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Saturday, September 18, 2010

Addendum to the Xavier Henry thing

In the recent Creative Financing In The NBA post, I wrote at great length about the Xavier Henry situation. In the span of about 27,000 words, I tried to explain all the nuances of this largely unprecedented and highly unattractive situation, using as many real-life examples and corollaries as I could find.

After that time, far more significant media personalities ran with the story. Starting with NBA.com's David Aldridge - who ran a very similar piece that even used the same Glenn Robinson-based introduction, but who had the ability to get the quotes that a 20-something English student doesn't have - and culminating in an explosive interview with Grizzlies owner Michael Heisley on the Chris Vernon Show, the story became one of the most protracted subplots of the offseason, its explosive crescendo at the Vernon interview making for late-summer viewing joy.

In between those bookends came this piece from the Commercial Appeal's Ron Tillery, that details the required incentives in ways we previously could only guess at.

The Griz have offered Henry 100 percent of that salary with the extra 20 percent tied to performance-based bonuses.

The Grizzlies' proposed incentive package includes:

Participation in summer league.

A two-week workout program with the team's training staff.

Satisfying one of the following: play in NBA rookie/sophomore game during All-Star weekend, or earn an all-rookie selection, or average 15 minutes in at least 70 games.

Perhaps more pertinent still are these quotes from Henry's agent, Arn Tellem, in which he describes the move from his point of view.

The agent, Arn Tellem, says the Grizzlies are trying to make Henry meet performance bonuses, such as making the rookie challenge at All-Star weekend or being named to one of the all-rookie teams. He says only one player out of more than 450 since the rookie salary scale was instituted in 1995 has agreed to a performance bonus.

"Basic fairness and equality are fundamental aspects of every positive organization-player relationship, and those concepts are totally absent from the Grizzlies' current proposal to Xavier," Tellem said.

Tellem said Henry would agree to bonuses that are frequently offered to reach the full 120 percent, such as taking part in conditioning programs or playing in the summer league, but said no other team in this draft had asked a player to accept a performance incentive.

Later, it was revealed that Tellem had offered to pay Henry's salary himself, for as long as the holdout continued. [No word on whether Greivis Vasquez's agent promised the same.]

In the end, he's not going to need to do that; Heisley has changed his mind, backed down from the pressure, and rescinded the minutes played incentives. Vasquez and Henry will now sign in short order and begin their post-soap opera lives. And it only took slightly longer than a guinea pig's gestation period.

Tellem's overview of the situation seems to lie in direct contradiction to my own breakdown of the situation, as described in the initial post. In that piece, I described at great length the fact that not just some, but most rookie contracts contain performance incentives, including those of the top three players in this year's draft. In direct countenance to that is Tellem's subsequent claim that it's only previously happened once. Because of the direct confrontation between those two points of view, both of my regular readers have posed the same question; Who is right? Me, or Arn Tellem?

The answer: Both of us, kind of.

This year's unnecessary September-time drama

As my study emphatically concluded, performance incentives in rookie scale contracts are a commonplace occurence. More contracts have them than don't have them; as unlikely as that sounds, it was shown to be demonstrably true.

However, that statement alone doesn't tell the whole story. Two particular paragraphs from that initial piece need to be re-stated for the sake of clarity:

Incentives in rookie contracts usually come in two forms; promotional incentives and performance incentives. Promotional incentives - such as that which appears in Lawson's contract above - are irrelevant to a player's salary cap number. If they make the appearances, they get the money, and if they don't, then they don't. Whichever it is, it doesn't change the cap number. That is not however the case with performance incentives.

[Ty] Lawson's incentives [excluding the 700 minutes per season] are pretty standard practice, although his minutes per season requirement is pretty harsh. (He made it comfortably, but many others wouldn't.) It is incredibly normal for rookies to sign rookie scale contracts featuring incentives requiring both summer league participation and appearances at summertime conditioning programs. Those are almost always included; any additional performance bonuses on top of that, such as Lawson's minutes played requirement, are both rarer and more varied.

The significant part of that statement, that part that makes both Tellem and I largely accurate in our claims, is about the type of performance bonuses mentioned.

As explained in my article, and as referred to by Tellem, the summer league and conditioning program incentives are very commonplace, and it is those that can be found in the majority of rookie contracts. (As an aside, Miami even like to use offseason workout clauses in some non-rookie contracts.) Tillery's article uses the phrase "performance bonus" as a synonym for the minutes-per-game criteria, which is not entirely accurate and thus confuses the issue; the summer league and workout clauses are also performance incentives. They're just ones no one had given any credence to before, because they just didn't matter.

