Does NBA’s ‘franchise tag’ do enough to help incumbent teams?

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LeBron James

The NBA is looking to help small-market teams like the Cleveland Cavaliers retain star free agents such as LeBron James. (Heinz Kluetmeier/SI)

In the spring and summer, before it became clear that lockout negotiations were going to slip into a depressing stalemate, there was a lot of interest in the NBA’s possibly adopting an NFL-style franchise tag. The rule allows football teams to use the franchise tag to keep one core player off the free-agent market for one year. Such a rule could give small-market teams an extra year to persuade their star free agents — ahem, LeBron James — to stick around long term.

In May, the NBA proposed a less restrictive version of the franchise tag, one that would not allow teams to unilaterally prohibit a player from entering free agency. Instead, teams could label one guy a “designated player,” and offer him more years and money than any rival could. The old system already did this with Larry Bird Rights, but the idea was to increase the gap between offers so that the incumbent team had an even greater advantage–and to craft a rule the union, concerned about freedom of player movement, would accept.

It got very little press amid the drama over the players’ decision to dissolve their union, but the “designated player” concept remained in the league’s final offer, which was rejected on Nov. 14. It would apply only to a player eligible for an extension to his rookie contract, and it would allow teams to offer that player a five-year extension instead of a four-year extension. The deal would come with 6.5 percent annual raises — the maximum raise available only to players with full Bird Rights.

All other players, including those who lose Bird Rights by switching teams via free agency, would be eligible for only 3.5 percent annual raises and four-year deals. That gap of three percentage points is a hair larger than the gap of 2.5 percentage points — 10.5 percent raises for Bird guys, 8 percent maximum for everyone else — in the old collective bargaining agreement.

Recent history suggests that an extra year and a few million dollars isn’t enough to stop stars from bolting if they really want to, and increasing the available raise totals by half a percentage point amounts to about $200,000 more in missed money over two years for a player making $20 million per year. That’s nothing, which is why the league has proposed other ways to give incumbent teams a meaningful advantage. Chief among them:

1. A ban on sign-and-trade transactions for teams in the luxury tax. Under the owners’ proposal, tax teams could not use sign-and-trades after the 2012-13 season–a key system issue the union opposes, and one linked to the “franchise player” discussion.

2. Restrictions on extend-and-trades. These are the Carmelo Anthony-style deals in which the player’s old team signs its star to the maximum-level extension he couldn’t get anywhere else and then deals him to the place he really wants to be. The NBA’s proposal wouldn’t outlaw such transactions, but it would make them difficult on both sides. Teams would have to wait six months to trade a player after signing him to an extension, and any team that trades for a player could not sign that player to an extension until six months after the trade. The trade deadline is in mid-February, meaning a team could not extend any player it acquires around that time until mid-August — six weeks into free agency. That creates obvious problems if the acquired player is a free agent you’d like to keep.

The league is trying to close loopholes that allow players to switch teams via trade and still receive the most money possible — the money only their “old” team could offer. If you want to switch teams, the league is saying, you’re going to have to do it via straight free agency, and it is going to cost you money. Closing those loopholes also takes capped-out teams out of the market for these disgruntled stars because such teams (lacking cap space to use later) could only acquire them via trades in which they send out matching salary.

Is it enough? Can it ever be enough? Some thoughts on the notion of franchise players and unintended consequences:

As I’ve argued before, the league’s overall proposal might create more churn in the free-agent market every summer, even as it seeks to help incumbent teams keep their stars out of free agency. A harsh luxury tax puts a premium on cap flexibility, which in turn puts a premium on short-term and non-guaranteed deals that teams could dump in an instant. Ditto for rules, like those described above, that make it harder to acquire star players unless you have cap space. Then there’s the “stretch exception,” which would allow teams to waive non-performing players and minimize the immediate cap hit by extending it several years into the future.

Add in the league’s push for shorter contracts in general, and it’s possible more teams will have larger chunks of cap room every summer. Perhaps more teams could make max-level offers to star players, rendering the extend-and-trade restrictions less effective.

Even in a free-agent frenzy, incumbent teams would still have the dollars-and-years advantage, but ask the Cavaliers and Raptors how that has worked out.

• The sixth-month waiting period does not much impact traded players with a year remaining on their contracts. When the league’s goal to limit Carmelo-style deals went public, some team executives I spoke to shrugged and said the trade-demand timetable would just move up a year, with more Deron Williams-type deals. Such a player keeps his Bird Rights, meaning his new team is free to re-sign him to that max-level extension.

And players in the final year of their contracts could be dealt in December or early January and be eligible for extensions early enough for their new club to lock them up before the start of free agency.

• In a move that pleases the union, the league has agreed to liberalize trade rules. The NBA has (basically) offered to eliminate the base-year compensation system, which makes it brutally hard to deal players who have just received raises. The league’s proposal also would allow teams below the luxury tax to bring in via trade 150 percent of the salary level (plus $100,000) they send out in the same trade — up from 125 percent (plus $100,000) in the old collective bargaining agreement. That proposal caps the in/out salary gap at $5 million. The players have proposed a larger gap — 200 percent — for non-tax teams and a friendlier definition of who counts as a tax team, but it seems pretty clear the new CBA, whenever the sides agree on one, will include more liberal trade rules.

This just makes it easier for teams to move large chunks of salary ahead of the trade deadline.

None of this is to say the league’s proposal is fruitless. The plan would give incumbent teams a bigger edge in raw dollars and years than they had under the old deal (though not by much), and the extend-and-trade rules will make it harder for teams to pounce on unhappy stars in the final year of their contracts. But I’m not sure there’s enough to tilt the balance in a meaningful way. Big markets, beaches, glamour and successful teams are always going to be more attractive, and the “psychic value” (as economist Andrew Zimbalist puts it) that stars attach to those kind of benefits will often outweigh the years/dollars advantage incumbent teams will have.

The safest way for small-market clubs to keep their own stars is still to keep them happy by (through luck and skill) acquiring the right mix of players around them.

Whether the league should do more and perhaps adopt a restrictive NFL-style franchise tag is a different question — one that touches on the ethics of controlling labor’s ability to work where it wishes. That question is at the center of the debate over the “system issues” holding up a deal now — whether taxpaying teams can use the full mid-level exception or have access to sign-and-trades, for instance. But the players have already fought off the prospect of an NFL-style franchise tag.

  • Published On 12:47pm, Nov 23, 2011
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