NBA Ramblings

Is The NBA On The Way To Financial Ruin?

http://www.orlandosentinel.com/sports/basketball/orl-sportsbianchi25032509mar25,0,4040435.column

The above link will take you to an article by Orlando’s Mike Bianchi where he discusses David Falk’s new book which assesses the NBA’s financial future. Falk and Bianchi seem to believe that when the current contract with the players union expires in 2010, owners will demand a firm salary cap, higher age limit and shorter guaranteed contracts. If such concessions are made, the costs of putting a competitive team together will be smaller, and NBA teams will be more profitable, but will the NBA be putting out the best product?

The summer of ‘08 offered a glimpse into the future of the NBA. Since the 80’s, basketball has become a popular sport across the world, growing in popularity first in Europe, and eventually to Asia. There are professional basketball leagues all over the world now, Asia, Europe, and even in the Middle East. Since basketball’s popularity has risen, so has the talent level overseas, and the NBA has been dipping into the talent offered by Europe, forcing European teams to answer in turn by offering contracts up to NBA players. This past year several European teams have put the cash up to buy up American players, or buy back European players. In the past the NBA hasn’t been hurt when NBA vets who are past their prime have been offered big contracts by European teams, and when Scottie Pippen, Dominique Wilkins and Benoit Benjamin played in Europe, none of them were contributing big minutes to any NBA teams. But these are not the type of players the European teams have been chasing after lately. Atlanta lost their shooting guard Josh Childress, a young player about to enter his prime and give some depth to a team that was headed to the playoffs. Carlos Arroyo helped deplete Orlando’s back court and forced them to make several moves mid-season when starting point guard Jameer Nelson went down with an injury, and this was the second time Orlando lost a key player to Europe as a first round pick of theirs a couple years ago opted to stay in Europe. Earl Boykins signed over seasons, and Memphis lost one of their recent first-round picks to Europe as well. That’s not to mention the troubles the Spurs have had lately with their draft picks, who have all been offered more money overseas than the Spurs are even allowed to offer under the bargaining agreement. In the 90’s, with rookie contracts sky-rocketing, NBA owners demanded a strict cap on rookie contracts, which seemed like a good idea at the time, but now that has come to bite them in the ass as teams like the Spurs have had to watch draft picks stay in Europe because the league would not allow them to buy out their contracts (Louis Scola and Tiago Splittler) . In the last bargaining agreement owners demanded a higher age limit for NBA players as well, because they were tired of investing time high school players who bolt to other teams when their rookie contracts expire. Now, rather than playing college ball for free, some highly touted high school players (like Brandon Jennings) can jump to Europe instead of college and get paid since Europe doesn’t have an age limit. This allows European teams can offer bigger contracts to younger players, and get first dibs on younger talent, while they are also able to offer huge one-year contracts to superstars that current NBA teams aren’t even allowed to offer.

So far, when the owners have gotten what they wanted, it has sent talent overseas and made it harder for teams to harvest talent from the draft, and even with these changes teams are losing money. So have these changes helped? And if the owners get what they want in 2010 will it help, or quicken the pace of the downward spiral that the league seems to be headed in.

Lets examine the issues at hand.

