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Wednesday, July 13, 2011
The overriding issue in the NBA lockout

By Andrew Brandt
ESPN.com

The overriding issue in this long-expected NBA lockout is the NBA owners' desire to, in essence, be protected from themselves. Ultimately, that is what a salary cap, more specifically, a "hard" salary cap, is about: setting rigid limits on what can be spent on players with no ability to exceed those limits.

With multiple exceptions allowing teams to spend over the cap ceiling, the NBA's cap has become the "yarmulke" of sports: the softest cap in existence. The most recent season -- with a cap limit of $58 million -- featured the NBA champion Mavericks spending close to $90 million in player costs. In fact, the past four NBA champions have spent significantly above the cap and beyond the luxury tax threshold.

Truth behind a hard cap

Both NBA owners and players have issued strongly worded rhetoric either proclaiming that a hard cap is essential to the future of the league or, in the players' case, that it would cause the downfall of the sport. The reality of a hard-cap system is more complicated than both parties wish to recognize.

Broadly speaking, caps have the following goals:

(1) Through the cap maximum, to create and maintain competitive balance among the teams;

(2) Through the cap minimum, to encourage and require teams to spend on player talent; and

(3) Through balanced spending, to keep player salaries in line with their true value.

NBA owners believe that the current system fails on all these criteria and, in turn, that a hard cap would solve their problems. Would it?

Competitive balance

Although there are a handful of teams that do not see the present tax as a deterrent to spending, the reality is that there are very few teams poised to spend with cap room every year. While there has not been a mandatory hard cap, many teams have had a de facto hard cap with their budgets limited by financial concerns.

Several teams -- including the Jazz, Kings and Hawks -- are handcuffed by limited revenue streams and cannot increase payrolls beyond the cap limits. These teams may need the restrictions of a lower albeit softer cap to stay competitive. With a higher and harder cap, wealthier owners will be able to spend up to the maximum without restriction, further increasing the disparity between teams.

Key to the cap: the floor, not the ceiling

Like the NFL, I have always felt the key to a cap is not the spending ceiling but the spending floor. If the ceiling is set too high and the floor too low, then the lower-budget teams would not be better off than they are today. As with NFL players, NBA players should be fighting not so much for the traditional big-spending teams to continue to spend -- they will -- but for the underspending teams to spend up to a higher minimum threshold.

Not all markets are created equal

As we learned last summer, top-tier free agents want to play for teams that are competitive and/or geographically desirable, sometimes at the expense of tens of millions of dollars. Although owners have discussed lowering the maximum salaries, that may backfire and serve to actually assist large-market teams as they remove money from the equation, allowing other factors (e.g. other stars, weather, taxes) to be controlling.

Without restriction on maximum salaries, rich owners in small markets (e.g. Cleveland Cavaliers owner Dan Gilbert) would be able to offer considerably more money to free agents than they have been able to in the past and, potentially, lure them away from more-desirable locations or franchises.

Of course, this all assumes that there is some amount of money that would convince stars to stay in smaller markets. Last summer, LeBron and others turned their backs on tens of millions of dollars. It is a legitimate question as to what number it will take to keep stars in less-desirable markets, if any number at all.

Similar disparity

Both the NHL and NFL have harder caps than the NBA, with fewer exceptions to the spending limits. Even with fewer loopholes to slip through, there is still significant disparity in team salaries. In the NHL, the highest spending team spends twice as much as the lowest spending team; in the NFL the disparity is about 70 percent between the highest and lowest spenders. Those numbers are comparable to the situation in the NBA, where the top spending team (Lakers) spends twice the amount of the lowest (Kings), excluding luxury-tax payments.

Conclusion: Focus on the details

With all of this in mind, the now-dormant negotiations between NBA owners and players should focus less on whether there is a hard cap and more on how the cap should be constructed to ensure competitive balance and closer ranges of minimum and maximum spending.

As with everything else in sports labor, the devil is in the details. The players need to craft the hard cap to their advantage, focusing on teams spending up to the cap. The owners may want to be careful what they wish for. A harder cap may not be the cure that they are looking for.

Andrew Brandt, a former NFL executive and agent, is a sports business analyst for ESPN.
Follow him on Twitter @adbrandt.