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NBA AM: The Amnesty Cut Soap Box
Posted By Steve Kyler On October 10, 2011 @ 8:31 am In All,NBA | No Comments
The Amnesty Soap Box: There has been a lot of talk lately about the NBA allowing its teams to cut players as part of a new labor agreement.
Bill Ingram took a swing at some players he believed would be cut loose if the teams involved were allowed to simply release a player with no salary cap or luxury tax ramifications. The term used to describe this action in a previous labor deal was Amnesty cuts.
Let’s be clear on a couple of points.
First, Amnesty roster cuts do not exist yet.
It’s a subject both sides of the labor deal seem open to as it would reduce the current share of Basketball Related Income committed to players as those released salaries would not count going forward.
Currently players pay in 8% of their salary to an Escrow Fund. At the end of the year the NBA and its Players calculate the percentage of total revenue paid to players in salary and benefits. If that percentage is greater than the agreed percentage, the funds in the Escrow are used to pay down that percentage.
If the NBA and its Players agree to a 52% BRI split, the existing contracts on the books would almost insure the Players lose all of that 8% for the foreseeable future.
Cutting players via an Amnesty rule would reduce that share considerably especially if high dollar players are cut.
It would also allow NBA teams a little breathing room under a new lower value system.
The second point is that Amnesty Cuts are not free.
Any player released would receive 100% of his contract. The value of that contract simply would not count against whatever Luxury Tax is imposed and according to reports would not count against the salary cap, although that provision hasn’t been written yet so it is open to change.
It is hard to believe the NBA allows its teams to cut contracts to create salary cap space, it would be almost counter-productive.
In 2005 when the NBA introduced the Luxury Tax system, teams were allowed to cut one contract. That contract did not count against the Luxury tax, but the value of that contract remained on the teams salary cap as a place holder until that Players contract expired.
In short, teams got a tax break but no salary cap space was created in the cut.
If the same system is part of the new labor deal in the NBA, there isn’t nearly the free agent benefit some had hoped an Amnesty provision would create.
Assuming the salary cap and luxury tax levels stay relatively the same – a $57 million salary cap and a $70 million Luxury Tax line – there are only four NBA teams over the Luxury tax.
The LA Lakers lead the way with $91.1 million in 2011-2012 salary commitments and $91.6 million in 2012-2013 commitments.
If The Lakers were to cut loose Ron Artest, Luke Walton or Lamar Odom, they would save a large amount in Luxury Tax, but would have those players’ contract values as place holders through 2013-2014 depending on the player.
The Orlando Magic sits at $76.21 million in 2011-2012 salary commitments and $77.46 million in 2012-2013 commitments.
Cutting Gilbert Arenas costs the Magic $62.4 million, but does not gain the Magic any cap flexibility until 2014 when Arenas contract expires. The Magic would save about $6 million in Luxury Tax, but that same savings can be achieved by Amnesty cutting Hedo Turkoglu’s remaining three years and $34.8 million. Again the move doesn’t create any usable cap space until 2014, the final year of Turkoglu’s contract.
The Portland Trail Blazers come in third with $73.42 million in 2011-2012 salary commitments and just $51.32 in 2012-2013 commitments. The Blazers 2011-2012 number includes a $8.78 million qualifying offer to Greg Oden and the $12.86 million ending contract of Marcus Camby.
The Blazers could make an amnesty cut to reduce tax exposure, but given the Blazers history with Luxury tax and the fact they are only exposed for one season makes it unlikely they use the provision.
The San Antonio Spurs come in fourth with $73.09 million in 2011-2012 salary commitments and just $47 million in 2012-2013 salary commitments. The Spurs 2011-2012 number includes the final year of Tim Duncan’s contract worth $21.16 million and the partially guaranteed deal of Antonio McDyess valued at 5.22 million.
McDyess is expected to retire and there is no scenario in which the Spurs cut Tim Duncan. With $47 million on the books next season the Spurs also look unlikely to use the provision as cutting someone like Richard Jefferson who is owed $30 million over the next three years would cost more than he saves and would not create any cap space.
Assuming that the Amnesty provision being talked about as part of the next labor deal functions as it did in 2005, there may not be nearly the number of cuts as you might think, mainly because the teams that would make the cuts won’t gain cap space in the move, and the players who are likely targets of a cut are worth more in contract payout than they are in the tax payments they would save as most teams dip below the current tax line in the next two years all by themselves.
Still Not There: The NBA and its Players met last night in New York for another five hours wrapping up talks just before midnight.
The two sides emerged from the five-hour meeting which apparently yielded little progress in making a deal, but did focus on the third and final chapter of an agreement, the system issues.
Much was made over the weekend on the NBA’s stance that further talks needed to be based on the Players agreeing to the NBA’s 50-50 revenue share offer made earlier in the week.
Sources close to the process say that the NBA dropped that condition on the meeting, but was clear that last night’s session was not going to be about Basketball Related Revenue, rather delving into the system issues which remained largely untouched.
NBA Players’ Association President Derek Fisher wouldn’t reveal much about the meeting only to say things remained basically where they started.
“For now there is not anything new to report. We’re not necessarily any closer than we were going in tonight, but we’ll be back at it tomorrow and we’ll keep putting time in,” Fisher said.
“We had another intense meeting, a similar process,” Fisher said. “We’re going to come back at it tomorrow afternoon and continue to try to put the time in to see if we can get closer to getting a deal done.”
The Players’ Association had scheduled a meeting in Los Angeles over the weekend to update their players on where things stood, however Fisher did reveal that meeting was being cancelled or rescheduled so talks could continue today in New York.
