According to Mike Wells of the Indianapolis Star, reigning NBA Executive of the Year Larry Bird plans to return as the Indiana Pacers’ president. But once he is officially set to lead the franchise again next year, Bird reportedly wants to make a major change to the front office: replacing current GM David Morway with his former Celtics teammate Kevin Pritchard, who was hired as Pacers’ director of player personnel in the 2011 offseason.

The reason is reportedly more about Bird’s poor relationship with Morway as it is with his respect for Pritchard’s basketball acumen, although the two are presumably intertwined.

The relationship between Morway and Bird reportedly became strained when the GM failed to acquire OJ Mayo (in a sign-and-trade deal for Josh McRoberts) or Jamal Crawford (through free agency) before the season. In fact, according to Wells, the two now have “no relationship,” and Morway is a “soon-to-be ousted general manager.”

The final straw with the Bird-Morway relationship, according to those close to the two, came during training camp when the Pacers failed to land O.J. Mayo and then lost out on free agent Jamal Crawford – option No. 2 to be the team’s first shooting guard off the bench – on the same day.

The Pacers had agreed to a sign-and-trade deal that would have sent Josh McRoberts to Memphis for Mayo because the Grizzlies were trying to shed salary. Sources say it was Morway that caused the deal to “fall apart” because he pushed the Grizzlies to take swingman Brandon Rush. Morway did a lot of talking to teams and some of the negotiating. Bird would then step in and make the final decision.

Bird was seething over the blown deal, according to sources. He had lost any remaining trust in Morway after that.

Bird had tried multiple times over the years land Mayo, who he felt would be the one player on the roster that could get his own shot off the dribble.

To make matters worse, Crawford and his agent got tired of waiting on the Pacers to make a decision that they told them the same day the Mayo deal fell apart that they weren’t going to sign with them.

It also showed, as Bird was never really with Morway during the games.

Things were so bad that during the playoffs Bird took the coaching staff and training staff out to dinner on back-to-back nights during their playoff series against Orlando and brought Pritchard along and didn’t invite Morway, his general manager, sources say. It was Pritchard who often sat next to Bird during the games on the road while Morway usually sat several rows higher.

It was no wonder that Morway interviewed with the Portland Trail Blazers to take over as their GM, a position once held by Pritchard.. That job, however, went to former Los Angeles Clippers GM Neil Olshey. Now, it looks like Bird will return and Morway will be out of a job. Presumably, this will be the biggest “question” that Larry will have for his owner, Herb Simon, when they sit down soon (next week has been reported by Wells) to make Bird’s return official. And if Simon wants Bird to continue to be team president — especially for under-market pay — it would likely be a no-brainer for him to allow Larry to have complete control over who comprises the front-office team.

Today, in response to a report by Ken Berger of CBS Sports again claiming he is finished, Larry reiterated the fact that he has not yet made up his mind to Indianapolis Star reporter Mike Wells.

“Once again, no decision has been made,” Bird said by phone. “I’ll sit down with my owner at the end of the season and we’ll talk about things.”

I promise this will be the last report on this topic until Larry says something definitive.

A few weeks ago, NBA Hall of Fame scribe Peter Vecsey reported that this was definitely Larry Bird’s last season running the Pacers. Bird had already made up his mind, Vecsey’s source(s) told him. Larry denied the report, however, claiming that he had yet to make up his mind.

Now, Ken Berger of CBS Sports is backing up Vecsey’s report and it now seems overwhelmingly obvious that Bird is in fact done in Indiana’s front office.

Pacers president Larry Bird wants owner Herb Simon to plan for his departure after the season and has told several friends in the NBA that he’s decided to leave, two people familiar with the situation told CBSSports.com Thursday.

Bird, 55, had an agreement with Simon to remain team president through the end of the season and decide his future then. The Hall of Famer has been clear in conversations with friends that Simon does not need to wait any longer before formally considering candidates to replace him, one of the sources said.

Bird is said to be “100 percent” certain he’s leaving after the most successful season of the Pacers’ post-Palace brawl rebuilding, one of the sources said, but has been extremely guarded publicly about his intentions. The Pacers (42-24) have been one of the surprise teams of the lockout-shortened season, securing the No. 3 seed in the East and hosting the Magic in the first round beginning Saturday.

As we’ve written here previously, this isn’t surprising.

Bird has long said that he wanted to makes sure the franchise was back on good footing before he left a league that, at his age, he seems to no longer have a deep desire to be a part of. He had a three-year plan to right the ship. He was impressively patient in doing so, acquiring quality (mostly) young players on low-risk contracts. He cleared all the bad deals off the books and whoever is running the team in the future will have an enviable amount of flexibility to put their stamp on the franchise’s future. Meanwhile, the team will enter the playoffs on Saturday as the third best team in the Eastern Conference after having limped into the postseason last season with a losing record.

