, but it's all kind of gamesmanship. It's just something to think about, don't think I'm railing against the injustice of teams dumping salaries and cheating the salary cap or something crazy like that!

[FGump]

Chakdaddy ...As I work through this, I think you've whiffed if you're trying to get cap levels down. Further analysis might demonstrate your solution has the exact opposite effect than you intended.

First, pegging "trading an expiring contract" to rises in teams' cap levels is the wrong thing to blame, and if you eliminate it, it fixes nothing. Here's why.

What you've overlooked is, once the expiring contract expires, the team always has the option to resign him. Joe Player is getting $5M per year. His contract expires and you can sign him to another $5M per year deal. Or you can let his contract expire, and then you sign-and-trade him for a $5M per year player. Or as an expiring contract, you can trade him right before his deal expires for a $5M per year player. The difference? None. I still end up with a player making $5M.

Second, to go one step further, trading expiring contracts (as a commodity) actually looks like a mechanism that effectively REDUCES the overall cap. How? Because as demonstrated above, the team that begins with Joe Player's expiring can have the same payroll either way. However, the team that trades for the expiring contract, is actually using a mechanism to more quickly REDUCE their cap than otherwise. So one team stays the same (the team trading away the expiring) while the other team is reducing their payroll. That's a net MINUS in payroll, not a net plus.

Now it can be argued that the team who gets the expiring might then spend that extra cap room they gained. But at most, they can only spend up to the cap, and in all likelihood they'll be losing more payroll as they try to get cap room than they will ultimately sign. Making it easier for teams to do this payroll cutting - by allowing trading for expirings - therefore actually lessens the net payroll expenditures, it would seem.

[chakdaddy]

Chakdaddy ...As I work through this, I think you've whiffed if you're trying to get cap levels down. Further analysis might demonstrate your solution has the exact opposite effect than you intended.

I wasn't really trying to do anything, but I guess I'm imagining the perspective of a person who wants to achieve more parity in payrolls across the league, as opposed to lowering salaries league-wide.

One thing, everything I'm saying assumes that the expiring contract is someone totally unwanted who will probably be out of the league after the contract ends. Guys essentially at the end of their career.

It's just funny that a team over the cap can replace a retiring/unwanted guy at the end of his contract with another big contract guy; bring in guys like this despite never having cap room, and never trading away a basketball asset (other than the contract of an unwanted, likely to soon retire, player).

Basically we take a situation where neither team would have cap space, and the expiration of a contract would still leave a team over the cap; and change it to a situation where we funnel the expirings to teams near the cap so one team is way over the cap and the other has cap space, despite the same total payrolls.

There are lots of situations like you said, but my gut says that the overall payroll would increase if the expiring contracts of old players are consolidated to create cap space rather than bring luxury tax teams back to baseline.

My thinking is that it's kind of a perversion of Bird rights - I always thought the spirit and intent was that you can go over the cap to re-sign your own guys, but when they retire, that cap exception disappears and your payroll should return to baseline. By trading them when they expire (or the highly unlikely sign and trade) they replace them and mantain that inflated payroll, perpetuate life above the salary cap. That's kind of against the founding father's intentions (but of course, completely normal and acceptable today, since the system has evolved into something quite different.)

[FGump]

You say you are "a person who wants to achieve more parity in payrolls across the league."

Problem is, most of it is simply a choice. All teams could over time spend more or spend less, if they chose to.

Also, if you want to eliminate over-cap spending, that really can't be solved unless you soften or eliminate Bird rights and/or other exceptions like the MLE and have a harder cap. Then you make it hard-to-impossible for good teams to stay together - which is something most fans would hate.

Finally, keep in mind that the NBA sorta started with this model where it was hard to ramp up your spending except via your own Bird players. But it really led to teams getting mired with bad rosters, trades were almost impossible to make, and if you didn't get lucky in the draft your fans had no hope. The current system with its sign-and-trades and Bird rights and MLEs and so on allows far freer movement and gives the teams flexibility to turn bad into good, or good into great. I bet if they went back to the old system you'd quickly reverse your preference ... and teams spending at different levels to achieve their goals is one of the prices to be paid to get the new freer system.

[chakdaddy]

Agreed; but from the start I was always basically discussing things from a devil's advocate perspective.

I would hate a hard cap and I hate lots of player movement, it would be awful with no Bird exception (I would have been distraught if Bird himself could not have been re-signed). It's much better for the league when stars stay with their teams. One big reason the NBA is better than, say, baseball.

But it's interesting what some of the unintended consequences of the rules are - no one ever really intended or foresaw the ability for an over-the-cap Lakers team to add another high salary star like Pau Gasol just because a lousy high salary player like Kwame Brown was at the end of his contract.

I don't really think anything can or should be done about it though.

[JES12]

4 finally I'd phase out MLE/BAE exceptions where once a team's cap number goes over the tax line they can't use the MLE ...or where if a team pays tax in one year, they are hard-capped the next year where they can only use the MLE/BAE if they'll end up under the tax line for the year - and if they are under the tax line the next year, then once they use that MLE/BAE after having paid tax the prior year, they are hard-capped from all spending (including Bird rights) that takes them over the tax line

That is very interesting.

a) Under cap = same as now
b) cap to lux tax = MLE. and if the team is less than the MLE away from the lux tax, then their MLE reduces to what ever room is below the tax.
c) Over tax = vet or rookie min contracts only

It would also be interesting if the 125% rule lowered to something like 110% rule for those teams above the tax.

Cuban would hate that, but most owners would love that.

[FGump]

JES

1. My model would only apply to teams who paid tax the prior year.
2. So if the tax is at 70M, and a team is at 68M but didn't pay tax the prior year, they're 100% free to spend the MLE.
3. That allows teams to do that sort of spending, and then fix the problem before the year is over, if they want an MLE the next season.
4. For teams who paid tax the prior year, it wouldn't eliminate Bird rights or any other exception other than MLE/BAE.
5. The goal would be to make it harder for teams to be permanent taxpayers. But with Bird rights and sign-and-trades and allowable raises, teams could still have a permanent bloated payroll if they wish.
6. Money is one disincentive that matters to some. But the lack of an MLE is a non-monetary disincentive, because it effects the ability to be competitive. That changes the paradigm and imo would cause a few more owners to get serious about staying below the tax line.
7. It's noteworthy that the teams who are at the top of the league tend to be taxpayers. This creates a bit more of a competitive balance - it will be harder to add talent to that top team if they are achieving their status by out-SPENDING others, and may cause them to drop back to the pack.