“We originally had a player meeting scheduled for Los Angeles tomorrow, but we’ve decided to put that off in light of tomorrow’s meeting,” Fisher said. “We feel like our guys would want our time to be used in meeting and trying to get closer to getting a deal done, so instead of going forward with that meeting we’re going to put it off and reschedule it accordingly, depending on what happens tomorrow and into the week if we continue to meet.”
NBA Commissioner David Stern told gathered media that he would not be talking with the press as part of an agreement with the Players to keep talks private.
“We don’t have any comment at all, other than we are breaking for the night and reconvening tomorrow afternoon,” Stern said.
So here is what’s happening:
The NBA has said from the beginning that this process contains three core components with the first being Revenue Sharing among NBA owners.
The NBA feels they have adequately covered that issue to the satisfaction of the Players Association, so cross that one off the list.
The second issue is the split of revenues between the Players and the Owners. The Players have proposed a “band” split which would have a guaranteed minimum of 51% of revenues, with a salary cap system based on 53% of revenues. Such a system would insure the Players share falls somewhere in the middle, but never lower than 51%.
The NBA Owners proposed a similar “band” system which would guarantee 49% of revenue but have a salary system based on 51% of revenue, insuring the Players share would hover somewhere in the 50% range, but never lower than 49%.
Sources close to the situation said this issue was not nearly the divider it’s being made to be hence why the NBA pushed for a meeting yesterday to discuss the third and final component, the system.
Both sides agreed to table the revenue share issue, because the right system changes could help solve the revenue share issues.
The system issues have been covered in the room with both sides introducing things they would like to see in the new deal; however no consensus on anything was reached in prior meetings.
The Players stance is that they have given up massive amounts of revenue in their offer and the trade from their side is to keep the form and function of the system largely unchanged.
The Players are open to some tweaking of the system, but large systemic changes are problematic for the Players.
The Owners want to see sizable system changes along with a revised revenue split to swing teams towards profitability and to really rein in spending.
Sources close to this process did reveal that talks of a harder multi-tiered Luxury tax system have been shelved and that a tax system similar to the one used in the NBA for the last several years remains on the table.
The NBA owners are pushing for shorter contract lengths, something the players are pushing back on mainly out of principal.
The Players contend many of the things the Owners want are possible under the old structure and that contract length and the amount guaranteed are and should be controlled at the team level.
While the negotiating process recently has tried to separate each of these core issues into separate discussion points, sources close to this process remind that eventually they all have to be combined and slight changes in one area can help smooth over another area.
There is a sense that if the Players can get the system they want, they would relent on some of the revenue sharing issues. It’s also believed if the Owners can get the system compromises they want, they too would be willing to relent on revenue.
Both sides are expected to reconvene at 2pm EST in New York today.
It’s believed that if the two parties do not emerge from that meeting with the structure of a labor deal the NBA will cancel the first two weeks of the regular season.
Ultimately the power to cancel games lies in the hands of David Stern and if he feels enough progress is being made he can freeze the clock and hold off that decision.
If a deal is going to happen, it seems it would need to happen today.
The Return of Earl: Earl Clark, who spent the bulk of last season with the Orlando Magic, has been released from his contract in China and has returned back to the US.
There had been erroneous and conflicting reports saying that Clark was struggling with the lifestyle and food in China and asked for his release.
Sources close to the process say that’s the furthest from the case, that Earl’s release in China was related to pregnancy complications with Clark’s fiancée and he requested his release to attend to his fiancée and his small child.
Clark’s release in China does pave the way for him to sign with a NBA teams once the NBA lockout is lifted.
Clark was released from the Zhejiang Lions which are being coached by former Lakers’ assistant Jim Cleamons. Nuggets restricted free agent Wilson Chandler is also on that roster.
Clark and his fiancée are expecting their second child in the coming weeks.
There Won’t Be Contraction: As the NBA and its Players try to save the regular season as currently scheduled, the idea of contraction, or the elimination of teams in the NBA has again surfaced, this time it’s coming from New Orleans.
Marc Ganis, president of SportsCorp, a Chicago-based consulting firm, told John Reid of The Times Picayune he believes the New Orleans Hornets might be best suited to endure a pro-longed work stoppage mainly because they have the very deep pockets of the NBA to cover their costs, but that could be a double edged sword.
“They are in a unique position because they are owned by the NBA, so they can absorb a reduction in the regular season,” Ganis said. “But there’s also a negative because if a satisfactory agreement is not reached with the players, the potential for contraction exists. The first team contracted will be the one owned by the league.”
The truth of the matter is the NBA has standing offers for the Hornets if they are willing to allow the team to be relocated.
Sources close to the situation say when the NBA took over the Hornets from George Shinn last December; they had turned away offers from groups willing to pay upwards of $350 million if they were allowed to move the team.
As long as someone is willing to pay $300 to $350 million for the franchise the odds it’s folded up are unlikely, mainly because neither side of the labor situation is pushing for it.
The NBA early on in the labor process acknowledged that contraction has been discussed, but sources close to the Hornets say there are local buyers in New Orleans with interest in owning the team, especially after a revenue sharing plan and a new labor deal kick in.
Ganis, who has seen the books from a number of NBA teams, understands why the NBA is pushing so hard for changes in their labor structure as some of the logic playing out doesn’t make a lot of business sense.
“I’ve seen some of the books, and I’m not surprised,” Ganis said. “The NBA will actually pay players millions of dollars to not play the game. There’s something wrong with that. They really need to pay the players that are performing and pay less money to those that aren’t.”
Contraction is a fun topic to kick around on a bar stool, but the truth of the matter is franchises even ones like New Orleans are coveted assets and as long as that hold true there are no plans to fold up teams in the NBA, at least not this time around.
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