Home Teams’ Advantage Not Great Enough In CBA Free-Agency Rules

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With the moratorium now muerto, NBA free agency can proceed apace, though we’ve already seen most of what it can be in any given offseason. One massive marquee name (Dwight Howard) is changing teams. Another (Chris Paul) is staying put. The second-tier guys have added intrigue by going (Andre Iguodala) or sticking (David West). There have been surgical acquisitions (J.J. Redick, Kevin Martin), blowout deals (Josh Smith, Al Jefferson) and even some early activity with the restricted crew (Tyreke Evans, Tiago Splitter).

However, there has been one familiar scenario missing: the franchise player who abandons his small-market team for brighter lights in a bigger city. Traditionally the downside of free agency, such LeBron James-from-Cleveland-to-Miami type of moves that can rock teams for years, get people fired, tilt the league’s competitive balance and eventually lead to lockouts have been happily absent.

Howard left the allegedly un-leave-able Lakers, swapping huge pond and legacy for smaller. Smith had been told by Atlanta not to let the door hit him in the backside. Iguodala left money and an extra season behind when he exited Denver but he’d been a rent-a-player, a Nugget for one season thanks to the now-vaporish Andrew Bynum party-trade.

No, we’re talking about the franchise slams, the high lottery picks nurtured from NBA birth in whom fans invest their hopes and dreams only to see them head elsewhere, either by signing or preemptively pushing out via a trade.

And y’know what? That’s a good thing. Hooray for 2013! Because the system still isn’t set up right to handle such transfers of basketball wealth.

For all the changes in the current collective bargaining agreement that were made, we were told, to keep all 30 franchises competitive, one major flaw was left largely unfixed. Veteran free agents who re-sign with their current teams are eligible for raises of 7.5 percent of their first-year salaries, in deals running as long as five years. Those who prefer to change teams are limited to 4.5 percent raises and contracts no longer than four years. That, we’re told, is the advantage built into the system for incumbent teams.

It was about the same in the previous CBA. Under that one, the raises were either 10.5 percent or eight percent, the term length either six years to stay or five years to go. And just as in the current system, we were told that the rules were written that way to allow a player’s current team to pay him “considerably more money.”

One problem: They do not. Not in a relative sense, for fellows pulling in eight-figure salaries in nine-figure contracts. Not in the real world, where taxes and cost-of-living differences can dramatically alter one’s take-home pay. And not even in the fantasy land of professional sports, when you actually boil things down to apples vs. apples.

Consider Howard’s deal with Houston. Yes, the Lakers could have paid him more, but the $30 million figure he allegedly left “on the table” in leaving is misleading. Most of it ($26.6 million) comes from the guaranteed salary Howard would have earned in 2017-18 in L.A. — but who’s to say he won’t get a new contract from the Rockets or someone else worth close to that?

Over just the next four years, though, the Lakers’ deal would be worth only $3,692,370 more than Houston’s. Based on the payday he chose ($87,591,270), that’s only a 4.2 percent difference.

Can’t even call it an advantage, either, when the costs of living and playing in California are calculated against Texas. Remember, the top state-income tax rate in California for top earners is 13.3 percent, the nation’s highest. In Texas, there is no state-income tax. Even with a pretty good gouge from property taxes in the Lone Star State, its cost of living ranks second-lowest in the U.S., compared to California’s spot at fourth-highest.

A Forbes.com piece figured Howard’s cost in California income taxes along, on the $118 million offer from the Lakers, would be about $15.7 million His state taxes while playing in Houston — allowing for a web of complications faced by pro athletes and others who are deemed to earn their pay in multiple states — would be negligible by comparison, about $1.4 million over four years.

This means that by signing with the Houston Rockets, Howard could save approximately $14.3 million ($15,700,000 less $1,400,000) in state income taxes on his next contract. While that doesn’t make up the full $30,000,000 gross difference, it certainly eases the pain, and may be enough to convince Howard to flee for what he perceives to be a better basketball situation.

But wait, there’s more. Apples to apples, looking only at the first four years, Forbes.com concluded that L.A.’s $3.6 million “advantage” gets wiped out and then some:

Howard would pay nearly $12 million in California tax over the four years if he signs with the Lakers, but only $1,400,000 in state tax should he sign with Houston. This means that a four-year deal with Houston would actually yield an additional $7 million in after-tax income.

All sorts of discretionary things can get baked into any player’s spending pie. The CBA can’t account for all of them, unless it delved into complex, tax-neutral provisions. But it seems pretty clear that the advantages for incumbent teams allegedly built into the CBA can be nominal or even non-existent in certain circumstances.

