Tuesday, November 29, 2011

The New Rules: What the Collective Bargaining Agreement Changes Mean to the Grizzlies

Posted By on Tue, Nov 29, 2011 at 9:09 PM

When the NBA finally gets underway next week, it will be under a new collective bargaining agreement — the rules that manage player movements, contracts, team finances, and other basketball-related activity. Before we get into details of what moves the Grizzlies might make during the compressed run-up to the season or what might happen on the court, we'll start by taking a look at the new rules and what they mean for the Grizzlies.

In a general sense, the new agreement is comprised of two types of elements — financial system changes and “system” changes the league says are geared toward ensuring better competitive balance between large and small-market teams. Unsurprisingly, the league was firmer on the financial side, securing a significant pay cut from the players while relenting on a host of system issues to secure a final deal. The result is a CBA that should help all teams on the financial side and — provided the promised major enhancements in revenue sharing actually comes through — could significantly stabilize small-market teams. On the system side, the changes are more minor, but shorter, cheaper contracts with bring less overall risk and a bevy of restrictions should have at least some impact on the ability of big-market teams to horde talent.

If you want a good general overview of CBA changes, you couldn't do any better than cap czar Larry Coon, who breaks the major changes down here.

Rather than explore every detail of the new CBA, I'm pulling out eight changes that seem most relevant to the Grizzlies and speculating on how each change could specifically impact the team:

Issue 1: BRI Split: After getting 57% of basketball-related income in the last deal, players will receive 51.15% this season and between 49% and 51% for the rest of this CBA. Because of the reduction this season from 82 games to 66 games, players salaries will be prorated accordingly.

What it Means for the Grizzlies: There are two relevant numbers when it comes to player salaries: Their listed salaries for cap purposes and what teams actually pay them in real dollars, and these numbers aren't always the same. This season, all players will get have their salaries cut by 19.5% off the top because of the reduction in games. Further, the across-the-board cut from the BRI share reduction — a 10% cut this season and 10.5%-14% in following seasons — will mean teams as a whole will be spending less on player salaries relative to their revenues going forward. In real terms, this will put more cash into the Grizzlies coffers. A combination of reduced player expenses, increased revenue sharing (a non-CBA component we're still waiting to get details on, but the league has promised to at least triple the current paltry rev-sharing system), and increased gate receipts (from having a good team and a better season-ticket base) should combine to add, at minimum, an additional eight-figure bonus to the team's bottom line each season. This may well make the Grizzlies profitable and should at least mitigate losses, making the team more stable financially and increasing owner Michael Heisley's willingness to keep payroll high enough to compete. For all the talk of “competitive balance,” the biggest issue for small-market teams like the Grizzlies is financial viability, and the combination of lowered BRI share for players and increased revenue sharing should bring significant help in that area.

Issue 2: Escrow: The percent of player salaries held in escrow will increase from 8% to 10%.

What it Means for the Grizzlies: This is the mechanism by which the league manages the BRI split. Given the significant BRI reduction, it is likely that most if not all of the escrow this year will revert back to the teams. This means that in addition to the 19.5% cut for reduced games, you can probably cut another 10% off listed player salaries for next season.

Issue 3: Amnesty Provision: Each team is allowed to waive one player (restricted to contracts signed before the new CBA) at any point during the CBA and remove their salary from counting against the cap or tax — while still paying the entirety of the contract. Amnestied players will be subject to a bidding process from under-the-cap teams before hitting free agency.

What it Means for the Grizzlies: For the first time in many years, the Grizzlies don't have any “bad” contracts on their books. People have speculated about Rudy Gay and Mike Conley, but while you could argue those deals were too generous they aren't overpaid to the extent you would pay them to not play. The Grizzlies are highly unlikely to use the amnesty provision this season and are instead likely to keep it their back pocket as an insurance policy against the big contracts for Gay, Conley, and Zach Randolph. (The provision would not apply to Marc Gasol, who would be signing a contract under the new CBA.)

As a team that is over the cap, the Grizzlies would not factor in bidding on other amnestied players, and given that the team will have its hands full with its own free agents, will likely not be a player for any significant amnestied players that make it to free agency. But the team could be in the market for cheap free agents at center or small forward, particularly, and it's possible amnesty adds more depth to those markets.

Issue 4: Luxury Tax: The former dollar-for-dollar tax will stay the same for the first two years of the deal and then increases in year three (2013-2014), when the tax rises to 1.5 to 1 for the first $5 million above the tax threshold and then increases incrementally for each additional $5 million. There is also a “repeater tax” for teams that are above the tax line in four of five seasons. Also relevant here is the “tax cliff.” Under the old system, teams that exceeded the tax forfeited their share of tax revenues from other teams. This “cliff” has been lessoned a bit under the new CBA, softening the blow for teams that just peak over the tax line, allowing them to still receive a smaller portion of tax revenues from other teams.

What it Means for the Grizzlies: The stiff penalties for dramatically exceeding the tax line are unlikely to ever apply to the Grizzlies, who wouldn't have let their payroll bloat to that level even under the old system. What they could do is hold the largest market teams somewhat in check, forcing more useful players to trickle down to more frugal clubs. But if the Lakers, Knicks, and Mavs of the world still spend like mad, the new system could hurt mid-level revenue teams who might have otherwise been willing to go deeper into the tax. So it remains to be seen if the new tax system helps or hurts “competitive balance,” but isn't likely to directly impact the Grizzlies much.

