How NBL salary cap reform has affected team building
|Aug 25, 2016|
NBL boss, Larry Kestelman, believed that the time was right.
After a strong first season under his stewardship, replete with strong attendance, solid TV coverage, and an entertaining product, the league office wanted to capitalise upon a rising tide of interest in the local game.
So in March, the NBL announced a raft of rule changes to the competition centred on team-building. The divisive player points system would be scrapped. Salary cap reform would be introduced.
“Every rule change you’ve seen is all around making sure we have got the most talent possible for the league,” Kestelman told The Pick and Roll. “But at the same time, [it’s about] trying to keep a balance of commercial reality along the journey.”
Teams across the league breathed a collective sigh of relief. The old system governing the cap was clunky, and it had its opponents. The changes were a result of fruitful negotiations between the league office and the Australian Basketballers' Association.
The end result? The new NBL season will see such changes as a slight rise in the salary cap to $1.1 million (and the implementation of a soft cap with it), the addition of an extra import per roster, the marquee player stipulation*, and a tax subsidy that teams will now be slugged with if they go over the cap ceiling. (The complete list of changes can be found here.)
No one rule will work in isolation; they will coalesce in ways that we, and the league, are yet to fully understand. But as the league office experiments with tinkering, it hopes the changes will make the competition stronger and more attractive for fans, sponsors and TV networks alike. They’re key milestones in Kestelman’s grand plan towards taking the Australian game towards unprecedented levels, and on a more global stage.
“We need to look at the world scale and take our game to the world,” he said.
Listening to Kestelman talk of his vision, it’s clear that first-and-foremost, the league went all-out to improve its on-court product. That’s phase one in its relentless pursuit to infiltrate the hearts and minds of its regional partners, and beyond.
At least that’s the blueprint.
But for now, insiders claim that one of the biggest talking points during negotiations was the old player points system. It was the elephant in the room, and most didn’t want a bar of it.
The Points System: Good or Bad?
For the uninitiated, the player points system involved the league assigning arbitrary figures for every damn player. Teams had a total player points allotment, another arbitrary figure, a threshold which they could not cross.
It was a mechanism which was supposed to create parity across the league. Big market teams could not load up on talent and create Golden State Warriors-esque Super Teams to wipe out the rest of the competition.
But it irked some around the league who felt that the measures were rather draconian. Not only that, it was a basic violation of free labour movement.
According to Jacob Holmes, the Chief Officer of the Australian Basketballers’ Association, they pushed hard to ditch the player points system throughout the negotiations; it was the bane of the players and teams alike.
“We felt that it was really constraining,” he said. “We saw it, anecdotally, [as] the ‘wet blanket’ on the competition, and the growth of the competition. So we really pushed hard to get rid of the player points system.”
“The last thing we want to do is impose regulations that prevent players from playing, if the club can afford them, and the club wants them,” said Andrew Gaze, head coach of the Sydney Kings. “Because of some subjective rating system, a player might not get the opportunity. To me, it didn’t seem right.”
The points system engendered player movement and roster churn in a manner that seemed unfair – it hurt successful teams that had developed strong rosters through internal improvement. There were situations where good players were squeezed out of their clubs. It even stopped players from signing with other clubs, despite mutual interest, just because they wouldn’t fit in under the points threshold.
“In a way, it’s almost a restriction of trade,” said Rob Beveridge, head coach of the Illawarra Hawks.
But Gaze is adamant that all that player movement has not necessarily generated success for clubs who inherited that talent anyway. And on some level, he’s absolutely right.
Ironically, teams who have been highly successful have adhered towards a culture of stability, rather than drastic roster movements each season. Over the past seven seasons, only two teams have won the NBL championship – the New Zealand Breakers and Perth Wildcats – two sides who have managed to keep a core intact.
The hierarchy was unchallenged.
In that same stretch, we’ve seen countless players change teams. Part of that is due to the tenuous nature of the league and the short term contracts that come with the territory.
