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More restrictive MLE would help create a more competitive NBA

Earlier this week I was discussing the joys of the NBA labor negotiations with Chuck Cunningham, whom many of you might know as PaulPressey25, long-time moderator at RealGM's Bucks board. As Bucks fans with no illusions about our team's place in the NBA's competitive and economic hierarchy, we've both been rather unapologetic in our hopes that the current negotiations will result in a radical overhaul of the NBA's economic system. Hey, small market fans are allowed to be selfish, too. But while a new deal will undoubtedly include major salary concessions from players, it's likely that systemic changes will be of a more incremental nature. Will it be enough to enable a more competitive, balanced league? Our discussion eventually spawned the following piece that Chuck wrote and which I wanted to share with a wider audience here at Brew Hoop. 

As we've all read by now, both sides in the NBA labor dispute have taken their ball and gone home (at least until Saturday) over the issue of the BRI percentage claimed by each side. But hiding in the background is an important issue that also has not yet been resolved: the ultimate form and function of the Mid-Level Exception, or "MLE" as it is better known. The MLE has allowed teams that are over the salary cap to expend an amount equal to the average NBA salary ($5.765 million in 10/11) on either one additional player or combine the exception on multiple players, as long as the cumulative first year salary total for the new players does not exceed the MLE amount. Under the prior CBA, MLE contracts could be as long as five years and contain annual raises equal to 8% of the first year salary. According to reports, the league would like to reduce the MLE to $5 million annually, limit the length of MLE contracts to only three years, not allow raises in MLE contracts and, perhaps most importantly, prohibit teams over the luxury tax line from using the MLE.

Though the owners have made increased competitive balance a major talking point throughout the negotiations, the league has already long given up on major points such as a hard salary cap, franchise player tags and non-guaranteed contracts. Beyond the "meaningful revenue sharing system" that has yet to be defined, those were the big system changes the small and mid-sized markets were hoping for and will not get. But while a more restrictive MLE may sound trivial in the grand scheme of getting a deal done, it could turn out to be a significant help for small and mid-market teams.

The proposed new MLE should help "less desirable" markets hold onto their own players for more reasonable prices. In years past the MLE was readily used by winning clubs and big market teams to go after promising young players who hadn't shown enough to be offered large contracts by their current teams. A prime example of this would be the L.A. Clippers' Mo Williams. In the summer of 2007, Williams was entering free agency while still property of the Milwaukee Bucks who held his "Bird rights," allowing them to exceed the cap to retain his services. While it is always a challenge to value free agents such as Williams, the Bucks arguably would have liked to re-sign the 25-year-old fan favorite to no more than a $25 to $30 million dollar deal over a three to four year contract period. That should have been plenty for Williams, a former second round pick of the Jazz who landed in Milwaukee after Utah opted not to match the Bucks' offer sheet. It was reasonable to wonder if the 2006-07 campaign that saw him average 17.3 points per game as a primary option on a terrible Bucks team was a result of being given major minutes or the sign of a talented player ready to break out, but the rebuilding Bucks were eager to hang on to him.

However, before Milwaukee could get Williams to sign on the dotted line, Pat Riley and Dwyane Wade entered the equation. Riley was looking for some scoring help and even though the Heat were over the salary cap and on the luxury tax line, they had the MLE at their disposal. Riley and Wade were able to wine and dine free agent Williams and extend to him a full MLE offer in the five-year/$32 million dollar range. For the Heat, money was no object. They had their superstar and now needed solid talent to complement him.

After his sales tour of South Beach, Williams returned to Milwaukee to continue negotiations with the Bucks. In order for him to stay in the less luxurious market of Milwaukee, he informed the Bucks that he would need a major contract premium. Afraid of losing one of their key building blocks, Herb Kohl and Larry Harris obliged, serving up a six-year, $52 million dollar offer to convince Williams to spurn playing with Wade and the Heat in sunny Miami. Not only did the Bucks offer $20 million more than the Heat, but they also added an early termination option and player option in the final two years of the deal, the kind of perks normally afforded only superstars.

This scenario has played out numerous times over the past decade as small and mid-market teams have had to pay significantly more to retain their existing talent. While the big market teams do not always get their MLE targets, they do ensure that the original teams overpay to retain their mid-tier talent. Thus Milwaukee was saddled with a six-year deal for a non-difference making guard, while the Heat simply refocused their attention to LeBron in 2010. Some may say that Milwaukee made a free will choice in extending that contract and that they should have let Williams walk to Miami. Fair enough. But that ignores practical reality. How do you tell your fan base that you are letting a young fan favorite walk to a contender for little or no compensation?

If you are a fan in a non-power market, think back over the last ten years to how many times your club was forced to overpay a player because said player's agent was telling your team "If my player X doesn't get a large deal, he's going to take the MLE on the table from (insert power team name here)." If the owners truly want more competitive balance with the new CBA, they'll stick to their guns on a flat 3-year/$15 million dollar MLE and prohibit luxury tax teams from using this exception.

