Proposal for a New American Basketball League
We are now at a moment in which the creation of a new American basketball league is an extremely sound and viable business idea. Given the current state of the National Basketball Association and its relationship to its current and potential labor force, an unprecedented opportunity exists. All that is needed is 1) 10 visionary ownership groups, each with the ability to raise about 250 million dollars, and 2) a plan. And the plan practically writes itself.
The Plan
Since the late 1980's, the National Basketball Association has been systematically squeezing its players, placing more and more limitations on the types of contracts that can be signed and who can sign them. While these limitations have no doubt decreased the NBA's expenses and increased their profits, they have also created vulnerability. The NBA now has a disgruntled labor force, many of whom are paid less than what they are worth, and many who are paid more than they are worth. A large number of qualified adult basketball players are simply barred from joining NBA teams. The NBA's tactics have only succeeded because American basketball players have no other option for playing basketball for a living in this country.
Is it possible to give them another, better option? The answer is yes.
By creating a league that can pay players more money than they can make in the NBA, it would be possible to redirect young college and high school players and NBA free agents to the new league. Money talks, and the ability of a competing league to provide more of it to players is within reach.
Can this be done in a sustainable way that makes a consistent profit? Again, I believe the answer is yes. How? By creating a different system and a different set of rules that governs how the league operates, the maximum amount of money can be dedicated to paying the best players and prospects the best wages possible.
The New Rules
These rules represent a framework of a workable system for a new league. The specific amounts and details are negotiable. This is a first draft of a workable concept.
Rule 1:No yearly salary cap. Instead, a $200 million total future salary obligation cap.
Each team is allowed to carry $200 million total future salary expenses. In other words, at the start of each season, a team can have no more than $200 million committed to players' salaries for that season and all seasons beyond. At the end of each season, the salary paid for that season comes off the future cap, and that amount is available to sign additional player contracts. Currently in the NBA, some teams have over $200 million in future salary obligations and some have less. This system would cap that amount, and create a natural yearly salary cap. It would also allow for yearly flexibility no matter what kind of contracts the team carried. It is, in effect, a hard cap with built in flexibility. This flexibility means increased options for players, and an easier path to rebuilding for every team.
The only exception allowed to this rule is that a team could give one bonus per year to their own re-signed free agent in the amount of 5 or 10 percent of the contracts entire value, payable as of the signing, that would not count against the future salary liability.
This system might lead to shorter average contract lengths, but would also allow a team to offer a serious cash incentive to its top free agent player. Limiting the bonus to one per year is a disincentive for teams to sign multiple top players to one year deals repeatedly.
Rule 2: Any player that will be 18 as of the start of the season and who has not played professionally in the NBA or the new league can be drafted.
Like any other business and any other basketball league other than the NBA, a legal adult is allowed to work for a league team as a basketball player. The NBA has instituted a rule which states players must by 19 years old to play in the league, and they are trying to push that to 20. The new league will be able to tap into this group of players and get them under contract before the NBA, by its own bylaws, can draft them. Yes, it is often difficult to tell if an 18 year old prospect will be a good player or not - but many of them are good risks, and along with modest limitations on rookie salary amounts (outlined below), the liability of a flameout is not extreme.
Rule 3: Rookie salary scales will offer significantly higher salary amounts than the NBA offers.
In the first year, there will be a six round draft. (In subsequent years, this could be reduced). For a 10 team league, that equals sixty picks, the same as the NBA's two round draft. The NBA rookie salary scale locks these picks into a 3 year deal with a team option for a 4th year. The salaries range from about 5 million annually for the 1st pick to about 1 million for the 30th pick. Second round picks do not receive guaranteed contracts and usually report to training camp without a contract.
First round picks will, in the new league, be offered guaranteed 10 million per season contracts for 2 seasons. Second round picks will be offered guaranteed 5 million per season for 2 seasons. Third round picks will be offered 2.5 million guaranteed for two seasons. Rounds 4-6 picks will be offered 1 million guaranteed for 2 seasons.
