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Mailbag: Guaranteed contracts, luxury tax

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From the mailbag:

Hi Chris,

I have a simple idea to solve the guaranteed contracts issue and wanted your opinion…

Make each contract guaranteed for the first 2 years and allow each team to dump one player per year that has played for more than 2 years on their contract (in essence the last 3 years are not guaranteed but teams can only dump one guy per year if they so desire). A grossly overpaid player hurts the game, enrages fans, and can hinder a team for years.  I’m upset the owners caved on guaranteed contracts because a simple compromise would improve the NBA.  Every team has 1 to 2 players that we all know aren’t producing…and if the cap gets a little harder it becomes even more important to dump those players.  And guys who are producing will reap the benefits because more money becomes available to them. The owners should keep contracts long, 5 to 6 years (good for teams and fans) but should adopt a hybrid guaranteed system that works long term, IMO. Your thoughts on this?  

Ray Bilsey, Belmont, Calif.

Ray:

Here is the thing with guaranteed contracts: Not every contract is fully guaranteed. Agents and teams write different guarantee language into different contracts. (Rookie contracts for first-round picks have gone from being fully guaranteed for three years to two years). Chauncey Billups, for instance, had only a $3 million guarantee on his contract with the Knicks for the upcoming season, but New York had to decide before June 30 whether to guarantee the entire $14.1 million.  In this negotiation, the owners initially wanted to make all contracts non-guaranteed to a certain degree, but they backed off because the union called it a “blood issue” — a term they are now using to describe their opposition to a hard team salary cap. (There is already a hard cap on individual contracts, which is why all of LeBron James’ suitors last summer were offering the same money).

If a hard cap vs. a soft cap is the primary issue holding up an agreement, there is an easy compromise: Keep the current luxury tax structure, but make the tax much more punitive — instead of a dollar for dollar tax, transition it to a $3 tax for every $1 a team exceeds the luxury tax threshold. That keeps the soft cap system in place, provides more money for revenue sharing, and gets the sides one step closer to ending this lockout. 

 

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  125. “Not every contract is fully guaranteed.” but I think probably 80+% of all contract years are fully guaranteed

    • Maybe that is too high now that I think about the way rookie contracts have options in the 3rd and 4th year but it is probably still at least 60-70% guaranteed and probably 80% of players actually get the full run of contract years they signed for and the full amount of money.

  126. I like Ray’s general concept though there are variations on it that would be less a departure from the current CBA and therefore more player friendly and player agreeable. Maybe you can’t get cut until after year 3, or you can’t cut more than 1 player every other year by team or maybe the player cut still gets 50% of the remaining contract value.

  127. Chris:

    Here is the thing with answering questions. It is best to actually read the question before answering. That greatly improves the likelihood that the answer will provide the requested information, which, you know, is the goal.

    Ray asked for your thoughts on, essentially, creating a yearly Michael Finley exception—it was unclear whether in Ray’s hypo the players would stop getting paid, their salaries would just not count against the team’s cap space, or their salaries would not count for tax purposes. Instead of opining on that issue, you took the opportunity to note that teams are not required to guarantee every year of every contract. You then digressed into a point about maximum player salaries, and then digressed further into hard cap vs. soft cap.

  128. I like your idea, Chris. However, I think it’s a little too simplistic. I think a tiered, marginal tax rate makes the most sense. For example:

    Salary cap: $55M
    Tier 1: $55M-60M (teams pay a dollar for dollar tax)
    Tier 2: $60-70M (teams pay double the tax for each dollar over $60M, i.e. $5M + two dollars for each dollar over $60M)
    Tier 3: $70M– (teams pays triple the tax for each dollar over $70M, i.e. $25M + three dollars for each dollar over)

    Thus, a team with a $62M payroll would pay an additional $9M in taxes and a team with a $72M payroll would pay an additional $31M in taxes.

    Such a compromise would allow each side to argue they got what they want. The players could argue that they still had a soft cap, although more punitive, and the owners could argue that the tax in itself creates a hard cap since the punitive effect will keep salaries below a certain threshold.

  130. For a Brit, the lockout is becoming increasingly difficult to understand, both in its complexities and in its purpose. Could you break down the probability percentages of the following:

    There being no season this year
    There being some season this year
    There being a full season this year
    This happening all over again in six years time

    Surely, one solution would be for players’ contracts to be redrafted when they move clubs (franchises) rather than carrying them over from the teams that didn’t agree to them. Also, instead of trades, transfer fees could be applied, like we have in European football. That way, smaller clubs can make a profit selling off their best players. All players will probably want to end up with the Celtics, Knicks, Lakers or Bulls, so why shouldn’t they aspire to that.

    Then again, I could be talking complete nonsense, in which case put me in my place.

    Will

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