Yup, Larry has stewarded a team he coached to its only NBA Finals appearance 12 years ago into a new era of respectability. Given his role in creating the roster that brought a team that had reached such heights to such lows, I’m sure he is happy to be from under the burden of having steered the Pacers into the wrong direction. As it stands, there is no way to argue this team is not in a good place.

In the worst possible assessment, Larry stuck it out — probably longer than he wanted to — in order to fix what he broke. And that’s a level of personal accountability that it’s hard not to respect. So Pacers fans should now wish him the best — both in his post-NBA life and over the next few weeks as this team tries to exceed the expectations of even the man who built it.

As you may have heard, NBA players are still locked out. So there isn’t much going on in real news. But we know you guys need your Pacers fix, so here’s a list of links to marginally interesting goings-on from the past week or two that at least sort of relate to your fine team.

• Watch Al Harrington enter The Octagon and punch a reporter in the head in the the video above. (via Ball Don’t Lie)

• George Hill is going to play an game exhibition with a San Antonio ABA team called the Texas Fuel, but he has yet to make any plans to go abroad — something an increasingly large list of players is doing. Wilson Chandler, who signed to play in China despite not getting any opt-out clause to return to the NBA if the lockout ever ends, is the latest to head international. Oddly, so far, there are still no Pacers prepped to play overseas. And Magnum Rolle is the only player who has ever even been connected among the 41 guys on ESPN’s list.

• A lawsuit filed by a former nanny of Pacers owner Herb Simon is about to be dismissed from court, says the Associated Press. ”It’s hard to infer an anti-family, anti-pregnancy animus from Mrs. Simon when her whole history has been pro-child,” said the judge. The article also mentions that the judge added that Mrs. Simon “runs a foundation for orphans and she adopted the daughter of a sister who died and raised her as her own child even before she married Simon.” I did not know that.

• The four Pacers jerseys every fan must have.

• In related news, today is your final day to bid on an autographed Providence Friars warm-up jacket signed by former Pacers/Friars legend Austin Croshere.

• “Is Reggie Miller to Save Indiana Again?”

• Ron Artest will reportedly be on Dancing With the Stars. Meanwhile, he must pay some outstanding traffic tickets before the state of California will allow him to rename himself Metta World Peace. It should be noted that the Sacramento Bee’s headline for the article I learned this in (“Artest Remains Player to be Named Later”) is tremendous. He is going to change his number to 70 though, traffic violations or not. For the Universe.

• Donnie Walsh isn’t scared of being bored when he retires, saying “Who the hell knows how I’ll fill my time … I’ll fill it, though, I guarantee that.”

• Eddie White talks with Todd Taylor, the Pacers chief marketing officer / chief Sales officer / senior vice president / unofficial guy with too many titles.

• Conseco is the second best arena in the NBA.

• Perhaps the five best Pacers small forwards.

• Indy Cornrows: Now available on your iPhone.

Former Rick Carlisle assistant with the Pacers/Cavs head coach/LeBron yes man Mike Brown, Pacers legend/rifle aficionado Chuck Person and former T-Wolves coach with a lifetime .434 record (53-69 in two years with Minnesota)/misspelled first name Dwane Casey are all in the mix. But it sounds like the billionaire who will be paying the coach’s salary likes the young fella.

[Pacers owner Herb] Simon is a big supporter of Vogel because he got the players to play hard, something that wasn’t always the case with Jim O’Brien. But it’s Bird’s call on who he wants to be the coach.

Vogel helped his chances when the Pacers competed in four of their five games against the Bulls.

Vogel will have to tighten things up with the players. Practices were too loose at times. That’s not good for a team that has a lot of young players.

Vogel doesn’t need to become an O’Brien clone, just make sure the players are focused when they need to be.

As noted, Bird will make the final decision but it can’t hurt to have a vote of confidence from Simon.

Know what else can’t hurt? This Stupid Human Trick he first performed as a eighth grader on Late Night With David Letterman. Hopefully he will break this one out during his interview. Should put him over the top. (Vogel comes on at the 5:04 mark)

Seriously though, Danny Granger or Mike Wells or someone needs to find out if Frank can still do this and, if so, encourage him to reenact this. It’s easily now my second favorite NBA-related appearance on Late Night in the 1980s after MJ’s wonderful interview in a track suit. (video via @HicksPD … h/t Ziller)

In the Simon piece, I included the rather dramatic visual above that shows how much NBA teams spent last season in relation to how well they performed. As you can see, the more teams spent, the better they seemed to do.

This is one of those “Wow!-Golly-Gee-Whiz!” pictures that always makes me nervous. There’s always the danger of a “misleading vividness” fallacy. Essentially, it is accurate, for what it shows, but may or may not be “true” in the broader discussion. Normally, I prefer looking at data over a longer period of time to see if a trend holds true. In this case, I only had the one year, and the point is fair, if incomplete.

