The current collective bargaining agreement (CBA) between the league and the players includes a "soft" salary cap that is set at 51% of league basketball-related income divided by 30 teams. For the 2010-11 season, the team salary cap was just over $58million. However, the current CBA contains several "exceptions" which allow teams to exceed the cap. This is why it gets its "soft" designation. The fact is that only about 1/3 of the teams in the league are actually at or under the current cap and teams like the Los Angeles Lakers and Orlando Magic have payrolls of around $90million. So yes, it can often be a very soft cap.
What the owners proposed is something they're calling a "flex cap" which is ironic because its revolutionary feature (for the NBA) is that it is in fact a hard cap design. In essence, the owners' proposal would retain its main salary cap and would even increase it to $62million. They would also retain the key salary cap exceptions including the "Larry Bird" exception (allows a team to go over the cap to sign its own player) and the "Mid-Level" exception, or MLE (allows a team that's over the cap to sign one or more free agent players so long as the total salary added doesn't exceed the league's average salary, currently around $5million). Sounds reasonable so far.
The Catch
The owners proposal was for a yet-to-be-negotiated minimum team salary and a maximum team salary. It's the maximum team salary that is controversial because, as the owners presented it, none of the exceptions that allow teams to exceed the salary cap figure would apply when it comes to the maximum team salary, that is, the maximum team salary is the hard cap.
Cleverly, the owners didn't propose the upper and lower bands of their proposal. Essentially, they've told the players that "once you buy into our overall design, we can be somewhat flexible about the actual numbers." The problem is that the players have said that they'll never accept a hard cap and correctly see that this is exactly what the owners have proposed.
The Philosophy of a Hard Cap
Most fans view a hard salary cap as a way for the owners to control overall player salary costs. However, the truth is that the NBA has a very effective control of overall player salaries built in to the current CBA. The players' salaries are guaranteed not to exceed 57% of revenues. An 8% deduction is taken from each player's salary and put into an escrow account. If player salaries exceed the 57%, the owners receive the overage from this escrow account, and if the total escrow account is insufficient, player salary deductions are increased the following season.
So why a hard cap? Why not just fiddle with the 57% figure? Good question and it's exactly the question the players are asking. The reason is that, for the NBA, the hard cap is about enhancing competition (or "parity"), not cost control. The current CBA includes a "Luxury Tax" provision that sets the tax level at 61% of basketball-related income (divided by 30 teams). Last year the tax trigger was about $70million, or $12million over the salary cap. For each dollar a team exceeds the $70million level, that team must pay a dollar of tax. After the season, the tax pool is divided among the teams that did not have to pay the tax.
The plain truth is that the Luxury Tax has been a failure. For the 2010-11 season, 7 teams exceeded the tax trigger point. The combined record of these 7 teams was 352-242 and only one of them had a losing record (Utah Jazz at 39-43). Once again, the league champion was among the Luxury Tax teams (Dallas Mavericks at $86.6million).
By insisting on an absolute maximum salary, the league hopes that their mid-market teams like the Sacramento Kings, Minnesota Timberwolves and Cleveland Cavaliers will be better able to compete with their big-market brothers and that this will open the road to their financial health.
Hard Cap Not All the Owners Want
Sort of lost in all the talk about the owners' hard cap/flex cap proposal is that they also want a 50%-50% revenue split with the players. As mentioned, the players currently receive 57%. This is hardly an insignificant aspect of the owners' proposal and may actually be more important to the owners than the hard cap since, in the end, virtually all labor negotiations are about how the revenue pie is split.
Unfortunately for fans, this situation is looking very similar to the NHL negotiations of a few years ago. In that case, the owners insisted on both a bigger piece of the pie and a hard cap. The players said they were flexible on the revenue split, but would never accept the hard cap.
The entire 2004-05 NHL season was lost.
I know a lot more than I did before. Clear explanation of complicated situation.
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