Couldn’t they, shouldn’t they have done more?

Even as the latest labor agreement was being hammered out in 2011, the topic got aired at the league’s highest levels. What if the old raises and terms — 10.5 percent and six years — were retained for a player who re-upped with his current club, compared to the new limits — 4.5 percent and four years — for those switching teams? Surely that would have made incumbents’ offers stickier.

But the NBA, from commissioner David Stern on down, likes the concept of player freedom and views a certain amount of movement as an offseason marketing opportunity. Team owners generally like shorter contracts, so a two-year “advantage” and raises more than double what the competition can pay doesn’t excite them, no matter how effective they might be.

Also, a lot of owners seem to put more stock in that extra season of guaranteed salary in the current rules — “profit,” if you put it in terms with which they’re most familiar. Seems that might be a bigger deal to the person spending the money than the person earning it (and willing to go earn it from another job at the back end).

The view here, though, is that the so-called advantages aren’t big enough. They weren’t in the old deal and they aren’t in the current CBA either. The good news for fans in smaller markets is that many of the key free agents in 2014 will be restricted (those extension and resigning rules still are formidable in keeping players where they were drafted).

Others never were or no longer are franchise types (Luol Deng, Andrew Bogut, Dirk Nowitzki, Danny Granger). And still others will be veterans already on showplace teams. If James opts out next summer, for instance, he can’t possibly inflict trauma on Miami like he did on Cleveland. Ditto for Carmelo Anthony with New York vs. Denver.

No, it will be after that — heading into 2015 (LaMarcus Aldridge, Kevin Love) and 2016 (Kevin Durant) — when the home-team advantage gets tested again in the smallest markets by MVP-caliber players. Under rules that aren’t all that great an advantage.

3 Comments

  1. Robert May says:

    Great article. The CBA perpetuates an unwelcome cycle for small market franchises such as my New Orleans Pelicans. Play poorly enough to get a marque player through the draft (Chris Paul, Anthony Davis). Suffer through a couple of years as the young marque player gets acclimated to the NBA. Be fairly competitive for the next three or four seasons. Trade the player after six years when he advises you that, if you don’t trade him, you will lose him the following year with no compensation. Rinse and repeat. (Anthony Davis will only be twenty-five years old when he leaves the Pelicans. He will play his most productive seasons for some other franchise).

    Besides providing little incentive for players to stay with their teams, the more punitive luxury tax under the new CBA makes it harder for teams from smaller markets to compete with teams from large markets. I am sure that no team likes paying luxury taxes, but the Lakers, Knicks, Heat and Nets are not going to modify their spending because of the increased taxes. They can afford them. Teams like the Pelicans, however, could not afford to pay the previous luxury tax, so they surely will not put themselves in a position to pay the more punitive taxes. The lack of incentives for a player to stay with the team that drafted him and the inability of small market teams to pay punitive luxury taxes ensures that the migration of players from small markets to big markets will continue.

    That is my disappointment with the new CBA. The league claimed that it wanted a CBA that would lessen the disparity between large and small market teams. It negotiated a CBA that increases that disparity.

  2. Joshua Greenfarb says:

    The interesting thing: OKC Thunder won’t be a tax-paying team for the 2013-2014 season. It appears this is what they want, considering they didn’t re-sign Martin at a lower price, although they could have.

    See, despite all that, the Thunder (in my opinion) is still the favorite to win it all next season. And being able to do so while staying under the “salary cap” will be an incredible accomplishment.

    The Lakers, however, are overspending for nothing. They shouldn’t have made the playoffs, and they won’t this season. With the California tax system on top of everything, I wonder where the Lakers are getting the money or capital to afford spending the most on team players? As Jeff Caplan pointed out, the Lakers’ tax penalties are, by far, the highest in the NBA!

  3. Joshua Greenfarb says:

    Thank you.

    Without wanting to “google,” I wanted more explanation of the CBA.

    Interesting no one comments on these sorts of issues? What’s up with that? Too many Laker fans that want to ignore how the Lakers get to spend an unbelievable amount of money on team payroll. Ignore all you want — Laker fans — but if they re-signed Howard, their team payroll would have been over 100 Million. If you look at NBA history, in general, not many times has that even happened. The Lakers get to spend whatever they want, while smaller market teams (like Memphis and OKC) suffer more than ever.

    Granted, I’m hoping OKC’s strategy is to continue to develop their youth … and then go after someone like Kevin Love (when he is available). Unfortunately, I fear this may not happen. Sigh.