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Thursday, May 08, 2014

The Truth About “Parity” in the NBA

[Originally posted on Hoopsworld, 5th November 2013.]

In February 2010, NBA commissioner David Stern spoke ominously of the league’s forecasted $400 million loss that financial year, as well as hundreds of millions more in losses over the previous few seasons. His words were one of the earliest warnings of an impending lockout, a threat that became a reality 16 months later. Financial inequalities and a broken system supposedly saw 22 out of the 30 NBA franchises losing money, and something had to be done to install some parity.

Three months after Stern spoke, the NBA ratified the sale of the New Jersey Nets to Mikhail Prokhorov.

Parity, it is said, is supposed to level the playing field between the large- and small-market teams. The reality of this market inequality is an unavoidable one, founded in socioeconomic factors far outside of the NBA’s control. It is what it is. The NBA’s self-imposed duty is to level the playing field within its control as much as possible.

They do this in various ways. The draft, of course, is one – parity is not just financial remuneration, but also the opportunity for all teams to compete on the court. There is also, as of the new CBA, a new revenue sharing system ostensibly designed to make big brother pay for little brother, a significant development in the NBA’s hitherto limited revenue sharing history.

And there’s the concept’s most public weapon – the luxury tax.

Since its inception in 2001, $923 million has been spent in luxury tax by 24 franchises. Of that $923 million, some $568 million has been spent by only four of those franchises – the Dallas Mavericks, New York Knicks, Portland Trail Blazers and Los Angeles Lakers. That is one seventh of the teams spending three fifths of the money, and they’re about to be joined by another.

The Brooklyn Nets stand to pay approximately $180 million on player payroll this season, once luxury tax is accounted for. Almost half of that is in luxury tax alone, and this, it must be remembered, is even before the advent of the repeater tax rates (which start next season). The direct and obvious contrast to this is the Philadelphia 76ers, whose current payroll is slightly under $48 million, roughly a quarter of what their rival Nets are paying. Indeed, take out the Knicks, and the Nets’ total player expenditure this season could be greater than the other three teams of their division put together.

What Brooklyn’s current roster does not have is much long-term sustainability. It is theoretically possible, then, that after this two-year window expires, the astronomical payrolls the Nets currently shoulder will disappear. This is certainly the rationale an almost embarrassed Nets front office would have other teams believe, and it may indeed be true. Once Paul Pierce and Kevin Garnett retire, Brook Lopez, an over-30 Deron Williams and a mid-30s Joe Johnson remain without much capacity for internal growth from other players on the roster. For this reason, it appears the current Nets are all-in for a two-year push, a boom-or-bust strategy not unique to the current CBA nor something to prohibit. If a team pays the cost to be the boss, so be it.

However, this is of scant little consolation to the small-market teams and the idea of parity. Regardless of the sustainability of this current group, the Nets were nonetheless able to assemble it, and, should new stars be bought in the future, they will be able to do it again. Prokhorov can and does sign $180 million checks knowing full well it incurs a significant operating loss. He does this in spite of efforts toward supposed financial equality, and scant few others can follow him in.

This is not parity. This is the rich getting richer. In a sense, we see under the 2011 CBA even greater segregation of the rich and poor than before the lockout that was supposed to mitigate it. Because of the more restrictive luxury tax penalties – which now costs a team basketball assets, as well as far more money than before – only some teams can afford to do this.

In a hypothetical situation whereby a small-market team has incumbent star talent sufficient to form the foundation of a competitive team, that team has limited opportunity to capitalize. A small-market team cannot pay the highest rates of tax it would likely take to keep together a truly competitive, upper-echelon team and certainly is inhibited by the repeater. The punitive luxury tax penalties that are supposed to penalize the big-market teams to the benefit of the small-market ones are instead preventing those same small-market teams from ever being able to compete with them.

One of the closest current models we have to this hypothetical is the Indiana Pacers, whose situation when compared to Brooklyn’s is tough to reconcile.

In their two-year push, Brooklyn could trade for Pierce and Garnett. In a highly synonymous situation, Indiana could only afford Luis Scola. Where’s the equality, the sharing of players, the parity? How many years of increased revenue sharing and loss-offsetting will Indiana have to persevere through until they can afford to pay enough tax to capitalize on their own strong talent acquisition and decision making?

Indiana’s version of “all-in” involves upgrading the backup power forward spot for two of their only few future assets (Miles Plumlee and an additional first rounder), signing C.J. Watson and staying under the tax. Their team, their really good team, has either one or two years to make a championship run before it is disbanded by age and finances, at which point the cupboard is almost bare. Paul George remains, but a 36-year-old David West clogs the cap and a prime Roy Hibbert has an opt-out that there is a strong chance he uses.

In committing to this two-year push, did the Pacers have a choice? Is that not the cost of competing as a small-market team? Similarly, what choice will they face in two years if Hibbert opts out – overpaying him to keep him against the competition in what figures to be a hotly contested free agency market or losing a big part of their team and confirming the closure of their competitive window?

The NBA’s system permits for those teams that get lucky enough to land star talent and smart enough to build around it to form competitive teams. With a soft cap, it effectively permits anyone to pay as much as they want, if they can afford it. And the revenue assistance does genuinely help to assuage the operating losses incurred by struggling teams in smaller markets. But what kind of parity penalizes a small-market team for being good more so than a large-market rival? Parity in this instance is a misnomer, mere lip-service to an ideal we aren’t seeing.

The same people who pushed this idea of parity also sold the Nets to Prokhorov and his game-changing billions, let Sacramento opt out of the revenue sharing scheme and traded Chris Paul from New Orleans to Los Angeles. The big market gained, the small market was left wanting. The system that was supposed to allow New Orleans to compete in spite of their business disadvantages instead stiffed them at the expense of a market capable (if not necessarily an owner winning) to finance a competitor around the best star the small market was forced to relinquish.

Parity is not an equal playing field on which to compete – parity merely props up those at the very bottom, staves off contraction and hopefully avoids another measly $25 million cash sale.

If this is all parity can ever be, let’s at least be honest about it.

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