CBA Economic Model

 
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PostPosted: Sun May 10, 2020 6:38 pm    Post subject: CBA Economic Model

It has been described that the current circumstances will require the league develop a new financial system, at least for the next year or two. Propose how you would tweak the CBA to distribute the financial risk while keeping a structure of equity and competitive balance.

Assumption
the league as a whole is going to take a 25% to 30% haircut on revenue both this season and next.

Solution
- Allow for certain fixed costs to come off the top of BRI pre-split for the next two seasons but otherwise keep the player/owner split unchanged (which of course in reality means it will be changed)

- Reduce the 2020-21 cap by 10%; Guarantee the 2021-22 caps will not drop from that figure; Build a mechanism that allows the cap to return to its native calculation over three years.

- Increase the escrow account from 10% to 20%;

- If after the 2020-21 season, players got more than their split after the escrow receipts, retain a 20% escrow until the split is balanced and revenues stabilize.

The point of increasing the escrow instead of reducing the cap commensurate with the drop in revenue is to spread the players' share of the revenue decline more evenly instead of creating nuclear winter in the free agent market. Players with existing contracts won't want this, but the union should protect the players who are coming up on contracts as well. Additionally, if you drop the cap too dramatically, even if you tweak the luxury tax, you will give too much power to deep pocketed owners who will tolerate short term loses and injure the competitive balance.


Last edited by Laker's Fan on Fri Jul 10, 2020 11:33 am; edited 1 time in total
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PostPosted: Sun May 10, 2020 10:42 pm    Post subject: Re: New CBA (economic) Model Brainstorm

Laker's Fan wrote:

Solution
- Allow for certain fixed costs to come off the top of BRI pre-split for the next two seasons but otherwise keep the player/owner split unchanged (which of course in reality means it will be changed)


Wouldn't this just mean the players unon would simply be reducing the amount of the pie the players get without getting anything in return? Why would they do this?

Laker's Fan wrote:
- Increase the escrow account from 10% to 20%; The point of increasing the escrow instead of reducing the cap commensurate with the drop in revenue is to spread the players' share of the revenue decline more evenly instead of creating nuclear winter in the free agent market.


As I understand it, the 10% escrow isn't the limit of the players obligation. If the revenues drop enough, the players would have to make up the overpayment by reductions in their salary next year to pay it back. In fact, the NBA and players union have already reached an agreement that starting May 15th the players contracts will be reduced by 25% with the expectation this will be needed to compensate for the revenue loss. So I'm not sure how the escrow increase would affect the underlying economics.

Laker's Fan wrote:


The point of increasing the escrow instead of reducing the cap commensurate with the drop in revenue is to spread the players' share of the revenue decline more evenly instead of creating nuclear winter in the free agent market. Players with existing contracts won't want this, but the union should protect the players who are coming up on contracts as well.


This is kind of the opposite of what happened when the big TV contract boosted the cap so much one year. The league wanted to spread out the gain, the union said no., so a bunch of mediocre free agents really cashed in.


Last edited by activeverb on Mon May 11, 2020 7:32 am; edited 1 time in total
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PostPosted: Mon May 11, 2020 2:59 am    Post subject:

They should opt out of local TV contract revenue sharing for the CP3 veto, the PG13 tampering fine shenanigans, etc. They owe the other teams nothing. Opt out.
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PostPosted: Mon May 11, 2020 6:10 am    Post subject:

JUST-MING wrote:
They should opt out of local TV contract revenue sharing for the CP3 veto, the PG13 tampering fine shenanigans, etc. They owe the other teams nothing. Opt out.


It doesn't work that way. The business structure of the NBA, and the obligation that owners have to each other, is spelled out by the NBA Constitution.

From what I understand, things like revenue-sharing depend on getting support from at least 16 of the 30 teams. If 16 teams vote for it (a simple majority), all 30 teams are legally bound to it.

One team cannot unilaterally opt out. If the Lakers wanted to change the system, they would need to find 15 other teams that agreed with them.
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PostPosted: Mon May 11, 2020 6:47 am    Post subject:

It would be interesting if amnesty provisions could be traded like draft picks.
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Last edited by JUST-MING on Sun May 17, 2020 2:06 am; edited 2 times in total
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PostPosted: Mon May 11, 2020 7:20 am    Post subject:

JUST-MING wrote:
That’s what lockouts are for! If the other billionaire owners don’t agree, then they can hold out as long as they need. The message needs to be sent those colluding bozos! I still can’t believe Houston and Cleveland have opened their practice facilities, they won’t hold out over the hundred million, or whatever they were getting annually from the Lakers TV contract in revenue sharing, they won’t sacrifice number of games nor attendance (I suspect they will be the loudest to resist “games without fans.”) Opt out. Hold out.


Again, it doesn't work that way. You might be confused because 10 years ago, the lockout and the revenue-sharing agreement happened around the same time, but they are different things.

A lockout is between the owners and the players. It happens when the labor agreement expires, and the players and owners can't reach consensus with each other about a new agreement. So that's a situation where no legal agreement is in place.

The owners have an existing legal agreement which spells out their obligations to each other. The Lakers have no legal ability to ignore the agreement and lockout the other owners or "hold out" from the agreement.

All they can do is try to negotiate a new agreement, which requires 15 other owners to agree with them.