But part of it has also been a direct result of the player points system. With the system now revamped, teams must adopt a different modus operandi in order to stay competitive.
What are the changes?
Replacing the points system is the new player dollar value. An independent committee will assign all players a contract value, based on market value, that counts towards the $1.1M cap.
Contracts will be sent to the independent committee for determination. If a club throws money at a player that is above the committee’s evaluation, that higher figure becomes the cap hit for the club.
Teams that go over the soft cap will be hit with a levy – the NBL’s very own version of the NBA’s luxury tax – with those additional funds being distributed to the less wealthy clubs as some form of equalisation scheme. The cost of that levy steadily rises as teams transgress over certain tax brackets.
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* Courtesy of NBL.com.au
How is it different to the player points system?
It doesn’t prevent players from landing jobs in the league.
Essentially, the player dollar value is a mechanism which the league hopes will curb overspending whilst fostering more free market principles.
It’s somewhat of a middle ground -- a way of getting rid of the restrictive player points system, without enabling teams to hoard assets. It's a fail-safe that the league hopes will encourage clubs to invest in talent, but also make them think twice before spending in a reckless fashion.
The league has put a premium upon building the best product available. And teams have seemingly jumped on board by using the additional freedom to add talent – both domestically and abroad -- to their rosters.
“I take my hat off to the teams,” said Kestelman. “They’ve all bought into what we’re doing.”
Not that clubs had much of a choice.
You want to stay competitive in this league, thereby retaining your fan-base and sponsors? Stay competitive. That means investing into high-end talent.
It remains to be seen how the talent pool will look like with the addition of a third import into the equation.
Though the negotiations were conducted in good faith by all parties, the players fought hard against introducing an additional import slot. In the end they begrudgingly worked with the league office, conceded Holmes.
The Australian Basketballers' Association understood the rationale behind adding an additional import roster spot; raising the quota would potentially infuse the league with more international talent and lift the league’s standard to unprecedented levels. But they argued that additional imports would limit opportunities available for local players.
Instead, they pushed for the marquee player rule* as a compromise to protect the interests of local players. Under this rule, clubs may nominate up to 4 local players as marquees (teams start with one marquee, with each additional nomination taking up an import spot) on their roster, each of which has discounted rates applied towards the total cap figure.
The marquee player rule ensured that clubs could still attract top talent, whilst having protections within the cap mechanics to pursue bringing back Australian talent from abroad.
“We think they’re more valuable to an Australian national basketball league than a third import, so we really wanted to incentivise that,” said Holmes.
“That kind of robust dialogue was exactly what was needed in order to come up with what we think ultimately was the best outcome,” said NBL General Manager, Jeremy Loeliger.
“I think the compromise was the Australian [player] marquee system.”
The return of high-end Australian talent
The marquee rule appears to have reaped immediate dividends for the local game (you can keep track of all the NBL free agent frenzy here).
“We wanted the best Australian players coming back and playing in the league and setting up that pathway for them, and at the same time, attracting the right overseas talent to play in our league,” said Kestelman.
More heralded Australians have returned to the NBL. Brand names such as Brad Newley and David Andersen headline a growing number of high-end Aussie talent, guys that are still a part of the Boomers program, that have returned to our shores.
— Sydney Kings (@SydneyKings) June 8, 2016
— David Andersen (@daveandersen13) July 16, 2016
“I think the proof is in the pudding,” said Mitchell Murphy, CEO of the Brisbane Bullets, when asked if the current climate had been conducive towards luring Australian players back to the league. “If you look at the calibre of Australian players already opted to come back – David Andersen, Brad Newley, and now Cam Bairstow – the model is obviously working.”
“Our first priority is with our Australians,” Gaze said of the Kings’ recruitment vision a few months ago. “If we don’t have to use an import spot, we don’t. If we can satisfy our team and what we believe is going to be a chance to compete for a title without an import, that’s what we’re trying to do.”
