A (very rough) Estimation on the new CBA and its possible impact to rockets

*Most of the research and contents for this post was done before July 3rd, when most of the FA signings were not decided yet, so some of the info I used could already be outdated by now. - I'm taking a vacation in Spain and doesn't have a lot of time to check out the new FA moves recently, so please help me update/revise whatever information that could be relevant to this discussion.


Objectives
I have been thinking about doing some research on this topic for a while now. All the recent FA talks got me thinking that, maybe we really should take a look at what the new CBA will probably look like before we decide how we should react in rocket’s Free Agency moves.

What will be different in the new CBA? What impact will it have on rockets? What impact will it have on other teams? How will Morey react to all these impacts? These are all questions that should be answered should we try to dissect and predict any future Rockets’ moves.

*Disclaimer: there are preciously few reports about how the CBA negotiation is going at the moment, so I’ll have to base a lot of my conclusions on speculations, estimations and leap of logic. There’s no doubt that many of the conclusions in this post will be far from the truth. Hopefully though, a discussion based on flawed and inaccurate estimations is still better than no discussion at all.


Basic Information about the First Proposal
First, let’s start with the position of the management and the union. What do they want? Who has how much leverage?

According to the negotiation schedule published earlier, the first proposal from the management was delivered to the union at the beginning of the year, and then was soundly rejected. The second proposal from the management was supposed to be handed out by the end of June. If that date stayed as planned, the player’s union should have received the new proposal and has had a rough evaluation on it by now. -- I have not seen any reports on the second proposal, but let’s start with the first proposal and see what we can deduce so far:

1. In the first proposal earlier this year, this much we are certain:

a. The union wanted to keep the old CBA and change nothing​

b. The management was asking player salaries to be decreased by over 20% (Salary Cap to be reduced from 57% BRI to 45%, and Luxury Tax line reduced proportionally)​

c. The management was requesting to redefine BRI ​

2. In the first proposal, the management was thought to be requesting the following, but I have not seen details:

d. The management possibly was asking for players to “escrow back” a percentage of their salary to the league (i.e. NHL)​

e. The management possibly was asking for a temporary hard cap while trying to lower the player salary to the 45% level (again, see NHL)​

f. The management possibly was asking for a more general contract voiding clause to deal with future Gilbert Arenas Scandals​

g. Although I personally don’t see them succeeding, but management could have even asked for Non-guaranteed contract (i.e. NFL) ​

3. Although it has not been reported, but I personally think it could (and would make sense) be included in any proposal of the new CBA：

h. The management could ask for a higher buyout limit to be able to pay to European teams in order to get the European prospects into the NBA. – This has become one of the major sticking point for quite some NBA teams in the past few years.​

4. As of now, the Union has emphatically rejected the first proposal

5. Also as of now, the Union is reported to have extremely few leverage in the negotiation and it’s almost a forgone conclusion that they would have to compromise more than the management.

6. Generally speaking, players have been informed and were expecting significant pay cuts.

In the above 6 observations, everything have been publicly reported and were probably very close to the actual facts except observation #3 (which is totally my own speculation). Because of #5, I would guess the new CBA would end up somewhere closer to the management’s demands. Exactly how close the CBA will end up with will probably depend on the negotiation skills of both sides.


Personal Reactions and Interpretations based on the Above Observations:

b: My guess is that the player’s salary will decrease by about 10%-15% (Salary Cap reduced from 57% of BRI to about 50%, and Luxury Tax line reduced accordingly). Using figures from this year, that makes the salary cap next year around $52M while Lux Tax line around $63M.​

c: Only God knows how BRI will be redefined. (I’m totally illiterate about this subject. If anyone in clutchfans can educate me, it will be greatly appreciated.) – but everyone know that it won’t be defined in a way that gives players more salary. ​

d: We’ll touch on this a bit later​

e: Hard cap are probably too hard to achieve. I personally see the management making the demand, but in the end gives it up in exchange of concessions in the other area (such as player salary) from the union。 ​

