System issues back at forefront of labor talks

The NBA and union are still haggling over system issues, but the revenue split remains the biggest obstacle to a deal. (AP)

You would have been justified if you were discouraged following Sunday night’s near-six-hour meeting between NBA and union officials in New York. The two sides did not even broach the biggest obstacle to a collective bargaining agreement: how to split up nearly $4 billion in revenue between players and owners. Instead, they tabled the revenue split yet again and focused on the so-called system issues: the salary cap and luxury tax, rules for free agency and other nitty-gritty stuff that will determine how players move around the league.

Discussions about those system issues over the last couple of weeks had been fruitful, leaving those close to the talks hopeful that a deal would’ve been hammered out quickly once the sides figured out the revenue split. But now we’re back to haggling over the byzantine system issues, and a source close to the talks told SI.com Monday morning that one such issue stands above them all: the structure of the new luxury tax, the penalty designed to punish teams who spend big and thus discourage teams from spending too big.

The league has proposed a much harsher tax system than the old one, which taxed teams dollar for dollar for any money spent over the threshold. The owners’ most detailed proposal — or at least, the most detailed one to be made public — would have created a tiered system, including a tax ratio as high as 4-to-1 for teams whose payroll crept into the territory only a few broach every season.

The union would not stand for such a system, arguing it would amount to a de facto hard salary cap. Even if the Lakers (near the start of a $3 billion new local TV deal) and Knicks (that MSG renovation is around the corner) might be able to comfortably spend into 3-to-1 or 4-to-1 territory (and we have no clue if they really could or would), the rest of the owners are not ready to go that far.

It is unclear exactly where the NBA’s proposal stands now, but last week SI.com reported that the two sides were discussing alternate ways to punish taxpayers. Those methods included a rule that would limit the number of seasons a team could exceed even the lowest tax threshold and/or various non-monetary punishments for taxpaying teams, including the loss of the mid-level exception or the forfeiture of Bird Rights, which allow teams over the cap to re-sign their own free agents.

Such proposals would both limit spending and have some impact on the sacred cow of competitive balance, but they would not rip wads of money directly from owners’ wallets in the way as a super tax. It would appear the owners’ collective tax proposals have not reached a point where they would create cap-and-tax soft enough for the players to accept.

But as we await to hear what comes of Monday afternoon’s meeting, here are some thoughts on these system issues:

• BASKETBALL-RELATED INCOME

It’s tempting to read this and assume that the “system issues” might have eclipsed the split of basketball-related income (BRI) as the most important issue holding up a deal. They haven’t. The two issues are part of a broader horse-trading, so that if the owners yield on the tax issue a bit, the players might concede a single precious percentage point in the BRI split — or vice versa.

But the split, which under the old system gave players 57 percent of BRI, remains the most divisive point, even if the difference between the two sides’ formal proposals does not quite amount to enough to justify canceling a major chunk of the season. We’re still talking about hundreds of millions of dollars over the course of a new deal, and both sides are right to push as hard as they are willing until the moment games are canceled.

• EXCEPTIONS

It would seem logical for the players to give on the mid-level and bi-annual exceptions in order to get a friendlier tax system. Under the old agreement, the mid-level exception allowed teams to sign a player (or players) to a long-term deal at the NBA’s annual average salary — about $6 million last season. The league has proposed cutting that to about $3 million, according to ESPN.com’s Marc Stein, and even if such a change is a way of protecting owners from offering bloated contracts to guys who don’t deserve them, it’s a concession the players should be willing to make in exchange for something else.

Teams have received a terrible return on mid-level deals since their creation in 2001, and the players who get them tend to be veterans coming off either their rookie deals or the first deal they signed after their rookie contract. In other words, they have been well-compensated before signing a mid-level deal and relatively unproductive after signing it.

Cutting the mid-level to $3 million would be a blow, but it strikes me as a fair one the players could withstand — provided they get something in exchange. Of course, the owners have tried to cut out that “in exchange” part for much of these talks, gunning for as complete a victory as they can get.

As for the bi-annual exception, which allowed teams over the cap to sign a player for about $2 million per season every other year, it has always seemed a bit of an appendage as minimum salaries have approached $1.5 million per season for veteran players. Teams over the cap can sign as many players as they’d like to minimum-salary deals, and if that rule persists — and minimum salary levels remain on the same path — the bi-annual can go if the players get something in exchange. There’s that pesky “in exchange” thing again.

• LUXURY TAX

I am intrigued by a system in which teams that exceed the lowest tax threshold lose both money (via the old dollar-for-dollar tax) and means to further build their rosters (i.e. the mid-level exception and Bird Rights). A couple of executives I’ve talked to over the last few days have even pitched the idea of taxpaying teams losing a first-round pick, a serious penalty I’m not sure the sides have talked much about during negotiations. Perhaps there is a middle ground to be found in a system that includes these kinds of penalties but not the 3-to-1 or 4-to-1 super tax or the prohibition on exceeding the tax every season.

Food for thought as we head into another “do-or-die” meeting and the commissioner’s self-imposed deadline to cancel games.