Draftees who are drafted by both the NBA and the new league will have a choice between signing with the NBA and making x amount of dollars in 4 years (assuming the team picks up the 4 year option) and making the same amount of money in 2 years with the new league. In addition, the new league will offer a much better chance of significant playing time for a prospect initially. By limiting the time to two years, we take on the same salary liability as the NBA, but offer the prospect more money up front and quicker free agency. For a high school player, the new league offers them 100 percent more than the NBA can. For players in the initial year's rounds 4-6, they can get a guaranteed 2 million dollar contract from the new league, while in the NBA a second round pick is guaranteed nothing.
From the team side, a team must keep enough salary space to sign a first round pick and a second round pick to the rookie deals. If the player picked signs with the NBA, the team would be free to spend that money on someone else. The teams would not, however, be allowed to spend all of their future salary obligation on free agents without leaving 30 million for potential draft picks. This should not be difficult, however. If the average contract length for a team is 4 years and its salary liability is 200 million, 50 million should become available to spend every year.
Rule 4: Maximum free agent salary: 25 million per year. Maximum contract length: 10 years
In order to avoid legal entanglements, the league would bar teams from signing players currently under contract with an NBA team. However, there are a sizeable stable of players who are free agents every year in the NBA. For free agents who have previously played in the NBA, a player may be signed by a team for any amount up to and including 25 million dollars per year.
The maximum length of a contract would be 10 years. However, any contract signed cannot put a team into a salary liability of more than 200 million dollars, so a 25 million per year contract will have practical maximum of 6 years (150 million total) as 30 million dollars must remain to pay a first and second round pick. A 6 year, 25 million dollar contract with a total amount of 150 millionwould leave 50 million to sign the rest of the team. However, after the first year was done, the salary liability of that contract would reduce by 25 million, meaning 25 million in total salary money would become available to sign additional players. A team would gain flexibility throughout the years of the deal, but they might also want to plan to limit the liability so that they can offer another big contract to their star player at the end of the deal. Otherwise, they may only be able to offer one year at a time. There would be differing strategies in using this system, but no matter what path a franchise decided upon, total salary liability would always be capped.
Other rules governing per-diem, travel arrangements, and other player benefits would be similar to those currently in the NBA.
These rules would clearly create an incentive for top players to join the new league. For example, Chris Paul and Dwight Howard would have the choice of signing a max contract in the NBA for 18 million per season for 5 years, or 6 years if it was with their current team. However, they could also sign with a new league team for 25 million per year for 6 years. In the NBA, the team they signed with would find themselves quickly over the salary cap and would need to build around them using the midlevel exception, increasing their total salary liability, or taking on salary in trades. However, in the new league, 25 million of space would be available each year to make improvements.
And…. Chris Paul and Dwight Howard could decide to sign with the same new league team by signing 25 million 3 year contracts. Multi-star teams like the Miami Heat would be possible, but the more stars you got, the shorter the term of it would be.
Midlevel NBA free agents would have the option of signing longer contracts. A new league team might be able to offer a player like Landry Fields a 10 year contract worth 5 million annually. Compared with the NBA midlevel maximum of 4 or 2 years for the midlevel, this might be very attractive to solid NBA players.
Bad blood left over from this year's contentious labor negotiations will also work in the new league's favor, as loyalty to the NBA will be at an all-time low in the coming years.
Rule 5: Cooperative Franchise Ownership
Each initial ownership group would pay a $1 franchise fee, but would have to contribute $200 million into an escrow fund for player salaries. At the beginning of the season, they could withdraw the money to pay their players. Therefore, the cash would be available, and liquid, to pay every penny of every initial contract signed. This would give any initial player signed a sense of security.
Franchises would increase in value, but would not be freely saleable on the open market. Any franchise sold would be required to be sold for a specified amount related to the average yearly profit of the league. Certainly, for the initial investors, a large profit should be possible with the sale of their franchise. But for subsequent sales, there has to be a limitation on the amount of profit a team can make on a franchise sale.