To flesh this out a little, I went back and grabbed payroll information for the three seasons prior (2006-07, 2007-08 and 2008-09. I used Basketball-Reference.com for this. That site’s info is slightly less trustworthy than Shamsports, but I don’t think it tells us any lies. Any variations/inaccuracies are immaterial to the big picture.)

(All Chart Figures in Thousands US $)

It would have been nice for my point (but bad for the Pacers’ hopes of contending under the tax threshold) if the three previous years had shown the same startling steps up and to the left as the 2009-10 season showed. They did not, but they do show a troubling trend.

The scales on these are all the same, going from $50 million to $90 million. The first thing to notice is that the graph is taking up more vertical space, meaning more dollars are being spent.

The second thing to notice is that bars are “sliding to left.” Arguably the 2009-10 chart is the continuation of a cycle. In 2006-07, Pacers owner Herb Simon’s restriction on exceeding the luxury tax threshold seemingly did not preclude contending at a high level. Only two of the final eight NBA teams left standing near the end of the season — and just one of the final four playoff teams — paid the luxury tax that year.

The next year, however, there were four taxpayers in the final eight, and three of the final four. And in 2008-09, that jumped to five of eight (although it dropped to only two of the final four). It peaked last season with seven of the final eight teams being taxpayers, including all four of the Conference Final teams.

But that’s not the whole story. There are some other things to note about the prior years.

First, we need to talk about the Knicks a bit.

You will see that I put two bars (the two furthest to the right) in the “Lottery” section for the first three years — one with the Knicks and one without. I did this because New York’s payroll (and behavior) was arguably insane relative to the rest of the league.  This can largely be explained by two words: Isiah Thomas. Over the first three seasons shown here the Knicks’ combined payroll was $310 million. This is $25 million more than second-place Dallas, which is run by the almost equally nutty Mark Cuban. (According to Forbes, Dallas had over $50 million more revenue than the Pacers last season, yet still lost almost $8 million.) Moreover, the Zeke-led Knickerbockers outspent third-place Cleveland by a stunning $74 million. Indiana had the 14th-highest payroll during that three-year period and were outspent by $111 million.

The second factor to pay attention to is spending after success.

The Cleveland Cavaliers made the finals in 2007 with a payroll of $63 million. That was the final year of LeBron James’ rookie deal, and the man who almost-single-handedly carried them within four games of the championship made only $5.8 million for his services that season. The Cavs payroll the next two years? Oh, it was $82 and $91 million, respectively. Last season, it was $85 million.

The Los Angeles Lakers lost in the 2008 Finals with a $72.6 million payroll, then won the 2009 title with $78.2 million payroll.  Though they were still taxpayers in both seasons, their spending was artificially depressed by Andrew Bynum’s rookie contract. He was paid just $2.1 million and $2.8 million in those years, respectively. In 2010, his salary jumped to $12.5 million, then again to $13.7 million this year as the payroll for a champions skyrocketed above $90 million.

Lastly, the Orlando Magic went to the Finals in 2009 as a non-taxpayer (with a payroll of $70 million). Falling short of the ultimate goal, they have increased their title push the last two years, spending progressively more money while becoming progressively less successful. The Magic spent $82 million in 2010 to lose in the Eastern Conference Finals. This year? They spent a just hair under $90 million for a first-round exit.

The trend since 2007 has been for more spending to be necessary to reach higher levels of success.

However, in 2010-2011, the picture indicates a step back in that regard.

Clearly, the playoffs are still going on, so we can only extrapolate based on those teams we already know are in the lottery, those eliminated in the first round, and those still playing. A sizable gap remains between the payrolls of those teams that made the the lottery and those that the playoffs. But the spending of the squads that made playoffs are much flatter. So far, there is little difference between the payrolls of those who were bounced in round one and those who still have a chance at the title.

But again, there are some significant things to consider here.

First, we’re coming off the “Summer of LeBron.” Teams had been targeting the free agent class of this past summer for years. And they rearranged their payrolls accordingly. Maybe they couldn’t get LeBron or Dwyane, but many teams were committed to at least go down swinging if they missed out. As a result there was a significant decline in salaries leaguewide. However, there’s plenty of indication that this is a short-term dip.

Consider Miami, Chicago and Oklahoma City: the three lowest-payroll teams still playing (and three of the four lowest payrolls among all of the playoffs).

Miami was the “big winner” in last season’s LeBron/Dwyane sweepstakes. To do that, they had to completely gut their roster and drop to almost no payroll. They have $43 million of their almost $67 million payroll tied up in James, Wade and Chris Bosh. Within two seasons, the salaries of those three alone will grow to over $52 million — and they have a stunning $68 million already committed to only six players for that 2012-13 season.

