Cowbell Kingdom presents: Larry Coon.

With that ugly “R” word hanging over our heads here in Sacramento, we have been in a state of suspended animation, not really having prepared ourselves for the “L” word that the rest of the league has been gearing up for over the last two or three months.  A lockout seems inevitable, which is truly a shame for Kings fans because it can affect this particular team more than most others.  With more than $28 million in cap space, another top ten pick guaranteed, young talent and maybe most importantly a need for a new sports and entertainment facility to keep the Kings in Sacramento, there could not be a worse time for a labor stoppage.

These are crazy times.  Crazy times call for an expert to help get some clarity and to calm the nerves of the masses.  I reached out to an expert on the NBA collective bargaining agreement (CBA) and that expert responded with an unbelievable one-on-one conversation.  Let me clarify something, this isn’t just an expert, this is THE expert on all things NBA CBA.  So without further ado, here is Part I of Cowbell Kingdom’s James Ham interview with CBA guru Larry Coon.

James Ham:  You’ve published both the 1999 and the 2005 NBA Collective Bargaining Agreement FAQ – knowing the CBA inside and out like you do, how do you expect the 2011 CBA to differ from its predecessors?

Larry Coon:  People like to ask me, if you were going to design a new agreement, what would you make it look like?  But the problem is, that is the complete opposite of the approach that they usually take.  It’s not a top down approach, it’s a bottom up approach.  It’s two sides who are starting on diametrically opposed positions and then slugging it out for a while until they can get to a middle point somewhere where neither side is particularly happy, but they can live with the result.  You are already seeing the owners’ position – they want to tighten everything up.  They want to roll back salaries, they want as hard as a cap as they possibly can, they want to limit guarantees; essentially, everything that escalates salaries.

The players on the other hand like the deal the way it is now obviously, so they are looking for something that is pretty close to what we have now.  They recognize the economic situation, they don’t agree with the owners’ numbers completely, but they do recognize the economy.  They see things starting to pick up a little bit and they aren’t willing to take one for the team so to speak.

The owners are the ones with the most power here.  In this type of situation, they have the resources, they have more solidarity, so they are going to be able to pretty much drive the bargain.  What we are going to see is something in between the owners’ position and the players’ position, but probably a lot closer to where the owners are.

James Ham:  So you are thinking of some of the bigger stumbling points- the hard cap, player guarantees, etc., so you do believe that the players are going to have to break on at least one or two of the main issues in this situation?

Larry Coon:  Well, here is the biggest issue and everything else is just a means to an end.  The biggest issue is the percentage of revenue that the players are guaranteed, which is currently at 57% of the gross revenue.  A couple problems – one, overall, the league loses money when they guarantee the players 57% of the gross.  Revenue sharing is not going to fix that, for example.  I’ve asked David Stern (NBA Commissioner) directly that exact question and he said that you can’t revenue share your way to profits.  He said that if you’re losing money, revenue sharing isn’t going to fix that.

The other thing is that the formula is based on the gross revenue.  The league is saying that when teams last year were looking at a really bad outcome at the end of the season, they busted their butts and they generated a lot of revenue and then caused an increase in the cap this year because revenue was up.  However, it cost money to make that money.  They spent a lot of money in extra people, extra promotions, everything they could do to make that extra money, but since the players’ money is based on the gross, when they spend more to generate that money, the players are benefiting from the result without sharing in the expense to generate that additional revenue.  What the owners are going to want, number one, is that formula to be based on net revenues rather than gross revenues.

James Ham:  That’s going to be a big ____ though isn’t it?  Determining gross versus net isn’t quite as easy as looking at a spread sheet when you are factoring in owners’ salaries and then all of the other things that go into gross versus net.

Larry Coon:  You do have expenses that you can factor in.  You have transportation costs, lodging costs, salaries to all the people in the front office, the cost to run your practice facility- all of those things are pretty much quantifiable, so it’s just a matter of coming up with- where do we break that?  What percentage of the net revenues do we move into that formula so we can see what the players are going to get and then, based on that, what percentage do we want to give the players of that adjusted formula so that everyone is going to make a fair profit.  You could say right now- let’s keep gross venues but let’s change the formula to 50% instead of 57%, maybe that will get it done, but the next time there is something that costs a lot of money, the players are still reaping the benefit without sharing in the cost, so it has to be based on net rather than gross.

James Ham:  Since you’ve done the FAQ, I’m watching on Twitter all the times when people are just peppering you with questions all day long.  What is the most common question and what is the most difficult question for you to answer?

Larry Coon:  I get a lot of questions about how things are going to work during a lockout.  Questions like, what if the lockout goes the whole year and then they solve it and there is a draft next year – how do they get the draft order?  What happens if they solve it and there is an amnesty clause- how is that going to work out?  What happens if they solve, but there are no guarantees?  Things like that.  Things that are the next step of this process.