Imports come and go. The inevitable movement of players during free agency is nothing new. But what the league is banking on is the re-emergence of a stable of Australian stars, synonymous with the clubs they ply their trade for, and whom the public can relate to.
The league office argues that the most significant change to the NBL was the marquee player rule, rather than the additional import slot.
“What we’ve identified was that fan’s loyalty attached more strongly to Australian players,” said Loeliger. “Fantastic names to be returning to the NBL after a long period out or not having played here at all. I’m very excited by the impact that these changes have had.”
That impact has certainly created a buzz about the upcoming season, with whispers echoing throughout that this could be the most talent-laden competition ever.
Balancing the ledger
In many ways, the upcoming NBL season will operate as a case study. How the new cap rules affect team building, and ultimately the on-court product, will be closely monitored.
But the league office will also be closely monitoring to see if the new changes are producing greater financial transparency within clubs, something that was a key driver during negotiations.
“Even with the player points system we still faced issues where sometimes clubs don’t spend within their means,” conceded Holmes. “It’s always going to be an issue that we have to track.”
There were rumblings that the old system was too difficult to police. The hard cap essentially operated in principle only. There was an acceptance that some club/player transactions did not so much involve creative cap gymnastics but flat out deception.
“There’s been some players over the last few years that have been submitted figures that make it very hard to believe,” Gaze said with a chuckle. “There might have been figures that have been presented where you go, hang on, we all know he’s not playing for that. He’s playing for much, much more.’”
“We didn’t think that the [old] salary cap system was sufficiently transparent,” said Loeliger. “And the way it was technically drafted left open some loopholes we wanted to close.”
There is belief that the new system lends itself to be far more robust.
All contracts will be thoroughly reviewed by the league, and clubs will be issued ‘please explain’ notices for contracts that severely undervalue a player.
“I think that the independent assessment of player contracts now provides a real depth of governance around that process,” said Murphy. “Where it stands right now, I think the totality of the salary cap is right in terms of clubs being able to manage their finances properly.
“I don’t think there’s ever a perfect and a fool-proof model that will totally eliminate the potential for any sporting club to do something untoward – and that’s just being pragmatic.”
What penalties naughty teams will face if they transgress and fudge figures is yet to be determined.
On the flip side, there are still a tonne of questions that need answered in relation to clubs that overspend.
Sure, teams that exceed the soft cap will have to pay the league’s salary equalisation subsidy – an NBA luxury tax of sorts – which can be redistributed to clubs who struggle to meet the salary floor (which stands at 90 percent of the cap). But no one quite knows for certain how it will all work yet.
“To be honest, at this time it’s too early to tell because we don’t know what the pool of money is going to look like,” said Loeliger. “There remains a bit of work to be done to see how we distribute that money.”
Once the dust settles on all team rosters, and the league dishes out tax notices to the big spenders, we’ll get a clearer picture on how the proverbial pot of gold will work. Loeliger suggests that teams will still need to apply for it, but the mechanics are unclear.
For now, lower spending teams will continue to tighten their belts and crunch the numbers because of the great unknown.
Though the revamped cap rules were made with good intentions, not everyone is a fan of the new changes.
Whilst the new cap system has led to an infusion of both local and overseas talent, there may already appear to be some unintended consequences.
Beveridge is complimentary of what the league office has done to grow the game, but the Hawks mentor concedes that it will be tough for smaller markets to compete in free agency because the system is encouraging the wealthier clubs to spend.
Case in point: The Hawks couldn’t afford to keep reigning league MVP, Kevin Lisch, after the Kings pounced with a mammoth offer.
“At the end of the day, Sydney absolutely blew us out of the water by a long, long way – the money was just ridiculous,” Beveridge conceded.
“In our case, we will not be going crazy like other teams have. That’s just reality. We’re a small town, we play out of a smaller venue.”
It means that the smaller markets and regional centres will need to find other ways to attract and retain starry free agents – selling their culture, and the promise of elite player development – or scrap for lower tier players that remain in the market.