Chicago also cleared tons of cap space for last summer and were only marginally less active in the free-agent market. They added Carlos Boozer as their big name, but still fielded the only playoff team with a payroll below the salary cap (yes, cap, not tax threshold) at $55.6 million. They owe this feat to rookie contracts. The 2011 MVP Derrick Rose made only $5.5 million this season while their best big man, Joakim Noah, made $3.1 million. That, too, will change in the next two seasons.  Noah’s extension bumps him up to $12 million next year, and Rose will certainly become a max-contract player the season after. In two years, they would have about $54 million tied up in four players.

Finally, Oklahoma City’s payroll checks in at slightly over $58 million, and you should all know the answer to their “spend-thrift miracle” intuitively: rookie contracts. The Thunder pay Kevin Durant, Russell Westbrook, James Harden, and Serge Ibaka — their four leading scorers so far in the playoffs — less than $16 million combined. However, Durant’s max extension kicks in next year, and he goes from a salary of $6.1 million to $13.6 million. Westbrook and Ibaka will come due for a raise the year after that. It’s little wonder that “how are they gonna pay all those guys?” is a common refrain when looking at the Thunder’s future.

These three teams, as well as the Cleveland, L.A., and Orlando examples above, represent the “pay me now, or pay me later” nature of the current CBA. Under the current CBA or something similar, these teams that are currently both successful and frugal will soon either become taxpayers — or cease being successful. There’s not really a realistic third outcome.

In the five-year period I have studied, only two teams have made it out of the first round more than once without paying the luxury tax at any point in the five years: Chicago (in 2007 and 2011) and Atlanta (in 2009, 2010 and 2011).  We have already discussed Chicago. And Atlanta is staring down the barrel of the tax next year, with $66.7 million already committed to only seven players.

Given the specific roster makeup of most of the more successful non-taxpayers (flush with premium players and/or rookie contracts), it seems to me that Herb Simon’s commitment to spending up to the tax threshold is not sufficient to field a contender under the current rules.

(This article has been updated since its original publication to aid clarity.)

The itch comes from the fact that I have a perspective and opinions, and I think they’re ones that get somewhat under-represented in the conversation being led by NBA reporters and the NBA blogosphere.  By training and trade, I am a financial and operational analyst with about 20 years of experience, and tend to instinctively look at the NBA as a business, not a game.

The avoidance comes from the recognition that I don’t have anything approaching enough information or data to make a fully informed opinion.  The discussion has been broad, but not very deep.  The available financial information is pretty limited.  The kinds of questions I would need asked and answered to give a “complete” opinion dive deep into proprietary or closely held data.  This doesn’t prevent me from having opinions, it just forces me to keep in mind that the opinions are based more on assumptions than hard facts.

Honestly, virtually everyone out there who is writing or speaking on this topic — with the possible exception of Larry Coon — is guessing to one degree or another. To this point, the urge to avoid has outweighed the itch.  With the topic starting to heat up, and the subject broached in the Simon piece, it’s probably time to lay out what I have.  This will consist of some data, some experience, and some opinions.  It is not meant to be a prediction, nor is this a conclusive document by any stretch of the imagination.

Consider it a conversation starter.

Except for All Those Others That Have Been Tried

What really opened the can o’ worms in terms of my thoughts on the new CBA was the following paragraph:

Personally – and I know this is somewhat oversimplified -  I’d consider anything short of a hard cap with significant restrictions on guaranteed contracts disappointing.  Players would hate to hear this, but I’d actually prefer a lockout that achieves these goals – even if it costs the full season – to no work stoppage and an agreement that hasn’t materially changed from the current one.

When I look at the new CBA, I see it as a chance to address two basic conditions:  competitive balance and small market economic viability.  A hard cap affects both.

To paraphrase Winston Churchill, a hard cap is the worst mechanism for competitive balance, except for all those others that have been tried. To understand that, It’s important to clarify the difference between “competitive balance” and “parity.”  They are not the same thing.

Competitive balance is a market condition where no business is too big or has an unfair advantage.  Parity is equivalence.  The first is attainable, though difficult.  The second is practically impossible and probably undesirable.

You can’t worry about the end results when you’re trying to establish competitive balance.  You must worry about the starting point.  The best starting point is one where a well-run basketball organization cannot be trumped by deep pockets.

It is a fair question as to whether competitive balance and small market viability is really in the best interest of the NBA, but let’s leave those aside for a little bit.  If you want competitive balance, you must realize that you cannot lift everyone up to the same level — as admirable a goal as that may be.  To put it bluntly, you have to cut off the top.

Of course, the hard cap is probably just about the last thing that the NBAPA would like to see, because it would have a decidedly deleterious effect on guaranteed contracts, which are not required under the CBA.  That’s right.  Guarantees are only required in specific limited instances such as the rookie contracts and the first year of sign-and-trade deals. However, they are standard features on contracts in today’s market.  What’s more, they’re probably more important to the players than any other issue.

