sunsfn 3/11/2005 report #2


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Oct 3, 2002
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Updated: Mar. 11, 2005, 12:52 PM ET
Both sides making concessions
By Chad Ford, ESPN Insider
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NBA commissioner David Stern and union chief Billy Hunter sat together at a podium at the All-Star Game in Denver last Saturday, sharing a proverbial peace pipe.

Hand in hand, the two claimed they were hopeful they would reach a deal on a new NBA collective-bargaining agreement before the current one expires June 30.

"I'm really optimistic that we'll be able to do it," Stern said.

While they were heavy on optimism, they were thin on details.

"I'm just going to deliberately avoid answering your question, simply because I don't think that in any way helps to enhance or facilitate the negotiations," Hunter said when pressed to provide details of the negotiations. "I don't want to provide you an insight to what's happening in the room between our two sides."

What are the issues? Insider spoke to four sources, two from management, two from the players' side, all of whom are familiar with the negotiations. And all four confirmed a number of specifics about where the two sides are in the process.

Among the key points: The implementation of a 20-year-old age limit looks more likely than ever; contract length and raises likely will be reduced; and the salary cap might be raised.

Spokespeople for both the league and the players' association refused official comment, citing policies against discussing ongoing negotiations.

While all four sources agreed this is where the parties now stand, they were quick to reiterate a line from Stern's press conference: "No one's agreed to anything." That's the nature of collective bargaining. Concessions are all part of a larger deal. If one side tweaks a proposal, as they are wont to do in negotiations like these, the concessions change too.

"It really is a moving target," one union source told Insider. "But this is where we are today. Tomorrow, everything could change."

Here's where they are now:

Age limit

Currently, players are eligible to declare for the NBA draft after their high school senior class graduates, if they are from the United States. If they are international players, they must be 18 years old by the night of the draft. For several years, Stern has been vocal in support of a 20-year-old age limit for players to be eligible for the draft. Hunter has been just as vocal opposing the limit.

However, there have been significant developments over the course of the past week. According to all four sources, the players have warmed to the age-limit idea to the point that several sources believe an age limit will be part of the new CBA. This comes as a major surprise, after both sides claimed for months it was unlikely an age limit would be implemented.

Why the sudden change? Many veteran players, say sources, see the age limit as a way to protect veteran jobs in the league. And conceding on an issue that primarily affects a constituency that isn't even technically part of the union is certainly less painful.

According to sources, high school players would have to wait two years after their high school class graduated before becoming eligible for the NBA draft. International players could not declare for the draft until the age of 20.

The rule likely would go into effect for the 2006 NBA draft.

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If an age limit is implemented, it would dilute the draft dramatically for the next several years. If the rule had gone into effect last year, for example, 11 of the first 19 players selected would have been ineligible. Under-age players such as LeBron James, Carmelo Anthony, Amare Stoudemire, Chris Bosh and Dwight Howard would've been ineligible for the draft had the rule been in effect earlier. It would take several years for the talent pool to restock. By 2008, however, the draft would be stronger, giving teams an extra couple of years of scouting before having to make crucial – and expensive – decisions on players.

The league's main interest in establishing an age limit, however, is economic. With the rare exception of a player like LeBron, it is difficult to market players who are coming straight from high school. Two years of college publicity gives fans a chance to get to know players before they join the NBA.

"Everything is an economic issue," Stern said Saturday when asked about an age limit. "I mean that sincerely. Because it affects our business, in terms of our responsibility, the way we are viewed, the players' maturity and how they deal with the community.

"On a broader sense, everything we are talking about, even though it may turn out to be about a minor league or D League or age limit, it all relates to the operation of this league, and at the bottom it sort of all could be referred to as an economic question."

If the league does institute such a rule, it likely will be challenged in court. However, the league is confident the rule will hold up as long as it was collectively bargained. The NFL successfully defended a recent suit by running back Maurice Clarett. In May, a three-judge appeals panel said federal labor policy allows NFL teams to set rules governing when players can enter the league, stopping Clarett from entering last year's NFL draft.

Contract length

Currently, players can sign a fully guaranteed contract for a maximum of seven years, if they re-sign with their current team. Players signing with a new team in free agency can sign six-year deals. This is a sticking point for owners, who often get stuck with the bill for players who become injured or don't pan out. Teams have few options if they want to part with a player with a bad contract. They can hope he retires, try to trade him (usually taking back another bad contract in return) or try to buy out the contract.

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This fall, several players, including Howard Eisley and Eddie Robinson, were bought out for significant sums. The problem for owners is they wind up paying a player who winds up playing for another team. They also cannot get the player off the books until the contract originally would have expired. Once a team buys out a player, the buyout amount remains on the books until the original deal expires. This has grown into a major problem. This year the Bulls and Nets will be paying more than $15 million in salaries to players who aren't on their current rosters. Three other teams – the Bucks, Celtics and Grizzlies – owe more than $10 million in salaries to players not with the teams. A number of other clubs, including the 76ers, Wizards, Rockets, Mavericks and Suns, also owe significant amounts to players who are playing elsewhere.