*Note: if indeed hard cap is implemented in the end, Morey will probably be so happy that he will give every clutchfans member a seasonal ticket for free. – that was his major point when he got fined for commenting on new CBA.​

f: A more generalized contract-voiding clauses are almost a certainty. In the wake of the Arenas situation, I don’t see how Union can find enough leverage to stop this.​

g: Non-guaranteed contracts, however, will be rejected by the Union at all costs. This one has so much impact to the players and I don’t see how the management can make the Union agreeing on this.​

h: The “higher-buy-out-amount” clause is totally a personal speculation. I don’t see it as a “must have” point for either side. Most likely, it will be a “compensation consolation” to whoever gives up more in the player salary negotiation.​

Some Recent Development
With the above guesstimates, let’s take a look at some recent information that could help us confirm or disprove some of our guesses:

In the last BS Report by Bill Simmons and Chad Ford, one small detail caught my interest: According to BS and CF, Tyson Chandler was considering opting out of his $12M final year contract, in the hopes of securing a 5 year, $40 Million contract this summer. Tyson Chandler’s agent felt that if he does not opt out now, there’s no guarantee that the money will be there when his contract ends next year.

What that means is, according to Tyson Chandler’s agent, a player who gets a 5 year, $40M contract this year, is unlikely to get a 4 year, $28M contract next summer. If we consider the time appreciation for the money, as well as the fact that he will have to forfeit a GUARANTEED $12M first, it means they are probably expecting an even lower contract (likely in the $6M per range) by next year.

This immediately matches our speculations above, since if the salary cap is reduced by 10% to 15%, then the fact that most teams need to cut back on their spending and the impact on FA contract would be multiplied, and a 25% decrease (from $8M per to $6M per) seems very much on target.

Interestingly, on July 1st, we found out the Tyson Chandler decided against opting out, while Paul Pierce (who shares the same agent as Chandler) decided to opt out.

At the same time, our own Yao decided to opt in. It was very interesting that in the Yao interview following his decision to opt in, it was extremely obvious that Yao had seriously considered opting out of the contract for reasons other than “sign a low contract and help rockets”. In other words, Yao’s team likely thought there’s a probable chance that Yao would benefit financially from opting out, but changed their mind in the end.

So, what made Chandler and Yao change their mind in the last few days? Their agents’ prediction on the FA market would be an obvious answer – but at the same time, I think the second proposal by the management probably made an impact as well. – The timing coincides each other almost too well for it not to be.


Deductions from these new observations:
Let’s try to do some reverse engineering and guess what was in the new proposal, with the assumption that Yao and Chandler’s decision to opt in was partially impacted by it:

1. Prior to the second proposal, the prediction from Tyson Chandler’s camp was: the player salary will be reduced by more than 10%, but “Salary ‘escrow’” is unlikely. Otherwise, a 5 year $40M contract this summer becomes much less desirable if a percentage of that has to be paid back anyway.​

2. Yao’s similar reaction somewhat supports the above possibilities.​

3. After receiving the second proposal, both Tyson Chandler and Yao decided to opt in. This possibly indicates:​

3a. The proposed salary reduction (amount and length) is less than expected to justify forfeiting the guaranteed amount, or​

3b. The possibility of “Salary ‘escrow’” becomes much more likely and that makes opting out too risky for the potential gain, or​

3c. Their decisions could be totally unrelated to the CBA proposal but rather a reflection of their prediction on the FA market.​

4. Among the above possibilities, 4b is very unlikely, since whether “Salary ‘escrow’” will be included in the new CBA really depends more on the Union’s position and how strongly they want to defend this position decision rather than what was offered in the Management’s proposal.​

5. Considering Paul Pierce decided to opt out, it seems his(and Tyson Chandler’s) agent was at least reasonably optimistic about the incoming FA market.​