Consider these comments from Union Chief Billy Hunter:

The union has argued for a revenue deal similar to the current one, while rejecting the idea of a hard cap. Hunter says a hard salary cap would effectively end guaranteed contracts which he calls “the lifeblood” of professional basketball.”We’ve had that right for years, and it’s not something we’re trying to give up,” Hunter told ESPN.com on May 21.

Hunter is right.  Guaranteed contracts and a hard cap aren’t quite mutually exclusive, but they’re hand-grenade close enough.   With rare exception, no team is going to lock itself into long-term deals that don’t have any outs, for fear of finding themselves up against the cap and unable to re-sign a key player or a draft pick.  Under a hard cap, contracts are likely to migrate more towards NFL style arrangements, with signing bonuses that operate as de facto up front buyout agreements.

It is this issue that will precipitate the lockout, but it is one that I believe the owners will win, provided they commit to it.  After all, as Henry Abbott notes, there is already a league wide hard cap at 57% of revenue.

Sidebar Update – In the midst of reviewing this, Zach Lowe of SI.com’s The Point Forward reported that the NBA’s current proposal included a ban on fully guaranteed contracts, but no comment on a hard cap.  Rather than restructuring the entire piece, I’ll include what he says here:

Sources also said the league’s proposal would ban fully guaranteed contracts. All contracts would have limits on the amount of money a player would be guaranteed to receive, and those guarantees would decline during the life of each contract. In other words, a player making, say, $5 million per season over four years would actually be guaranteed less than $5 million in each of those four seasons — and the amount guaranteed would drop each season. The idea is for teams to be able to get out of undesirable contacts more easily and avoid ugly, Eddy Curry-style buyout talks.

Sidebar Update 2 – ESPN’s Mark Stein reported that the owners are proposing a hard cap, but not right away.

The proposal from NBA owners that the NBA Players Association rejected last week called for the implementation of a hard salary cap at a figure lower than the league’s current cap, but not until the 2013-14 season, according to sources familiar with the offer.

Sources told ESPN.com this week that the central change made by owners to past collective bargaining proposals called for easing in a more restrictive financial landscape over a three-season cycle as opposed to trying to impose a hard salary ceiling with immediate effect next season.

The league, sources said, regards this as a major concession, since the next two seasons would employ a salary-cap system with luxury-tax penalties not unlike the system currently in place. Teams currently operate with a salary cap of $58 million per franchise, with a dollar-for-dollar luxury tax imposed for every dollar teams spend over the tax threshold of $70.3 million.

Sources said the owners’ latest proposal, however, does still call for immediate rollbacks of 15 percent, 20 percent or 25 percent to current contracts depending on salary levels, as part of the league’s oft-stated desire to reduce payroll by roughly $800 million leaguewide on an annual basis.

The NBA’s ongoing push for such sharp salary reductions, sources said, is what caused the quick rejection from the players’ side, with the union also still determined to oppose a hard cap.

I remain convinced that the hard cap is the best — actually the only — way to create some sort of competitive balance.

Let’s look at some of the other ideas one by one.

Luxury Tax: It Doesn’t Do What You Think It Does

A luxury tax – no matter how aggressive – does not promote competitive balance, it discourages it.  It actually increases the gap between the haves and have-nots.

Consider this: over the past five years, the payroll figures I have indicate that the Mavericks have paid something on the order of $112 million in luxury tax, and the Knicks paid about $106 million – to win an average of 32 games per season.  If you create an avenue to spend more money, somebody will spend it.

Further, what’s the sense of a luxury tax?  What value does it add?  It’s meant to control spending, but it actually only does it on a very limited basis, very indirectly, and it does it to teams like the Pacers who already have financial constraints.

It doesn’t bring any more money into the NBA community.  It’s right pocket to left pocket, and it still leaves an avenue for richer teams to “buy the pot.”  Additionally, it inflates the market for players – at least marginally – because there is no actual constraint on spending.  Further, the ones who don’t bat an eye at paying the tax are also the ones who have no problems giving mindlessly stupid contracts to the likes of Eddie Curry or Brendan Haywood.  And those contracts make all of the other contracts more expensive.

Revenue Sharing: Right Pocket, Left Pocket

Revenue sharing has its place, but not in the discussion for competitive balance.  Revenue sharing does very, very little — at least not directly — for that cause.  Using revenue sharing in this regard is the attempt to “lift everyone up” that I noted earlier as likely being doomed to fail.

The drum I will beat is one of NBA unity.  The league and the franchises must recognize their inherent connections, and that means that all the teams affect both the national and the local revenue for each team.  The local revenue is in part a product of being a member of the NBA, and part should flow back into the NBA community.