Or get creative.
“We have to be really, really diligent with what we do, and the people we speak with, and try to sell out program in a different way,” said Beveridge.
But even those signings come with an uncertain future. Good, young players who develop will earn pay rises when they next hit free agency. They rarely sign long term deals meaning that a bigger payday is just around the corner.
What happens when their current deal expires?
“We’ll probably lose them in a couple of years because they’ll get huge offers from other teams,” said Beveridge.
The league office hopes that’s not the case; that there will be eclectic reasons that factor into the decision-making process of free agents, including lifestyle, franchise culture and cost of living.
“It’s always a juggling act to ensure competitiveness across what is a fairly disparate range of clubs, in terms of their resourcing,” conceded Loeliger.
Money trumps all, particularly for the biggest names. A basketball career has a finite end date and players will rightfully cash in when opportunity presents itself.
Ultimately, will this mean that the smaller clubs lose out?
On a macro level, it’s also unclear how an NBL economy that operates under free market principles will fare as a whole. The collapse of the Townsville Crocodiles in the offseason, due to financial pressures, makes some league insiders queasy about the current climate. Embed from Getty Images
If teams struggled to stay afloat, under the old draconian system that was designed to protect them against themselves, how will they fare in an economy that favours the highest bidder?
“I know the money that’s being spent out there is a lot of money,” said Beveridge.
“That could be a real issue down the path. If teams aren’t making money, and you’re losing millions of dollars each year, the owners will pull out,” said Beveridge. “That’s what’s happened in the past. That does concern me a bit.”
How clubs balance the ledger, as well as balance the impulse to splurge on talent to remain competitive will be interesting to monitor.
Gaze pointed to the fact that the onus will be on organisational governance.
“Clubs have to make their individual decisions,” he said. “But we’ve tried in the past with various systems and it hasn’t seemed to have that effect from stopping clubs from going out business anyway. We’ve got these problems that are there and clubs are now in situation where they do what believe is in their own best interests.”
“Where it stands right now, I think the totality of the salary cap is right in terms of clubs being able to manage their finances properly,” added Murphy.
That’s just the reality of the financial landscape right now – encouraging spending whilst trusting the clubs to self-regulate.
There will be growing pains, particularly for a league that is still very much in its growth stage.
It’s also clear that this is just phase one of the Larry Kestelman-led revolution about to sweep the Australian game.
There are plans to develop closer ties with Asia, particularly with our biggest regional partners in the Chinese Basketball Association [CBA].
“We’ve already had conversations,” said Kestelman. “We’ve made a number of trips over there. It’s a journey, but I think they very much recognise that they need us as much as we need them. And we want to work together for them to improve their standard of play, and how we interact between the two countries.”
The first tenuous steps towards a meaningful partnership have already begun, with the recent announcement of a revamped preseason tournament that will feature two CBA teams.
Closer ties with Asia, and the potential for Euroleague-style competition, can only make the league more attractive, and in a stronger position, when the time comes to negotiate a new TV deal.
The NBL will also strengthen its digital offering, making its game more accessible than ever.
But the biggest fish will always be the NBA, and the league office is confident that they have the attention of the best, and most popular, basketball league in the world.
“They’re the premier product in the world,” said Kestelman. “They love us now. They like what we’re doing. They can see our vision evolving, and they want to help. They want to be on that journey with us.”
That journey has already started, and the introduction of NBL cap reform is a part of that bigger picture.
With increased talent, the league hopes that the on-court product will continue to drive growing interest within the local game.
“Stay tuned over the next 12-24 months – this whole story will evolve,” said Kestelman.
Special thanks to Larry Kestelman, Jeremy Loeliger, Mitchell Murphy, Jacob Holmes, Andrew Gaze and Rob Beveridge.
*Teams may assign local players with marquee player status, with only a portion of their salary counting towards the cap.
** The full set of changes can be found at NBL.com.au