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Posts Tagged ‘Cap Holds’

How Bird Rights Work

January 17th, 2010 No comments
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By February 1983, the financial health of the NBA was in serious doubt.

The majority of the league’s 23 teams were losing money. Six – the Cleveland Cavaliers, Denver Nuggets, Indiana Pacers, Kansas City Kings, San Diego Clippers, Utah Jazz – were on the verge of financial collapse. Some, including the Clippers and Kings, nearly provoked a player strike in 1982 as they fell behind on their deferred payments to former players, as the league totaled an estimated $80 million to $90 million in deferred money owed to players.

The NBA’s previous Collective Bargaining Agreement had expired on June 1, 1982.

Seeking relief from skyrocketing player salaries, the NBA was pushing the players union for sweeping changes.

It was proposing to guarantee the players a fixed percentage of league revenues, the first revenue-sharing plan of its kind in team sports. Under the plan, the owners were offering 40 percent of gross revenues up to $250 million, and 30 percent of revenues above $250 million.

In return, management wanted a hard cap placed on each team’s player payroll. The cap would reflect the fixed percentage of league revenues.

At the time, there were no caps or floors on team payrolls, which ranged from the $1.1 million that the Pacers were spending annually on their players to the $4.5 million spent by the champion Philadelphia 76ers.

The union was open to a fixed-percentage plan in concept. It would give them access not to gate revenues but also to the potential growth from lucrative new network and cable television contracts. It was pushing for the players to receive 55 percent of the league’s gross revenues.

Negotiations had been dragging on for eight months. More than half of the 1982-83 season had been played without a new deal in place. The players, frustrated with the lack of progress, imposed an April 2 strike deadline. If an agreement could not be reached by then, they would refuse to finish playing the season. The regular season was to end on April 17, and was followed by playoffs on which the league counted heavily for its revenues.

The primary stumbling block was not the split of league-generated revenues – the NBA had over the course of numerous bargaining sessions increased its proposal to an even 50-50 split, leaving just a five point spread from the players’ 55 percent demand, which it too had indicated was negotiable – but rather the immediate imposition of a first ever modern day salary cap in professional sports.  Read more…

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Understanding the Charges

January 15th, 2010 No comments
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After a wild ride through a doomsday scenario that would have made it impossible for the Heat to achieve its goal of acquiring thee maximum contract free agents this summer, things have somewhat stabilized.

The economy is slowly bottoming. Salary cap projections for next season are slowly rising.

The cap is still, by all accounts, expected to fall from this season’s $57.7 million level. But agents who have been briefed on updated financial figures now are using $54 million as their operating number, a stark improvement from previous league-issued projections as low as $50.6 million.

Unfortunately, the upcoming drop in the salary cap will not take the maximum salary amounts for the league’s most coveted free agents with it.

Max salaries are determined as a percentage (either 25, 30, or 35 depending upon a player’s tenure) of the cap (1). Therefore, when the cap declines, so too do all the maximum salary calculations. But there’s a fail safe. A free agent’s maximum salary in the first year of a new contract is never less than 105% of his salary in the last year of his previous contract. In this declining salary cap environment, the fail safe will apply to each of Dwyane Wade, LeBron James, Chris Bosh, and Amare Stoudemire.

The latter player is currently earning slightly more than the former three. So if the goal is to acquire the former three within the confines of the cap, we can already definitively know how much it will cost. Each player will command a salary of up to his $16,508,968 maximum. Add three together, and you get $49,706,724.

So for every dollar the cap declines, that’s one less dollar the Heat will be able to apply to the $49,706,724 goal.

There are plenty of teams positioning themselves to sign two maximum contract free agents, and plenty of them in desirable perhaps equally desirable markets – teams like the Knicks and Nets in New York, the Clippers in Los Angeles, and the Bulls in Chicago. What most differentiates the Heat from the pack is its potential to sign three.

The Heat only has on its books for next season Beasley’s $4,262,436 salary, Cook’s $2,169,857 salary, and Jones’ partially-guaranteed salary which can be reduced to $1,856,000 if he is waived. That’s a total of $8,288,293, producing a net difference of $45,717,707 at an assumed $54 million cap level.

Trade away Michael Beasley and it increases to $49,974,143.

So that’s it. Trade away Beasley and the Heat are sure to have enough cap space to sign three maximum contract free agents, right? Wrong.  Read more…