It is not communism, socialism, or anything remotely approximating; it is simply enlightened self interest.  Whenever I watch owners in the same sport doing things that inflict financial harm on their colleagues, I think of the following exchange between Bart and Homer in The Simpsons’ “Lard of the Dance” episode:

Homer Simpson: Okay, boy. This is where all the hard work, sacrifice, and painful scaldings pay off.
Employee: Four pounds of grease … that comes to … sixty-three cents.
Homer Simpson: Woo-hoo!
Bart Simpson: Dad, all that bacon cost twenty-seven dollars.
Homer Simpson: Yeah, but your mom paid for that!
Bart Simpson: But doesn’t she get her money from you?
Homer Simpson: And I get my money from grease! What’s the problem?

The Players Association champions revenue sharing, but primarily because it moves the discussion away from things they don’t want, like hard caps and rollbacks.  However, even if it does more than I think to help competitive balance, it does little or nothing at all to address the league’s biggest problem — which is the NBA as a whole is losing money.

I don’t really have a deeply developed point of view on revenue sharing, other than to believe at least some measure more is necessary, and that sharing insufficient revenue will just share the pain, as opposed to spreading the wealth.  Therefore, I’d direct you to Graydon Gordian’s reportage on the Sports and Labor panel at the Sloan Conference, and this thorough discussion of Revenue Sharing and the NBA by Dave over at BlazersEdge.

One important note about revenue sharing: it is not part of the CBA discussion.  It is a league matter to be decided among the owners.  The players have no say in it.  None of that money comes out of their pockets, which is why they keep hawking it so hard.

Large Market/Small Market: Bright Lights, Big City

There was concern about a hard cap resulting in a migration of young talent from small markets to glitzy big markets.  Well, that may happen, but my opinion on that is, “Oh, well.”

Indianapolis will always be at some sort of disadvantage to cities like New York, L.A., and Chicago.  The problem with all of the things that we’re told benefit small market teams — bigger raises  for “home” team, Bird exception, rookie scale contracts — is that big market teams get those benefits, too.

Look, all those “home team” advantages didn’t help Cleveland with James or Toronto with Bosh.  They left to go to Miami only in part because of the lifestyle.  The biggest factor was Pat Riley, and the belief that it would be a well-run organization where they could play with great talent and win.  South Beach was just the icing on the cake.

Kevin Durant signed a max extension not because he got X% more or an extra year or any of that by staying there.  If he’d wanted to leave, he would have likely ended up getting that max through a sign-and-trade deal (like Bosh and James got their extra years).  Durant signed because he was in an organization he believed in.  Westbrook, Ibaka, and Harden will do the same.  If someone is going to leave a well-run organization to go to a big city, then he’s got different (not better, not worse) priorities and will figure out how to do that regardless.

Granted, the comparison of Kevin Durant to the Chris Bosh/LeBron James scenarios is a little bit of a stretch.  Durant was coming out of his rookie contract, and Oklahoma City would have had right of first refusal, which is a powerful tool.  Still, if you look back at the summer of 2006, when James and Bosh signed their extension, you could infer some lack of faith in their organizations by their insistence on three year deals.  The overall point holds, and we’ll discuss it more in the next section.

A hard cap will limit the spending of the rich (or the reckless) to the same level as the less wealthy (or the fiscally prudent).  It’s up to the Pacers and the Bucks and the Thunder and the Hornets to put together a well run organization that will allow these players to have confidence and stay with their franchise.

Franchise Tagging: Tag. You’re It

Another mechanism that has been floated that would supposedly help small market (but really all) teams keep their players is the idea of a “franchise tag.”  Zach Lowe of  SI.com’s The Point Forward reported on a form of this that has been included in the NBA’s latest offer:

The NBA proposed to the players’ union last month a version of the “franchise tag” that it wants to include in the next collective bargaining agreement, according to sources familiar with the matter.

The tag, however, would be very different from the NFL’s version, which allows a team to essentially block one of its free agents from entering the market by binding him to his incumbent team with a one-year contract that carries a high salary based on various parameters.

The system the league has presented would not work this way, according to sources. Instead, a team would be allowed to designate one player for preferential contractual treatment, including more overall money, more guaranteed money and at least one extra year on his contract. A player would have to agree to such a designation. It is designed to work as an incentive to get a player to remain with his team rather than as a roadblock to free agency, the sources said.

Take the situation between the Cavaliers and LeBron James one year ago. Under the league’s proposal, the Cavaliers would not have been able to unilaterally “tag” James a franchise player and bind him to the team for one more season. The Cavaliers would have been able to offer James various enticements he may not have been able to get from other teams, the sources said.

This is really just augmenting the current “home team” advantages.  It seems unlikely to me that it would have materially altered the events of last summer, or even the events of this past February, when Utah and Denver dealt their stars (Deron Williams and Carmelo Anthony) under the cloud of losing them for nothing.

