Salary Cap Chat With Larry Coon 9/7/11

1. Jake

   People keep referring to the owners as “the owners” like they’re one united group. Especially with this new draft proposal which would really hurt all the contending teams, how can they be united?

   • Larry Coon

     They’re a smaller group, they have a lot in common, they’re all in business together, they need each other to succeed, and they speak with one voice — that of David Stern. I think the draft thing is a non-issue (especially right now), and that the biggest issue that really separates them is revenue sharing. After all, it really adds up to big market teams like LA and New York supporting small market teams like Indiana and Charlotte in perpetuity. But even big market owners like Jerry Buss talk about the need for revenue sharing, recognizing that it’s important for the league’s overall health. I’m sure there’s dissension behind closed doors but they manage to keep it there — behind closed doors.

     Where the differences may come in play is when it comes close to the time where they need to decide whether to compromise or remain firm. I can see the owners being split on whether to keep pushing or compromise.

2. Eric P

   After reading the blog on former ESPN analyst, Chris Sheridan, he suggest sides are much closer than expected. Is this a possible ploy to paint worst case scenerio , then agree and look like heros?

   • Larry Coon

     I respect Chris greatly, but he has always been very optimistic about the sides’ ability to resolve the labor dispute without bloodshed. He was originally predicting no lockout at all. That didn’t come to pass, of course, but his optimism has been unwavering. Part of it is his assumption that there’s just too much opportunity to make money to risk throwing a big chunk of it away in a prolonged dispute. I think the financial issues are too divisive to be amenable to an easy solution — this is going to drag out, and if there’s going to be a compromise, then it’s going to come at the last minute. I really don’t see any reason to believe that the sides are much closer than expected. They remain way too far apart on the single, overriding issue.

3. Eric P

   After the new CBA, do you see teams like Indiana and Sacramento still having a lot of cap space or will the new CBA reduce those teams abailities to sign 2 stud FA’s?

   • Larry Coon

     I think that’s still “to be determined.” There are two principal issues in the CBA negotiations: 1) The revenue split; and 2) Everything else. The more favorable (for the owners) the revenue split, the less strict the other rules can be. If the owners drive a hard bargain on the revenue split, then we can see looser cap & exception rules, which would preserve Sacramento’s and Indiana’s cap space. If they are more conciliatory on the revenue split, then the owners need to drive a harder bargain on the cap & exceptions.

4. Eric P

   Hi Larry, is the following overrated or true in most cases, in your opinion. “Big time free agents wont come to smaller cities”

   • Larry Coon

     Look at the history of free agent movement — it’s generally true. Off the top of my head, I can’t think of a case where a max salary player (probably the best definition for “big time”) changed teams as a free agent and went to a smaller town. Am I missing anyone? I can think of a number of examples of players who went to places like Miami & LA.

5. Ray B

   Does it really matter if the owners drive a harder bargain on the cap & exceptions if the revenue split still heavily favors the players? Any money they save will still get sent to the players if BRI falls under the percentage threshold.

   • Larry Coon

     I think at the very least, the owners will do slightly better than break even on the revenue split. I think they simply don’t agree to any deal in which the league is likely to continue losing money, or even break even. So let’s take this scenario as a worst case — if the split pretty much ensures that the league as a whole will turn a small profit, then spending control and revenue sharing become even more important.

     But you also nailed the reason why the revenue split is so important. It doesn’t matter how tightly the teams control their spending, if in the end they have to cut a check to the players to meet the revenue guarantee.

6. Latilleon

   Do you think their is a chance that one of the alternatives to a hard cap is just a tougher luxury tax? Why isn’t the luxury tax tiered so that the as teams go over certain levels they pay more into the tax?

   • Larry Coon

     The luxury tax was intended to do two things: 1) Curtail spending; and 2) Serve as a form of revenue sharing.

     I think they proved that the luxury tax really does a poor job as a spending deterrent. Contending teams simply see it as part of the cost of doing business. These teams really don’t curtail their spending because of the existence of the tax.

     As a form of revenue sharing it also didn’t really do a great job. It relied on the correlation between market size and spending ability, and took for granted that the teams which could spend would spend, but this correlation is something they want to get away from — right now it’s too hard for a small market team to contend. By replacing the indirect revenue sharing via the luxury tax with direct revenue sharing, you can precisely control for differences in market size (which is what the revenue sharing SHOULD be based on) and level out the playing field for everybody.

7. Tony

   If a hard cap is put in place immediately, how will that impact the Lakers given that they are currently over $90 committed to the player’s salary?

   • Larry Coon

     There could be lots of ways for the league to accommodate teams if they put a true hard cap in place. They include: 1) Giving teams a grace period in which to get under (however your premise was that the hard cap would take place immediately); 2) Salary rollbacks lowering teams’ cap numbers; 3) An amnesty provision where teams can waive a player without cap consequences; 4) Allow teams to BE over the cap, and just restrict them from spending any more money until their payroll comes down; 5) Some form of dispersal draft, where teams under the hard cap can pluck players from teams that are over.

     I don’t think the league will leave teams like the Lakers hanging — the Lakers made their roster decisions under the existing rules, and it isn’t fair to teams to change the rules afterward without accommodating them — just like the legal system protects us from ex post facto laws.

     Ultimately I think it will be a non-issue. I think a soft cap will remain, although I expect exceptions to be tightened up significantly.

8. Eric

   McGrady left toronto for orlando; kind of a wash, but Hill leaving detroit for the magic the same year is definitely an example of a max player going to a smaller town.

   • Larry Coon

     Yeah, that’s a good counterexample. According to this article Ornaldo is the 18th largest market with an NBA team. Of course, Orlando may be a special case, with its weather and tax advantages.

     Don’t forget, Orlando almost landed Tim Duncan that same year. That would have been an amazing trifecta, a decade before the Heat’s Big Three.

9. Ben

   Larry, enough with this CBA silliness. How are YOU? I love you on Twitter!

   • Larry Coon

     I’m great — thanks for asking! Just came back from two vacations, my kid is finally back in school, and I’m ready to get some work done.

     But like everyone else, I’m hoping the labor dispute gets solved without costing part of the season.

10. James Talbert

    What timeframe does a franchise use when amortizing the purchase price of their business? Is there an agreed upon time-span for prorating a business expense, or do different owners use different practices?

    • Larry Coon

      Quoting from the Nets’ financial statements (available on deadspin.com), “The arena lease, season ticket holder list and leasehold property are amortized on a straight-line basis over 10, 8 and 15 years, respectively. The franchise asset is not amortized as it has been categorized as an indefinite-lived intangible asset.”

      Okay, folks — that’s all I have time for today. This was my first chat using the new interface, and there was a lot to get used to — I hope everything came out okay on your end. Talk to you all again next week.

11. Nizar

    Hi Larry,
    Regarding free agents staying in a “Small Market”
    Tim Duncan stayed with SAS.
    Reggie Miller in Indiana all his career.
    Webber stayed in Sac-Town.
    KG in Minnesota for the majority of his career.
    Besides Shaq, LBJ, and Carmelo who else left?

    • Larry Coon

      You gave examples of players staying in small markets when they were already there. Staying put is a huge motivating factor, which is why I excluded these players. The question is, when players CHANGE TEAMS, where do they go? It’s not universally to big market teams, but that’s the pretty clear trend. And if you’re a small market team, then you’d better have lots of sunshine and a low tax rate.