Unfortunately, I do get a ton of questions and I try to prioritize people in the media because then I am answering a bunch of people, instead of one person individually.  I try to keep it to twitter because, one, lots of people are seeing and two, they are short answers.  I’m happy to take on any questions that people want to ask, but when I get a question that just one guy has that is really esoteric and it’s going to take me an hour to research, I’m just at the point now where I rarely have that kind of time.  It’s the little nuance questions where the information is not readily available and I have to go out and  spend a lot of time on, unfortunately, I just can’t get to a lot of those.

James Ham:  I consider myself a bit of a Larry Coon disciple, I’ve read your FAQ, I use it in major discussions on sites like SacTown Royalty where the discussion gets really heated and we are able to breakdown certain sections of the CBA that are applicable.  How has the ESPN Trade Machine type of tool sort of muddied the waters?  Are those types of internet tools the bane of your existence?

Larry Coon:  No, I love it because people still like to understand why stuff like that works.  They want to understand the rules behind it.  I am good friends with the guys at RealGM who did the first trade checker and then the guys at ESPN to a certain extent modeled after theirs and I’ve also consulted with them on that.  I’m more than happy those things are out there and in fact, if one wasn’t out there, I more than likely would have created one myself.

James Ham:  Okay, let’s get to some Kings specific questions.  The Kings are sitting at less than $29 million in dedicated salary for the 2011-12 season.  How big of player do you see the Kings in this new CBA world with amnesty clauses, teams dumping salary, etc?  Do you think they are going to be able to improve their team greatly?

Larry Coon:  There is no way to tell for sure because we have no idea what the rules are going to be.  If they go to a really restrictive system, where it really makes it hard for teams to do anything, then the Kings are going to be subject to those rules as anyone else.  But, in terms of a probably or a baseline analysis to try and figure where things are going to end up, being the team with the lowest payroll by far, makes them certainly no worse and probably a lot better than the situation a lot of other teams are in.

Maybe they do something like a hard cap and something like a dispersal draft, which is similar to an expansion draft and they say that the way we are going to get some of these teams under the cap is that you can protect X number of players and for teams under the cap, we will hold a dispersal draft and of the unprotected guys, you can pluck them off the roster if you are under the cap and can fit the guy on your roster.  The Kings would be a beneficiary there.

Maybe there is an amount of cap room that teams can have and the Kings, with the lowest payroll, are going to be the guys to take the most advantage of that.  If there is an amnesty clause, what we are expecting to see is teams lop off the expensive players, but those players are still going to be paid by their original team so it’s just going to be a waiver signing where teams usually sign those players to the minimum or a mid level exemption or something.  I don’t know that the Kings are necessarily going to be the team for those types of players because those guys are going to sign cheap so there will be a lot of players in the market for them, but for expensive free agents who can sign for a bigger contract, I think they are in good shape.

James Ham:  Do you see a situation where teams that are extremely over the cap turn to a team like the Kings and just give players away as opposed to paying out a lump sum via the amnesty clause to a player that is owed, for example, $45 million over three years?

Larry Coon:  I think it’s possible, but one thing that will mitigate this is that, if you look at 1995, with the amnesty clause there, they had one set of tax rules and then in the new 1995 CBA, they changed those tax rules.  So they considered it unfair for those teams who were making all of their decisions based on one set of rules to go and change those rules without giving them something to sort of allow them to make adjustments, thus the amnesty clause where you could waive a player and then he doesn’t count against the luxury tax.  I see something like that happening with the current one.

The owners’ second proposal to the players did contain an amnesty clause.  If they are going to make a fundamental change to the cap rules – if they are going to make it a real hard cap, if they are going to really lower it or make things really restrictive, then the teams are saying the same things – they have players on their roster that were signed or acquired on the basis of a system that no longer exists and they never would have done it if they knew that the rules were going to change like this.  So, hey league, if you’re going to tell us that it’s going to be a hard cap and we have to get under it, you’ve got to give us a mechanism to make it work out for us.

The owners’ second proposal, allegedly contained two years under the current system with a hard cap after the third year.  It gave the teams a couple of years to get under it and the opportunity to waive a player.

End of Part I.

There is a lot in here to digest.  If for some reason you don’t know the work of Larry Coon, I highly recommend you hitting up his amazing site, NBA Salary Cap FAQ.  It is the definitive work on the NBA collective bargaining agreement and clearly a labor of love.

Yes folks, this is only Part I.  Tomorrow we will bring you more from Larry Coon, including his thoughts on Andre Iguadala, the Memphis conundrum and the Kings’ current free agents, Samuel Dalembert and Marcus Thornton.  I will hold my commentary on this work until later in the week, but needless to say, there are some items in here that should be discussed.


James Ham

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