The reason for this is that the NBA has gotten itself into deep trouble because of rapidly inflating franchise values over the past 30 years or so. During this time, a team could lose money annually, and yet still make a profit by selling the franchise at a fantastic profit. The radical inflation of franchise values, however, is not sustainable. At some point, a limit is reached, as the pool of individuals and groups with enough money to afford a franchise dwindles. Without the ability to profit on the franchise sale, owners will have to make a yearly profit, and that is nearly impossible while carrying the debt of exorbitant franchise cost. This is the situation the NBA finds itself in today - the reason why they must, as a matter of survival, cut player cost - and it is the situation which creates the opportunity for the new league. In order to be sustainable, the new league must avoid this pitfall. Franchises' value must be related to their profitability, not to their value as an inflatable commodity.
Rule 6: Franchises cannot own real estate.
It may seem like a sound idea for a franchise to own the arena that its team plays in. But if franchises are going to saleable for a fixed amount related to yearly league profit, an arena mortgage or equity introduces a variable that greatly increases or decreases a team's real value. In the current NBA system, a team may have been motivated to pursue the purchase of a new arena, in order to reap the benefits of seat licenses, and in order to add an asset to the team that would increase its sale value. Absent the ability to generate enormous franchise sale profits, the pursuit of new arenas makes less sense, and this is good news because it keeps the league as a whole from acquiring expenses that it cannot sustain in the long run.
There are currently nearly 50 arenas in this country with the capacity to host 15,000 fans for a professional basketball game - which are not being used by the NBA. Often there are more than one of these arenas in a single metropolitan area - for example, next season, there will be arenas in Newark and East Rutherford, NJ that are not used for professional basketball. There are suitable arenas in Inglewood and Anaheim in the Los Angeles area. There are suitable arenas in San Francisco and San Jose. There is certainly a suitable arena in Seattle. Given the overabundance of arenas, renting one out for 30-40 games per season should be relatively affordable. In fact, given the regulation of franchise costs, it may be worthwhile to have arena rents negotiated by the league itself and then the costs split equally between the franchises. It may even be possible for the league itself to start buying arenas and leasing them to the franchises.
In any case, tying individual franchise value to the real estate market creates potentially dangerous liabilities and liquidity problems and should be avoided.
If it makes sense for a league to limit how the franchises can compete with each other for players, surely it makes sense for the league to limit how franchises can compete with each other in other ways.
Rule 7: Limit on years of Head Coach's contract
Many NBA teams sign coaches to long term contracts, only to fire those coaches. Often, teams are paying several fired coaches millions of dollars. In order to decrease future liabilities, the term of a head coach's contract should be limited to something on the order of 2 years. Since the NBA has no such limitation, the new league is certainly at a disadvantage when it comes to competing for the top NBA coaches. On the other hand, there are many former NBA players and college coaches that would love to get a shot at coaching a high level professional team. Many of these candidates have high profiles and would jump at the chance, even with a limitation on security. Firing a coach is a fact of life for professional franchises, and teams should not be forced to compete by adding years to a contract that likely will never get to term. Another option would be to add coaches into the total future salary obligation cap. But I think a cap on contract length is also necessary, because, like rookies, coaches often don't work out.
Initial, Short Term Success
Higher salary offers and a limited number of teams should create a league that has a reasonably large proportion of top level basketball talent. The games should be competitive and entertaining right off the bat, and hopefully will generate a youthful, rebellious energy that will appeal to young basketball fans. Tickets should be more available, and therefore much more affordable. If the league is successful and exciting in its first year, the second year should provide an even greater influx of talent. This league will simply be a better deal for players than the NBA is - especially initially. The new league franchises, having little initial overhead, should have a financial advantage over the NBA initially.
Long Term Survival
If we take the NBA owners at their word and believe that they are, in fact, struggling to make a profit, can a new basketball league possibly succeed, given that it would be paying higher player salaries? The answer is very likely yes - because many of the liabilities NBA owners face are avoidable.
By allowing NBA franchises to be sold without regulation on the free market, the NBA has made itself vulnerable to a bubble in which the increasing value of the franchise becomes the entirety of the franchise's value. This works terrifically in times of increasing popularity and expansion, but in times of plateau, it is disastrous, because this model is unsustainable. If a franchise does not make a profit and yet also cannot be sold at a profit, it becomes essentially worthless. If a franchise's value deflates, the only avenue out for debt-ridden owners is player concessions - or bankruptcy. Neither option is attractive.