The owners' current proposal asks for contracts to be shortened to three or four years. They believe the shorter length will allow them to more easily swallow any deals that go bad. So far, the union has agreed to compromise a little, shortening the maximum number of contract years to five or six, but the owners feel that isn't enough.

Both sides expect a compromise in which players can sign for a maximum of five years if they re-sign with their current teams and four years if they sign with new teams in free agency.


In this area, players and management remain far apart. Under the current CBA, players are allowed maximum raises of 12.5 percent per year if they re-sign with their current teams and 10 percent if they sign with new teams in free agency.

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The effect of those raises can be devastating to a franchise over time. For example, the Los Angeles Lakers, who last summer signed Kobe Bryant to a seven-year contract with 12.5 percent raises, are on the hook for $14.175 million this year. In 2010-11, they owe him $24.8 million. Owners contend the raises are out of whack with the current financial realities. Last year, the salary cap stayed flat. In years past, it has increased by small, incremental amounts. If salaries are rising 10 percent per year and the cap is rising 3 percent, teams that are avoiding the luxury tax now won't be so lucky in three or four years.

Some clubs have tried to counter this trend by offering players flat contracts. However, very few agents or players are agreeing to them.

To curb the growth of salaries, owners want to roll back the maximum raises to 5 percent for players who re-sign with their current teams and 4 percent for players who sign with a new teams in free agency.

This is a major sticking point for veteran players, who count on those nest-egg balloon payments at the end of their careers. So far the players are holding firm to the current numbers of 12.5 and 10 percent. The owners are standing fast at the other end of the spectrum.

Like most things that are bargained, expect compromise.

The mid-level exception

Some GMs feel the mid-level exception, more than any other "soft-cap" device in the CBA, is responsible for the out-of-control salaries in the league. The mid-level exception is available every year to teams that are above the league's salary cap. It's based on the average salary of players in the league – currently $4.9 million. Teams can use the exception to sign players for a maximum of six years with 10 percent raises.

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Derek Fisher, for example, signed a six-year deal with the Warriors last summer that totaled $37 million. While his starting salary this year is $4.9 million, it escalates to $7.4 million in 2009-10. Owners argue that the exception has blown a huge hole in the cap. Because teams can use the exception every year, the numbers really start to add up. Owners believe lowering the mid-level exception and implementing shorter contracts will bring things under control.

Everyone still wants the loophole – they just don't want to be able to drive a semi through it.

Currently, the owners are looking to split the mid-level exception in two pieces. Teams could sign two players with the exception: one for 75 percent of the exception, the other for 25 percent. Under current exception figures, teams would have a $3.7 million slot and a $1.2 million slot.

Right now most teams are forced to offer the full $4.9 million to top players in free agency. That number would be lowered to $3.7 million. Most teams would choose not to use the $1.2 million exception, in effect lowering payroll.

Combine that with the shortened contract length the sides are working toward, and the mid-level exception won't be nearly as problematic.

A typical mid-level exception contract would be four years, $20 million, compared to six years, $40 million. It's a big difference.

The salary cap

The current CBA puts a salary cap in place based on basketball related income (or BRI). The cap is set at 48 percent of BRI. Last year that total came out to $43.87 million. According to sources, the owners have agreed to increase that percentage, in effect raising the salary cap. This is a big concession to the players. With a larger cap, more teams will be able to spend on contracts each summer.

The luxury tax

The infamous luxury tax is something for which neither side cares. However, it's Stern's biggest stick in beating the owners into submission on out-of-control spending. Last season, teams whose payroll exceeded $54.6 million paid a dollar-for-dollar tax on the amount they were over the threshold. For example, the Knicks' payroll last season was $94.4 million. That means they paid the league $39.8 million in tax penalties. The total taxes paid by teams last season amounted to more than $157 million.

The luxury tax kicks in when total player salaries exceed 61.1 percent of total basketball revenues. That threshold jumped to 63.3 percent this season – giving the owners their first shot in a long time at a season without a luxury tax.

The tax probably is not going away, regardless of what both sides might want. The latest proposal from the league, according to sources, pushes for a "super tax." Owners who exceed the salary cap by more than a certain percentage (roughly $10 million) would be penalized $2 for every dollar they are over the tax threshold.

That's actually a bigger penalty than is now in place and something to which the players are staunchly opposed. The union believes this would amount to a "hard cap," because the penalty is so severe that few teams would dare exceed it. For example, the Knicks, who pay hefty tax penalties as it is, would owe $80-plus million in taxes next season on top of their already exorbitant $108 million payroll. New York's payroll, in effect, would be $190 million. No team can afford that.

The league is looking for the stiffer penalty for two reasons. First, it believes the current penalties have not been enough to deter many owners from exceeding the threshold and paying the luxury tax. Twelve teams paid it last season. Second, the extra revenue derived from the tax would make up for the costs incurred by raising the cap and reducing the amount players pay into escrow accounts (see below).

According to all four sources, if the two sides can't reach agreement on a deal, this likely will be the stumbling block.