Last edited by activeverb on Mon May 11, 2020 9:45 am; edited 1 time in total
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PostPosted: Mon May 11, 2020 9:15 am    Post subject:

this strikes me as something I'd rather not do for free
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PostPosted: Fri Jul 10, 2020 11:44 am    Post subject:

More discussion starting to happen about how a revised CBA might look.

https://www.espn.com/nba/story/_/id/29436654/what-does-nba-do-next-season

Quote:
Owners have established Dec. 1 as the target to start next season's games. But the date of more immediate concern to teams is Oct. 18 -- the proposed start of free agency. By then, all financial matters for this season and projections for next will need to be known.


Quote:
The NBA and players have agreed to a September deadline for what modifications will need to be made to the labor agreement.


Quote:
Instead of a steep drop, the concept would be to keep the cap artificially high for the 2020-21 season -- potentially around the current $109 million -- and achieve the needed 50-50 split by every player taking an equal percentage pay cut.


Quote:
Currently, 10% of players' salaries are held in escrow during the season to balance any discrepancies between the projected and actual revenue for the year......One option, according to sources, would be to increase that escrow amount, perhaps to 20%, for one season....Artificially inflating the cap would have benefits for both sides. For players, it would be a way to avoid penalizing those entering free agency after this season.


Fight on this will be over how you share the pain between players with existing contracts and players in free agency. Players will obviously look to the owners to pick up part of the tab.

Quote:
For teams, an inflated cap would allow the league to remain somewhere near its current financial structure.
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PostPosted: Fri Jul 10, 2020 11:52 am    Post subject:

Laker's Fan wrote:
Fight on this will be over how you share the pain between players with existing contracts and players in free agency. Players will obviously look to the owners to pick up part of the tab.



How much the players share the pain seems like something the players have to decide.

The pie is going to be smaller. The only question is how you slice it up.
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PostPosted: Fri Jul 10, 2020 2:17 pm    Post subject:

activeverb wrote:
Laker's Fan wrote:
Fight on this will be over how you share the pain between players with existing contracts and players in free agency. Players will obviously look to the owners to pick up part of the tab.



How much the players share the pain seems like something the players have to decide. The pie is going to be smaller. The only question is how you slice it up.


(1) higher escrow = share broadly with immediate impact
(2) reduction in the cap = free agent squeeze
(3) Cap smoothing (inflate the cap early but hold it down later) = spreading over multiple free agent periods

Option #3 includes business risk for the owners (since they're "loaning" money to the players with the hopes to recoup it later), would distribute the pain across the majority of players if you gave it a three year glidepath, and (key point) would prevent the players at the top of the food chain from losing as much money (you have to assume the squeeze would be on the middle class).

The other moving part is BRI split. If the owners agreed to let the players have a bigger share in the short run, the amount to be recouped on the back end of the smoothing would be less (and thus be "smoother"). But that would require teams to basically take a larger portion of business losses. That's where I think the fight will rage.

** I also expect the new deal to include greater flexibility for teams to renegotiate player deals. That way teams could reset star salaries once the cap returned to normal. Would probably include some years of service, or perhaps even performance measures (e.g. All NBA team). That way stars don't all take one year deals.
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PostPosted: Fri Jul 10, 2020 9:38 pm    Post subject:

Maintain the current cap dollar number and install a sliding revenue sharing percentage that goes above 50% as needed to maintain the ability to payout to each team the dollar amount of the league average payroll from the revenue sharing pool. When it is possible to bring the revenue sharing back to 50% and the BRI is recovered sufficiently for a cap increase, the league shall return to previous CBA percentages for cap and revenue sharing.
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PostPosted: Fri Jul 10, 2020 10:28 pm    Post subject:

dont_be_a_wuss wrote:
Maintain the current cap dollar number and install a sliding revenue sharing percentage that goes above 50% as needed to maintain the ability to payout to each team the dollar amount of the league average payroll from the revenue sharing pool. When it is possible to bring the revenue sharing back to 50% and the BRI is recovered sufficiently for a cap increase, the league shall return to previous CBA percentages for cap and revenue sharing.


I don't see the owners going for that.
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PostPosted: Sat Jul 11, 2020 5:39 am    Post subject:

JUST-MING wrote:
They should opt out of local TV contract revenue sharing for the CP3 veto, the PG13 tampering fine shenanigans, etc. They owe the other teams nothing. Opt out.


So leave the NBA and play ........who?
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PostPosted: Sat Jul 11, 2020 8:47 pm    Post subject:

activeverb wrote:
dont_be_a_wuss wrote:
Maintain the current cap dollar number and install a sliding revenue sharing percentage that goes above 50% as needed to maintain the ability to payout to each team the dollar amount of the league average payroll from the revenue sharing pool. When it is possible to bring the revenue sharing back to 50% and the BRI is recovered sufficiently for a cap increase, the league shall return to previous CBA percentages for cap and revenue sharing.


I don't see the owners going for that.


Probably not. The more profitable teams have benefited the most from the league in the past and stand to benefit the most from it in the future, so I wouldn’t have a problem with them bearing more of the cost to stay afloat as they have more interest in long term revival.

Something else they can do for the cap is to create a fictional currency called cap dollars. Stick with original cap numbers and projections and salary numbers, but convert them all to cap dollars. Then create exchange rates for cap dollars to US dollars based on CBA agreed share of the BRI. This can keep the cap situations from getting too messy.
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