6. As a result, if I have to bet my life on it, my guess is at least part of the players (or more appropriately, their agents) felt the likely salary reduction will be less than first feared and risking the guaranteed money now does not justify the risk anymore.​

Conclusion
Now, with all the above information in mind, let’s see what we have been able to improve on our initial assessment and some possible implications to these assessments:

a. The second proposal from management probably made considerable compromise, at least in the revenue sharing part. – This is a great news for NBA fans, as any such compromise probably greatly reduced the risk of lock out in the 2011-2012 season.​

b. It looks like the salary reduction wouldn’t be too drastic, although I personally still don’t see how the Union will be able to negotiate it down to less than 10%. (Using this year’s number, a 10% reduction will give us a $52M cap, $63M Lux Tax Line, a MLE that won’t change initially but could eventually decrease to around $5M in the next couple of years, and the new Max players getting paid from $10.5M(25% of CAP) to $15.7M (35% of CAP)​

c. Without know what exactly it is, I don’t see how Union can block the “redefinition of BRI”. They will try hard to refute any management proposal, but I suspect they will have to give in at the end in order to exchange some compromises from management in the other areas.​

d. It looks like the Union is going to fight “Salary ‘escrow’” very strongly, possibly even at all cost. How much sacrifices they are willing to pay on the other areas are still unknown.​

e. The biggest obstacle for a hard cap (temporary or not) probably won’t be the Union but some of the richer clubs. Mr. Cuban won’t let Stern win this easily.​

f. I don’t think there’s any doubt about a more generalized contract voiding clause.​

g. Non-guaranteed Contract is a question of life-or-death for the union. I don’t see management winning this one.​

h. As to my own purely speculative “higher buy-out limit” clause, it shouldn’t be a “must have” for either side. – However, it will obviously have a huge impact to Daryl “One-Euro-Player-Every-Draft” Morey though.​

i. If the new CBA end up with a reduced salary cap and lux tax line, but without a “salary ‘escrow’”, then there has to be some temporary clauses to allow the teams who suddenly jumped from under-the-tax-line to above-the-tax-line to adjust. As of now, one of these two solutions is probably going to be implemented:​

i1: In the next several seasons following the CBA, the old Lux Tax Line could be used when calculating Taxes, while the new Salary Cap will be used when determining free salary cap room.​

– This could be a very good solution for Daryl Morey. Without counting the FAs, I have counted 13 teams has has more than $60M guaranteed contract in the 2010 to 2011 season. If we start counting FAs as well as rookie contracts, a large number of teams will have to reduce their salary to avoid getting taxed. Of course, whether Morey have the resources to be a predator and take the advantage will depend on how much Les is willing to pay given the lowered Lux Tax line.​

-- If this scenario becomes true, then any team that wants to rebuild and starts to clear salary space for the 11-12 season or beyond could be in with a rude awakening (with the lower Salary Cap)​

-- If this scenario becomes true, then any team (*cough cough*) that has tried to shed contract for the past two seasons, tried to get 2 max players this summer, fails miserably and decides to continue free up space for next summer and beyond could be in with an even ruder awakening.​

-- If this scenario becomes true, then any team realizing this could try to use all their cap spaces this summer instead of saving them for later. – This definitely is a good news for Luis Scola, but not necessarily a good news for us rox fans.​

-- In this case, next years FAs (especially top FAs) will have a much harder time simply because of the decreased CAP space. (Not to mention the considerably lower Max amount that can be paid with a lower CAP)​

-- With the above prediction, Yao, there’s really not much to consider anymore. Show Morey that the last injuries are not a huge concern anymore and getting started on the contract extension talks.​

i2: Another possible solution is Allan Houston Rule #2: the team can revoke this rule once and buy out a player to avoid have it count towards the Lux Tax. – Maybe this time it will be called Amare Stoudemire Rule?