Tellem is right in claiming that not many rookies sign performance incentives of the minutes-played calibre that the Grizzlies were asking Henry and Vasquez to do. Ty Lawson did, and James Anderson also has them from this draft, but it's true that not many do. However, it's also true that most contracts do contain performance incentives of some kind. "Performance incentives" should not be interpreted as stuff only related to a player's performance, despite the name; the summer league and conditioning programme clauses also count as performance incentives, as would anything comparable.

Hopefully now, with the terminology established, we can rationalise the methodology.

Last year's unnecessary September-time drama

It would have been very possible for Henry and Vasquez to meet those incentives. A 15 minute-per-game average in at least 70 games played in a season sounds like a lot, but it's not; 176 players in the NBA achieved this last year, including six Grizzlies. Two other Grizzlies damn nearly did it; Hasheem Thabeet (13mpg in 68 games) and DeMarre Carroll (11.2mpg in 71 games), and they did it while playing fairly badly (with PER's of 12.9 and 8.5 respectively). Henry and Vasquez would have the depth charts in their favour, with no backup point guard options on the roster to challenge Vasquez, and with plenty of minutes available to Henry in a wing rotation that should see more O.J. Mayo at point guard, and less Sam Young in general. They should have achieved those incentives, while doing so on a team challenging for a playoff spot. If they weren't able to outperform Thabeet and Carroll, then perhaps they don't deserve the extra 20%. Therein lies the logic, and it's sound.

Contained within Heisley's interview is a rationale of the Henry situation from the Grizzlies situation, not entirely dissimilar to my own. Heisley makes this point in a really, really, really, really bad way, yet contained within his disjointed stuttering does lie a point, one which I had a stab at explaining thusly;

If Memphis are looking to buck a trend and start a protocol of their own, whereby a rookie earns their money, then I can't really fault them [...]. If they are offering Henry (and Vasquez) 100% of the scale guaranteed, with the maximum amount available in incentives that are slightly harder to reach than normal, then what, really, is wrong with that?

Heisley essentially tried to make the same point in the interview. The possibilty for doing this is has always existed, and yet no one has done it, outside of a few notable exceptions. Teams sign players to the full 120% out of loyalty and respect for the player and their agent, yet no one has to be loyal. If another people went along with this idea, it would become a trend, and in no way the reprehensible act that it is now perceived to be.

But in making that point, Heisley misses others. The point of giving rookies the full 120% was not about rewarding them for things that have not yet done and might not ever do - the point was to avoid the fallout from not doing so. This is a risk that the Grizzlies strode confidently towards, balls-to-the-wall, yet one which has now removed said balls and attached them to a passing freight train. The methodology is legal, the logic sound, the possible outcome attractive. But the potential rewards were so comparatively tiny, the risk was not worth taking on. Put simply, there was no need to do this.

As the initial post stated, Memphis were not being entirely pioneering here. There was a small amount of precedent, both from Ty Lawson's situation above and from the San Antonio Spurs:

A fifth player joined the less-than-120% club this year; Spurs draft pick and England frontline seamer James Anderson. After about a month of negotiations, San Antonio eventually signed Anderson to a contract that pays a maximum of 120% of the scale in the first year, but only 115% in the second year, and 117% in the third (fourth year salaries are calculated as a percentage of the third), all years of which contained more significant performance incentives than usual. This is the kind of thing Memphis are accused of being doing, if not an even more extreme example. Furthermore, this now means that three of the five players to have received less than the full 120% have been Spurs picks. They've actually gone through with the deed Memphis stand accused of trying, and they've done so on an annual basis. In the cases of [Ian] Mahinmi and [George] Hill, San Antonio could invoke the "no one else was drafting you that high, so live with it" excuse. Not so with Anderson. San Antonio have better leverage, given their strength as a franchise and the fact they aren't doing it with lottery picks, yet it is the same practice.

I would like to stand by the justification that I gave for the Grizzlies modus operandi in this matter. However, it has been made untenable to do so now that the revelations of the thought process behind them - or lack of such - have been made apparent. The corrolary with the San Antonio Spurs is now no longer applicable; the Spurs have manipulated the situation for years to their systematic advantage, whereas the Grizzlies were doing what their ill-informed owner prescribed without sufficient grounding in the situation.

It's a joke! There's two James Andersons!

Ultimately, it is not mandatory nor necessary for the owner of a franchise to understand to the Collective Bargaining Agreement. We shouldn't expect Michael Heisley to know the inner workings of the rookie salary scale any more than we should expect Micky Arison to be able to break down the Over-36 Rule, nor any more than we should expect Michael Jordan to be able to pinpoint every meticulous difference between a player option and an early termination option. It seems bloody dumbfounding that Heisley would say he's never even heard of the CBA, as he did in the interview, and as such I will interpret that as an exaggeration; however, there's no room for selectively interpreting his emphatic honesty when he states, "brutally," that he hadn't known of the 120% rule in previous years.