Again, if someone wants to leave, they’ll figure out a way to leave.  Last summer, after the decision was made, we heard from several past NBA greats decrying LeBron’s move on the grounds of competition.  Pacer GM and Celtic Great Larry Bird said himself that he would have never wanted to team up with Magic.  However, every time he said that, he also said, “but I always knew Red (Auerbach) would put me in a position to win.”

Really, the only sustainable competitive advantage a team has is their ability to create an internal culture of winning and professionalism.  In my mind, if you give the Pacers a level playing field (hard cap and economic viability), then it’s up to them to create and maintain that culture.  That will be far better protection than any franchise tag or “designated player” system.

Small Markets: Because They’re There

Pacer fans reading this have an intuitive, albeit selfish, understanding of why things like competitive balance and the economic viability of small market are important.  However, it is also easy to understand why fans in cities like Los Angeles and New York would wonder why they should care.

Here’s one point of view from Ethan Sherwood Strauss:

2. The NBA needs small markets to thrive

After all, that’s why the NFL’s great! I feel like this is the “correlation is not causation” fallacy. Just because football thrives in Green Bay, doesn’t mean basketball should try its hand in places that lack eyes and ears. In particular, small Southern cities are a perpetual leaden kaboose, tethered to the sputtering NBA gravy train. Why is it virtuous to lose money in apathetic, unprofitable markets? If a small city like Portland turns out for its team, that’s fantastic. I just don’t see the numbers in prosthelytizing to some of the other, NBA-neutral towns. And I see even less sense in bending the rules so as to favor the relative boonies. The league needs a Grizzlies vs. Hornets playoff series or it will die?

It should be noted that the above paragraph was actually in a piece designed to argue against franchise tags, and as outlined above, I agree with him on that.  However, it seems that the question either hints at a deeper antipathy, or could at least be used as a proxy for the basic question of whether or not the survival of smaller franchises even matters.

The most basic answer is, “it matters because they’re there.”

The NBA is really a single entity, and while the teams are competitors on the floor, they are partners on the books.  They are all connected.  And since they are all connected, what affects one team affects all to one degree or another.

When I say basic, I mean, really, really basic.  In other words, I’m taking what amounts to a default position.  The NBA is a franchisor and for-profit business, and it’s goal is to make profit for it’s owners/shareholders.  In that case, it has 30 franchisees, then my core assumption is that it needs each franchisee to be profitable — or at least viable.  Failing franchises can only hurt the brand, and that’s why most successful franchisors have strict standards about which franchisees they select, and how those franchises are operated.

Therefore, the basic assumption is that it is in the best interest of David Stern, the NBA, and eventually, the Knicks, Lakers, Bulls, etc. that the Pacers, Bucks, Hornets, and Thunder all have sustainable economic viability.  There seem to be two ways to drive this.

The first is to create an environment where all 30 franchises can realistically field competitive teams, and during the virtually unavoidable down times, can offer their fan base (customers) the realistic hope of turning things around.  Again, a hard cap takes the surest steps towards this by (a) leveling the playing field and (b) actually creating cost containment franchise by franchise.

The second is to basically create something of a welfare state, with extremely aggressive revenue sharing that flattens out the revenue curve.  In this instance, teams like the Knicks and the Lakers would effectively subsidize teams like the Hornets and the Pacers.  The basketball risk is that teams like the Pacers could possibly become the NBA equivalent of the Washington Generals.

It’s really at this point where the lack of hard financial data affects the discussion.  I’m not fond of the second choice – not just because of its potential impact on the Pacers – but primarily because it closes the universe to a degree.  It cuts off potential outside revenue in the lesser markets by making them irrelevant.  However, it’s not out of the realm of possibility that the best way to maximize NBA revenue would be to do just that.  It is possible that there is more potential revenue in an NBA where New York, Boston, L.A., and Chicago are perennial contenders with cameos from the also rans, than one that sees a revolving door at the top.

Intuitively, to me, that seems both unlikely and a bad business model.  Besides, if that were the case, you’d have to question the need to have 30 locations at all.

Contraction: Do They All Need to be There?

The topic of contraction has been kicked around over the last few months, mostly as little more than an unenforceable threat being used by the owners to scare the players into line.  However, given the difficulties facing so many franchises, it should be considered.

Personally, I was not a fan of the expansion over the last two decades, and I was a relatively vocal proponent of contraction until recently.  My primary reason was that I thought expansion diluted the talent pool and quality of play.  The height of my ardor for this came in the late ’90′s and early ’00′s.  It cooled considerably once it became readily apparent that the Pacers would or should be at or near the top of the list of teams to contract.

I still believe that contraction would be good for quality of play, but I am not eager to see the Pacers cease to exist.