-- This is definitely a scenario that Morey hates. Rockets are probably the only team in the whole league now that does not have a single “bad contract” at the moment ​

-- This means not only we can not benefit from this scenario, but there will be preciously few GMs allying with Morey to vote against this scenario.​

-- Let’s just hope that Morey can find enough supports to modify the original Allan Houston Rule into “Team can forfeit their own 1st round draft pick in order to buy out a player of choice and not have the salary count towards Tax”, or some variation of it.​

-- Of course, Morey being Morey, he could probably predict this scenario a step ahead of all the other GMs. In that case…​

Emeka Okafor, I love you! That little cute guy behind Emeka Okafor, I love you double!

j: Since the possibility of a lock out can not be ruled out at this stage, any poster wants to speculate about RFAs this year or next year should keep in mind that a Front-loaded contract is probably considerably less frightening that the previous years. The larger the contract during the lock out, the more money the owner saves…​

The END – or let’s hope it’s the start of some discussion:
So, that seems to be all I can get after a full day’s work on it. – Gotta admire all the lawyers sitting there and drafting the actual CBA rules. This gets tiring quickly!

As I have repeated said above, this is a VERY rough estimation and it is full of jumping to conclusions without full/proper proof. So please feel free to fill in your thoughts and correct me. With the number of hugely knowledgeable posters we have here, I’m pretty sure my original prediction will be dissected and refuted to death quickly. Let’s just hope we’ll arrive at something more accurate and useful at the end though.

Thanks in advance to everyone’s input!




*Side Note: other than the “higher-buy-out-limit” clause I speculated, there could also potentially be a “Kirk Hinrich Rule” be in place in the next CBA. As it is rumoured, the Chicago-Wizard trade which sent KH to the Wizard could potentially be split into 2 separate trades to allow Chicago to send Wizard $6M instead of $3M cash. This is obviously an exploit and a team like New York could potentially trade the option of exchanging heavily protected 2nd rounders for the next 10 years with a team, while giving that team a total of $30M Cash. A new rule that limits a team to include Cash considerations only once in every 30 days could eliminate this exploit. – and hopefully, rockets have used that exploits somehow before it is eliminated.

 

Thanks OMR, I really appreciate your points -- and to bring out people knowledgeable about the situation like you is my primary intention in the first place.

As to Management's leverage during the negotiation, I based my estimation mostly on an old article earlier this year:
http://sportsillustrated.cnn.com/2010/writers/frank_hughes/01/29/labor.strife/index.html

Again, those are based on old information and the situation could have changed. But from what I saw, management had over-whelming leverage at the beginning of the year. Could the tide have changed so much so quickly? I would definitely interested in hearing your thoughts/rebuttals in regards to the report.

As to combining TEs, I thought TE is just a pseudo-exception that's used to describe a "non-simultaneous trade"? If what I remember is correct, than TE can not be combined is not a rule, but rather a result of the whole trade system currently designed. -- it probably will be hard to allow TEs to be combined unless they totally rewrite how trade works...

 

Valorita,

1. The CBA negotiation is a standard Management-Labor negotiation, so customer (fans) does not get to participate. - Pity, I know, but it doesn't look likely to be changed anytime soon

2. If no agreement can be reached by next year (Fall 2011), NBA will go into a lockout. Player salaries and some of the coach's salaries will not be paid during any such lockout. So yes, that's where most of the management's leverage comes from and so far I think they have an obvious upper hand - But OMR is disputing this notion with some very interesting points.

*Note that David Stern has an option to extend the current CBA for one more year into the 2011-12 season. However, this option has to be exercised before november 2010 and is extremely unlikely to be exercised by all indications so far.

3. The last CBA negotiation happened in 2005, with both party agreeing on terms quickly. The only effect was the summer memoratium(sp?) period was effectively extended for several weeks and club could only start to officially sign FAs after the CBA was agreed in August.

Before that, it was the 1999 lockout, which NBA lost part of the season but both party settled on a compromise on the last minute and salvaged a shortened year. I can't recall much more details about that lockout as I wasn't following NBA that rigorously in the late 90s, but I'm sure we have a lot of posters here can give you the details about this question.