The proposed new MLE should help the "have-nots" of the league compete with the "haves." Much is made about how the Miami Heat were able to put together their three-man superstar team while fitting all three players under the parameters of the existing salary cap. Because of these three large contracts, it will be hard for Miami to add complementary talent to their squad in years ahead. However, under the old MLE, Miami would be in position to spend significant money each year to add a new player (or players) to help Wade, LeBron and Bosh. Even if the Heat didn't win the title in year one, they still have perhaps a five-year window to work with. If the owners truly want competitive balance, they will not permit teams like the Heat to augment their star-laden roster with all sorts of new talent using the MLE.

Remember the Mo Williams story above? As a team located in a desirous locale (winning team, sunny and no State income tax), the Heat will arguably be able to attract a much higher caliber MLE player than the have-nots of the league. In years past, quality players such as Ron Artest and Antonio McDyess have signed with contenders under the MLE. The power teams have their choice of upper tier players and do not have to choose from the MLE scrap heap consisting of players such as Etan Thomas and Brian Cardinal. Thus the rich get richer under the MLE structure.

There is no need to focus solely on Miami. The Dallas Mavericks won a title last summer courtesy of the "Mark Cuban Money Laundering" operation that has been going on for a decade. Make no mistake, the Mavs were a great story line last year. However, it never would have happened without all the high-priced complementary players that Cuban has brought to his team, some of whom were the acquired using salary slots created by the MLE.

Give credit to Cuban. He's not afraid to run a large payroll, well in excess of the luxury tax, and you don't win a title without managing your roster shrewdly.  Since the early days of his ownership, he's worked every year to acquire salary "slots" and expand them. These salary slots can arise from giving large contracts in sign and trades (see Shawn Marion and Erick Dampier) or using the MLE to add players of varying pedigree (DeSagana Diop).  Often times it doesn't even really matter if the initial players Dallas acquires actually work out. What Cuban has done over time is create numerous large salary slots that he can later use in trades to find better complements for Dirk Nowitzki. Many of the key members of the 2011 Mavericks were obtained this way: Jason Kidd, Tyson Chandler and Shawn Marion among others all could be financially absorbed onto the Dallas roster under league rules. Where most teams struggle to make the salaries match in transactions, Cuban always has a huge cache of contracts both good and bad at his disposal to deal. Will eliminating the use of the MLE for this perennial luxury tax paying team stop him from wheeling and dealing? No. But it will at least put a nice speed bump in his way.

As a side-note, the owners are also proposing to eliminate the use of the Bi-Annual exception and "Sign and Trades" by tax-paying teams. Cuban has used these loopholes over the years to build the Mavericks, and for that Dallas fans should be grateful. But if the league wants to be serious about limiting the competitive advantage of luxury tax paying teams such as Dallas, these loopholes also need to be closed in the new CBA.

The proposed new MLE will save the owners--and you could argue also their teams' fans--from bad contracts. The union has made it clear that they believe much of the new CBA is only designed to prevent the owners from making financial mistakes. There is no question that owners in all size markets have dealt out some terrible contracts over the years. But do we need to encourage this by virtue of a system that invites such mistakes? As noted above, the MLE creates an artificial feeding frenzy at times for free agents who do not necessarily deserve such large and lengthy contracts. The end result is that dozens of terrible contracts have been handed out over the years via the MLE. Think about Brian Cardinal drawing a 6-year/ $35 million dollar deal from Memphis in 2004. Or the MLE contracts given out to Jerome James, Drew Gooden, DeSagna Diop, etc, etc. Memo to the players union: having guys like these under massive long-term contracts is not good PR for your side or the game itself, even if the owners willingly handed them out.

If you limit the teams that can use the MLE and lower the contract lengths to three-years with no raises, the league can avoid a number of these mistakes. Would this money come out of the players pockets? Not necessarily. If the players are guaranteed a certain percentage of BRI, collectively they will all be paid the same aggregate dollar total with or without a more generous MLE. If the MLE is limited, many of these contract mistakes will be minimized. Salary dollars would then get re-allocated to more productive players and should provide for a better on-court product. It will also allow teams to turn over their rosters more easily, as these limited MLE contracts will be easier to trade and contract mistakes will go away sooner rather than later.

We all know that the superstar-driven nature of the NBA will make NFL-style competitive balance unlikely--after all, there are only so many superstars to go around. But that only makes it more important for the league to level the financial playing field as much as possible. Overall, a very limited MLE (and restrictive BAE and S&T rules) should provide the league with potentially more competitive balance while at the same time helping to better allocate salary dollars to more deserving players. While this issue on its face seems minor in context to the larger BRI issue, it is a hill worth dying on for the owners if they truly want to gain some better competitive balance via "system changes." For the average fan in a small or mid-tier market, we haven't really gotten anything yet out of these negotiations that gives us hope of better competitive balance. Holding firm on the MLE would be a good start.