Not knowing of the rule is a somewhat justifiable thing. It's mystifying that Heisley or any NBA owner would not know anything it, since it's not hard to find out about - just browse this bloody website for 20 minutes and you're bound to find something about it. [I also know for a fact that Larry Coon's NBA CBA FAQ, which is gospel to us little men, is not a universally known tool amongst NBA executives. They read the actual thing because they're all trained in law. Gents, you really should tackle that FAQ one afternoon. It's single handedly responsible for a significant improvement in NBA media coverage.] However, that doesn't mean they have to know it. They just have to listen to those that do.

Memphis, like every NBA team, has salary experts whose job it is to know and manipulate these parameters. That's why it shouldn't matter whether Heisley knows them or not; there are people who do know them, and those people clearly did. Even I know these things, and I'm an idiot from a different continent. Those people probably didn't think they were making a mistake in telling their boss about this hitherto unused payroll-cutting vehicle. But it would appear that they have, because Heisley ran with it, to the detriment of the entire franchise.

Like most if not all majority shareholders, Heisley is an entrepeneur. This is not his only business; he owns several dozen others. As dumbfounding as it is to us little men, therefore, Heisley's interest in the Grizzlies represents nought but a small part of his overall interests, business portfolio and life. As much as we care about our sports teams, those with huge financial interests in teams do not always see it the same way. That is not to say that Heisley or any owner does not care, yet it does mean they can't always be assumed to understand the nuances of the industry that doesn't guide their lives. The handful that do are not fair comparisons for those that don't, and therefore those that don't must always be dependent upon advisors. That is the way of business.

Yet therein lies the problem. If these people are in place to advise and inform on such a decision, their advice should be heeded. It's possible that Memphis's salary personnel recommended this course of action, yet it doesn't seem likely, particularly in light of what Heisley said in his public Ratnering of the situation. Heisley overruled those who effectively should be overruling him; if he doesn't know what to do, he should ask. And if he thinks he does know what to do, he should surely know why he thinks that, and what the repercussions would be.

Clearly, this did not happen.

By backing down, Heisley has merely compounded the problem. Memphis will now end up paying the duo exactly what they would have paid them before, yet with the bonus caveat of looking like prize gimps for the whole ordeal. They played a game of chicken with a powerhouse agent, and lost emphatically.

None of this need have happened; they didn't need to demand Henry and Vasquez sign incentives, they didn't need to try to be so pioneering over such a small portion of their overall pay structure, they didn't need to be so steadfast in handling the situation, Heisley didn't need to go on the Chris Vernon Show and open the floodgates, and they didn't then need to back down unreservedly. But they did. And all they've wound up doing is creating an unnecessary PR backlash to a team that couldn't afford another one of those. All for the sake of a few dollars that they would have wound up giving anyway.

It no longer matters, but, for point of reference, four year 120% contracts for Henry and Vasquez will total a combined $15,167,563. Contrastly, 100% scale contracts for the two of them would have totalled a combined $12,639,636. That is a difference of $2,527,927, over four years, for a combined eight years of service between the two players. That total amount is less than they just sold Dominique Jones for, less than they just gave Tony Allen, less than they got for taking on Steven Hunter's deal last year, and less than 40% of what they're still paying Marko Jaric, a man currently without a job. Worse still, Henry and Vasquez would probably have met those minute incentives - if not in year one, then through the remainder of the contract. The savings, therefore, would have been even less. Yet that comparatively trivial amount was deemed enough to risk everything.

On a wider scale, it's a justifiable course of action. But this was not the time, and not the team. And the way it was so publicly mishandled renders any defense impotent. Heisley stuffed up.

Griz don't lies, though. Griz tell the truth. That is Griz problem.

Despite Memphis's status as obvious losers here, there are many winners. In the world of basketball, Arn Tellem further enhances an already seamless reputation. Henry and Vasquez will get their full amount of money, and will now begin playing in a good situation. They'll be members of a good team, a young team with both long-term potential and moderate short-term success, while being the beneficiaries of a good many minutes in their rookie season. And the league in general avoids an embarrassing holdout, a mere months before it's due to head into another one.

But the real winners here are the San Antonio Spurs and the Denver Nuggets. If you're going to do this sort of thing, do it quietly.

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"The brain behind ShamSports could have been featured in a number of these Twitter lists, but because his website often spends our entire working day lodged in one of our browser tabs we decided to take the boring route and place Mark amongst the professors. Deeks might be the funniest man you've never met, he does exhaustive work with the NBA's salary minutiae and transaction follow-ups, and he's a stone-cold must-follow. Stone-cold fox, too, ladies. Or, some gentlemen."