On the other hand, holding off the stiff tax limit for two years and softening the “tax cliff” supplies ammunition for the argument that the Grizzlies should be willing to peak over the tax line the next two seasons in order to take the best possible shot at competing for a title. I will make that case in more detail in a later post, but I suspect it will be for naught. My guess is that Heisley authorizes spending up to the tax line but not above it. We'll see.

Issue 5: Free Agency: Among other less immediately pertinent changes, the matching period for qualifying offers to restricted free agents has been reduced from seven days to three days.

What it Means for the Grizzlies: Marc Gasol might be the most prominent restricted free agent on the market, so now the team has fewer days to match any offer he gets. However, given that training camps and the free-agent signing period will be happening concurrently, the entire process is already going to be compressed, so I don't see this having much impact on what happens with Gasol.

Issue 6: Contract Rules: Contract lengths and raises are being reduced. Under the old system, players resigning with their previous team could get six-year deals with 10.5% annual raises and players signing with new teams could get five-year deals with 8% raises. Under the new system that has been reduced to 5/7.5% and 4/4.5%

What it Means for the Grizzlies: In general, these rule changes slightly strengthen the leverage teams have to keep their own free agents. For the Grizzlies, for now, the rules are mostly relevant to Marc Gasol. (The mid-level exception rules will apply more to Shane Battier. We'll get to that in a bit.) New contract rules also will gradually work in conjunction with the lower BRI to reduce player salaries. And the shorter contract lengths should help reduce the number of dead-weight contracts teams are saddled with going forward.

Using Gasol as an illustration: Under the old CBA, a max contract from the Grizzlies would be — based on my potentially imperfect and slightly rounded math — six years and $113 million and a max offer from an outside team would be five years and $85 million. Under the new CBA, a max deal from the Grizzlies would be five years and $84 million and a max deal from an outside team would be four years and $62 million. Those are pretty big differences. And I'm not saying Gasol is going to get the Grizzlies max — 5/84 — but fans and the team should brace themselves for something in the ballpark of those numbers. I'll get into much more detail about the Gasol situation in one of the next couple of posts.

Issue 7: Midlevel Exception: Under the old system, the midlevel was available to anyone not significantly under the salary cap and could be a five-year deal starting at the average salary ($5.8 million last season). Under the new CBA, the midlevel is subject to more restrictions. For teams under the tax threshold, the new midlevel is a four-year deal starting at an even $5 million with smaller raises (3%). For teams over the tax, the midlevel exception is a three-year deal starting at $3 million (same raises). It gets a little more complicated if the midlevel puts you over the tax, but that's the gist. For teams with cap room exceeding $5 million there's a new exception that is two years starting at $2.5 million.

What it Means for the Grizzlies: In general terms, these changes should help lower-spending teams better compete for mid-level free agents, letting them offer richer, longer deals than teams already over the luxury tax line. And given the shaky history of midlevel deals, making these contracts shorter and cheaper will further reduce dead-weight contracts. For the Grizzlies specifically, these changes are relevant to the team's chances of retaining Shane Battier and to any significant outside free agent activity the team would want to pursue.

If the Grizzlies want to try to retain Battier — and I'm not sure they really do — this will slightly strengthen their position, as most Battier suitors will come calling via the midlevel exception, which is now lower. And for tax teams who might be interested — like the Lakers — they can only offer a the mini-mid-level, which would be below market value for Battier.

As a team that will begin the free-agent period already over the salary cap but below the luxury tax line, the Grizzlies will have the full midlevel exception at their disposal. They will not use it if they resign Battier. If Battier isn't retained, how much the team will be willing to use it will probably depend on what it costs to retain Marc Gasol. The Grizzlies are going to want to court a better back-up center regardless. If a Gasol signing leaves the team several million under the tax line, they could use all or — more likely — part of the mid-level to go after a frontcourt free agent. If a Gasol signing puts the team within a couple million of the tax line, the Grizzlies are probably more likely to pursue a backup center via a minimum contract or trade. More on this in the coming roster and free agency posts.

Issue 8: Trades: There have been changes made to allow more trade flexibility, but the rule change I want to focus on here is this: Under the old CBA, there was a cap of $3 million cash that could be included in each transaction. Under the new CBA, the cap is $3 million total for each team in all transactions for a season.

What it Means for the Grizzlies: This is an ostensibly small item that could have a bigger impact on “competitive balance” issues than it's been given credit for — while simultaneously curtailing a mechanism by which lower-spending teams have rented out cap space for pay (something the Grizzlies took frequent advantage of a couple of years ago). It keeps wealthier teams from using cash to grease trades otherwise in their favor as often as in the past and should reduce the number of draft picks sold.

The last part could be helpful for the Grizzlies. The team is going to need to find contributors on the cheap to build a roster around a well-compensated core and still stay under the tax line. The best way to do this is to draft well, especially late in the first round and in the second (see: Darrell Arthur, Greivis Vazquez, Sam Young, and, hopefully, Josh Selby and/or Xavier Henry). Selling picks brings short-term cash but is actually counter-productive to team-building/cap management, something I'm not convinced Michael Heisley really understands. Making it more difficult for Heisley to force his front-office to sell picks could help the Grizzlies avoid this trap.

Up next: A breakdown of the team's roster and salary situation heading into free agency.


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