First is rookie contracts. The limit that NBA has put on has diluted the talent in the league. Some may say that the talent adopted by European teams haven’t been a big hit on the overall talent in the NBA, and I would be inclined to reluctantly agree, though the pattern is not a good one. The talent that has departed has hit some teams hard. Orlando for example lost a first round pick to Europe, and after only one season in Memphis, the Grizzlie lost one of their first round picks to Europe. Orlando has since recovered and has a solid team, but they still took a big hit at the time, and now Memphis, whose talent pool has been limited to say the least, have had to take a step back even while they are in the rebuilding process, and even though they had the cap space to match the European contract offered to their player, they aren’t allowed to because of the max rookie contracts. I’d have to say the rule to limit the size of rookie contracts has done more good than harm as it has prevented poorly performing teams from investing huge salaries in unproven players, but the problem before was long term contracts for young, unproven players. The Cavs for example gave Danny Ferry a huge rookie contract that left them little cap space for nearly a decade, but new rookie contracts rules not only limit the length, but annual salary as well. It seems to me that limiting the length of the contracts lowers the risk enough that teams should be allowed to offer rookies higher annual salaries. It might also be a good idea to allow teams to spend more money to buy out the contracts of players already signed to European teams. Having a buy-out clause in the rookie contract rules that allows teams to buy-out contracts of players who are already pro-basketball players would allow teams to draft from Europe without fear of losing those players due to rookie contract rules set out by the league at a time when it was uncommon to be outbid by a European team. Times have changed and the rules need to change with them. The Spurs are waiting for a talented young center to finish out a European contract (Splitter), and have already lost Louis Scola to the Rockets because they weren’t allowed to buy out expensive contracts, which has helped the Spurs’ competition and stifled their own progress. Shortening the lengths of the contracts seems to be enough since most European teams only offer two or three year contracts, so allowing teams to raise annual salaries for rookies, but keeping the lengths of the contracts to two or three years reduces the risk for the teams. Bottom line is that draft picks are risks and teams will have to bite the bullet and take the risk. That risk is part of the game and if owners can’t handle that, then they are in the wrong business. If the NBA wants to present fans with the best talent, they have to address the limits of the current rules regarding rookie contracts present. If they don’t raise the annual salary, they must at least allow teams to buy out pre-existing contracts, or teams like the T-Wolves, who are struggling to sign Ricky Rubio, may find themselves out a much needed draft pick.

Age limits? Well, I think drafting out of high school is generally a bad idea, but at the same time there have been a number of players who have come from high school to make immediate impacts. LeBron James is a great example, as is Amare Stoudemire and Kevin Garnett. Shawn Kemp and Moses Malone are also fine examples. Its true that sometimes teams like Toronto invest time in developing talent like Tracey McGreedy, only to see them fly the coupe with no return on their investment, but that just tells GM’s that they have to be careful when they draft straight out of high school. Kwambe Brown was a waste of a #1 pic, but a lot of college players have been busts after being picked first overall as well. If GM’s don’t want to invest in young talent that isn’t ready to make an immediate impact, then they have to draft collegiate or European players instead. Nobody put a gun to Michael Jordan’s head to draft Kwambe Brown, nor were the Raptors forced to picked McGreedy, but those teams chose to take a risk on those players. That risk paid off for the Cavs in LeBron, and paid off for the Suns with Amare, but other teams got burned. That is just part of the risk. Raising the age limit didn’t stop players who weren’t ready for the NBA from entering the draft (just see Greg Oden). Some players aren’t ready at 20, some are, while some are ready at 18 and most aren’t. Just let them enter the draft and let teams decide if they are worth the risk. Otherwise players like Brandon Jennings will head to Europe and spend four or five seasons there instead of in the NBA. And if high school players see that NBA teams aren’t drafting high school players in the first round, then they will go to college first. The blame for encouraging the drafting of high risk players in the first round lays with the General Managers. While teams like Portland were wasting first round picks on players like Sebastian Teflair, good GM’s were scouting college players and European players, which is why the Spurs were able to pick up Ginobili and Parker late in the draft, and other GM’s (like Riley) were able to pick up starting power forwards from college who went undrafted (see Miami’s Haslem). Some high school players are ready to play, some aren’t, just like some college seniors still need three years in the NBA to get a starting spot, while others don’t even get a second contract. The age limit doesn’t protect teams from getting burned, it just encourages young talent to go to Europe. If owners want to reduce high-risk draft picks, all they have to do is pass on high school players and draft college players or experienced European players.