Player escrow account

Currently, players must pay 10 percent of their salaries into an escrow account each season. If at season's end the total amount of player salaries exceeds 57 percent of the league's total basketball-related income, that money goes to the owners. If it doesn't exceed 57 percent, the players get their money back. For the past two seasons, salaries have been hovering at more than 60 percent of BRI, and the owners who have kept their payrolls below the league's luxury-tax threshold (and a few that fall within a certain "cliff threshold") have gotten millions back from the players.

The players, as you can imagine, want this to end. In fact, it might be the single most important issue on the table for them. The players already pay an enormous amount in taxes. Factor in the 10 percent that's taken off the top, and a player's take-home pay is far less than what it appears on paper.

Owners are reluctant to make the change. The windfall teams got last year from the escrow tax and fees paid by owners who were over the luxury-tax threshold put roughly $8 million back in the pockets of those owners who were under the tax or in the cliff threshold.

For several teams, that rebate meant the difference between turning a profit and posting a loss for the season.

Right now, sources claim the owners are willing to compromise by phasing down the amount players pay into the escrow account from 10 percent to 5 or 6 percent. They are, however, unwilling to eliminate it completely.

This is a major sticking point for both sides. While owners are pushing for a number of items that will get their finances under control over the long term – remember these proposals won't be retroactive; they would only apply to contracts going forward – they also are unwilling to take huge financial hits now to get it done.

That's why the phase-out is important to the owners. It means they give up less money now and more once the system begins improving.


The NBA minimum wage, currently starting at $385,277 and going up each year a player is in the league, will significantly increase, sources say. This is an obvious concession by the league and should placate a large constituency of players who consistently sign deals for minimum wage.

Rookie salary scale

Currently, first-round picks are tied into a league salary scale. When a first-round pick signs a contract, the first three years are guaranteed, with a team option for the fourth year. Players are paid a set amount based on where they were selected in the draft. The current proposal, according to sources, modifies that deal slightly in favor of the owners. Under the new rules, first-round picks would get the first two years of their contract guaranteed. The third and fourth years of the contract would be team options.

Roster space

Currently teams can have a maximum of 15 players on their rosters, with a minimum of 11. Under current proposals, the minimum would be raised to 14. This is another concession by the league.

Trade rules

For years, both GMs and players have been complaining about restrictive trade rules that mandate all trades be within 115 percent and $100,000 of each other. That restricts player movement to the point many deals become impossible. Expect the league to significantly loosen those trade rules under the new CBA. That includes widening the gap between salaries traded and received to 125 percent.

NBA minor league

There has been a movement among GMs for some time to see the league turn the National Basketball Development League (NBDL) into something that looks more like a real minor league. Stern told Insider last April that such a league already was in the works, with the possibility of the NBDL expanding to 15 teams and each team being affiliated with two NBA teams. Saturday, Stern reiterated his commitment to creating a true NBA minor league.

"One of the things we'd like to do is have young players subject to having their contracts assigned, but we understand that there can be differences of opinion on that issue," Stern said.

Creating a minor league has been an issue in the bargaining process. The players and league must collectively agree to a system. Hunter said he's still not convinced the NBA needs a minor league.

"It would be difficult for me to envision some of those guys [the players in Friday night's rookie-sophomore game] being in the D league," Hunter said. "But it's just something that we have to address as we go."

However, sources say it's likely the idea will move forward. Here a few details currently on the table:

<LI>Each NBA team would send young players to a designated NBDL team, along with an assistant coach to monitor the players' development.
<LI>Stern plans to expand the league beyond the Southeast to as many as four regional pods, starting with the Southwest. If the league expands to 15 teams, two NBA teams would share each NBDL team.
<LI>First-round picks would continue to be paid at the rookie wage scale. This was a key concession to players who didn't want owners to use the league as a way of cutting player salaries.
<LI>Teams would retain the rights to all of their players and could recall them at any time.
<LI>Players with three years or less experience in the NBA could be sent down to the NBDL. Veterans could not be assigned to an NBDL team.

The bottom line

The NBA is in better financial shape than it was before the current 1999 CBA kicked in. The luxury tax and escrow accounts have curbed spending, though not to the degree the owners would prefer. With the NHL embroiled in a nasty lockout, the last thing either side wants is an NBA work stoppage.

"Our players are making a substantial sum of money," Hunter said. "The league appears to be thriving, and we would be foolish, you know, to not make every effort to make a deal and to be separated by something that shouldn't be something that prohibits that from occurring."

Both sides also agree that getting something done sooner rather than later could help the NBA's image.

"We think there's a possible window of opportunity for which we can generate a lot of good will," Hunter said.

Despite the obvious differences, the two sides are close. The fact the players and the league are referring to changes as "tweaks," and the players essentially are calling for the status quo, is a major concession. They fought the current deal vigorously in 1998 and are now conceding it has been good for the league.

NBA players still are among the highest-paid athletes, on average, in the world. More than 60 percent of revenues still are coming their way. Both sides have too much to lose if there were any sort of work stoppage.

If the proposals currently on the table become reality, both sides can claim victory. The league would have won much-needed changes that protect owners from the long-term risks of guaranteed contracts. The players would maintain a salary structure that makes them the highest-paid players in professional sports.


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