Shorter guaranteed contracts? This is the best way to lose talent to Europe. The benefit of NBA contract over European contracts is their length. Lots of European teams can offer 10-15 million a year short term, but few can offer long-term contracts. Once a player has been in the league for a few years, everybody knows if they have game, and in turn can decide whether or not they are worth a long term contract. GM’s also know that traditionally point guards decline in terms of productivity faster than power forwards and centers, so GM’s should take that into consideration when offering contracts. Sometimes it is a gamble, such was the case with Steve Nash. The Mavs didn’t think Nash would still be putting up numbers in the long run and let Nash go, the Suns won out and Nash is still providing all-star level play. It is a risk to offer 30+ year old players long contracts, (see Ben Wallace), but some teams think that the what the player offers in the short term is worth paying out a long term contract. When Ben Wallace was a free agent everybody knew that he’d play well for at least two more years, but Wallace wanted a long term contract for security, and the team willing to offer him the most would win out. Chicago won that contest, and lost out later when Wallace’s play decline faster than expected, but that is the risk. Marbury was never worth the money paid out for him, neither was Steve Francis, and the teams that paid for them knew that, they just felt that they had to overpay to get the talent. Chicago’s Jon Paxon for example, knew Eddy Curry wasn’t worth big money and wouldn’t offer what New York would, so he traded Curry to New York for draft picks. New York thought they were getting a steal, and Paxon knew he was getting a good deal. If one team chooses to overpay for talent, that is their problem. They know the risks and choose to take them. Other GM’s know the risks and bet on the conservative side, and that is why teams like the Spurs continue to win. If teams don’t want to hand out huge contracts for players, then don’t. Orlando for example doled out a lot of cash for McGrady and Hill several years ago, and neither paid off as Hill went on the injury list, and McGrady demanded a trade, but that didn’t stop the Magic from offering Rashad Lewis a huge contract. They knew the risk, since they had been burned twice already, they still took the risk, and it has paid off this time.

The bottom line in each case is risk. Give a big contract to an unproven rookie? It’s a risk. Drafting an 18 year old? It’s a risk. Offering a huge long-term contract to a 30+ year old (or anybody for that matter)? It’s a risk. If NBA owners want to gamble less, they need to do some profit sharing with each other. Teams like the Knicks and the Lakers are always turning a profit, while teams like the Hornets and Trailblazers struggle. If, like the NFL, NBA owners shared their profits, there is less risk over-all, but less profit for the highly profitable teams. If the Knicks for example, have to share profits with other teams, they will be less likely to drive the value of less-talented players up by offering huge contracts which they later buy-out. The Knicks have put up more money to have players not play, and have coaches not coach, than most teams pay to have players play, and it is teams like these who drive the market value for mid-level players up so high. Now I don’t have a problem with non-guaranteed contacts, like the NFL has, but I also don’t like the idea of teams over-paying for aging talent to get one year out of them and then cutting them. So if a team wants to offer a 6-year deal to a 32 year old power forward, and then cut him when they miss the playoffs, that’s fine so long as if he makes another roster then the team that cuts him should have to pay up (much like the Trailblazers had to pay up after Darius Miles came back from injury). But limiting the length of contracts is only going to let European teams make more competitive offers.

So what should teams do to reduce costs? Let young players enter the draft, allow teams to offer more to rookies on the short term, or at least allow teams to buy out European contracts, let 5 year contracts stay, and let teams trying to keep players offer 6-year deals. It may be good to reduce contracts to 4 and 5 years respectively, but any shorter will open the window for European teams to compete for NBA players. No matter how old players are, or how long contracts are, there is always a risk. If owners want to reduce high wages for mid-level talent, and reduce risks, they have to adopt the NFL model and have teams practice profit sharing, that way teams like the Knicks won’t play so fast and loose with their money, pushing contracts through he roof and forcing teams to pay big for small talent. Reign in teams that overspend by forcing them to share profits, and costs across the league will go down. Let them run wild and costs will continue to go up. A hard cap, shorter contracts, and high age limit will only send players to Europe. Profit sharing won’t stop European teams form chasing after NBA talent, but it will slow them down for now. Eventually though, the NBA will have to consider going global because Europe will soon have the fan base and revenue to compete with NBA teams for players. Having a sister league in Europe would be great, and even though there may not be enough of a market for it just yet, it would be wise for the league to start exploring options.

Tags: Ben Wallace, Brandon Jennings, Draft, Europe, Greg Oden, Hawks, Josh Childress, McGrady, NBA, New Orleans Hornets, New York Knicks, Rookie, Salary Cap, Spurs, Tiago Splitter

This entry was posted on Monday, August 3rd, 2009 at 7:13 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.