Still, contraction would ultimately be a financial decision, and here are some of the major concerns to be addressed:

• Destruction of Value – According to Forbes, the Milwaukee Bucks are the least valuable franchise in the NBA at $258 million.  The New Orleans Hornets, who were recently taken over by the NBA and have been the subject of conspiracy theories regarding contraction, are valued in the same report at $280 million.  That’s a pretty big asset to destroy.  Who absorbs the loss?  What impact does it have on the valuation of the other franchises?

• Customers aren’t portable - There are two obstacles to the NBA retaining a significant number of fans in a city from which a team has been eliminated.  The first is geographic, meaning that fans in Indianapolis would quite simply not be able to buy tickets and attend games on a regular basis, and there’s not likely to be a material increase in attendance/interest in the remaining cities.  The second, and by far most important, is tribal, for lack of a better word.  Most fans across the NBA are fans of (Insert-Team-Name-Here), not the NBA, per se.  As with all sports, the popularity has much, much less to do with the individual characteristics or beauty of the game itself, and much, much more to do with connections to players or community.  Without a “dog in the fight”, the majority of the fan base in a city like Indianapolis will simply follow something else, and the NBA will largely go dark.

• Impact on National Television Contract – If contraction of the teams means contraction of the fans – which seems entirely likely – then it probably also means contraction of TV money.

Those are just three things that would fall into the “shut down cost” category to be considered in making such decisions, but there would certainly be benefits or offsets.  I don’t have access to anything approaching enough information to do those calculations.  It is well within the realm of possibility that contracting several teams would be in the best long-term interest of the NBA as a whole – both on the court and on the books.

A very simple rule of thumb is that once a business/location begins to consume cash, and it is reasonably expected that all future operations will be a net consumer of cash, it’s time to shut it down.

Based on what I can see, the Indiana Pacers have been consuming cash for years.  Anything short of drastic changes in the CBA which alter the economics of running an NBA franchise would lead me to conclude that this will be a semi-permanent state for this franchise in this city.  There may be hope of positive cash flows occasionally, but not consistently nor enough to offset past and future negative cash flows.  As an analyst looking at a normal business, I would tell you that either relocation or contraction within the next decade is the almost inevitable fate for the Pacers.

But this isn’t really a normal business.

An NBA Franchise Is Not a Yacht

In one of the many hours that I have had the television on as background noise, I heard the following comment attributed to Clint Eastwood:

The problem with making movies as an art is that it’s too much of a business.  The problem with making movies as a business is that it’s too much of an art.

There is no question that the same basic conundrum can be applied to the NBA.  This isn’t making widgets or Quarter Pounders.  Teams can’t insure consistent quality of inputs (players, talent) or outputs (play, wins/losses).  Providing a “good product” (winning team/contender) requires a great deal of skill, a great deal of luck, and some measure of witchcraft.

Or … another way is to just throw a great deal of money at it.

One theory that is being more consistently (and insistently) advanced is the idea of sports franchises as hobbies for the rich.  Here are a couple of different examples:

First, Timothy Varner of ESPN and 48 Minutes of Hell:

Increasingly, I think the NBA needs more owners like Mark Cuban and less like George Shinn, the former owner of the New Orleans Hornets. Owners whose wealth is not inseparably tied to the the financial health of the NBA or their respective franchise. The NBA needs owners who are willing to take on a franchise as an insanely expensive hobby.

This is not to say that every NBA owner should have the same net worth of Mark Cuban. But we should be realistic about what’s going on here. NBA teams are as much a hobby as they are a business. – Is Sports Franchise Ownership a Hobby for the Rich? March 4, 2011 ESPN True Hoop Blog

Now, Henry Abbott, patriarch of True Hoop:

In the decades after the purchase Miller noted that it was among the worst of his investments, in terms of cash, although it brought him great personal satisfaction.

At the moment the league has something like $54 million in annual revenue sharing. Not all that much, in a league that spends about $2 billion a year in player salaries. Essentially the league has said, to people like Miller: If you want to put a team in Salt Lake City, that’s your business. Literally. Your money to lose, or your money to gain. But don’t expect the busy concession stands in New York, Los Angeles and Chicago to supply the cash to rescue you if things take a bad turn.

I have heard people say that by conventional analysis, New Orleans does not have the wherewithal to support an NBA team. Sacramento is wrestling with arena issues. There have been worries in the past about places like Oklahoma City and Memphis. Teams have failed, of course, in Vancouver, Seattle and elsewhere.

Nobody is saying those cities should not have NBA teams. But the de facto model has been: Find yourself an eccentric billionaire who is ready to spend beyond all sense. Then you might have a chance.

And it seems to be working, as a way to get basketball in front of people outside the biggest cities. The NBA is present in plenty of mid-size markets, and teams like San Antonio and Oklahoma City are competitive, with a shot at profitability.

But the moment big-market owners are seriously on the hook to cover the losses in small markets, aren’t those owners – the ultimate sources of power in the NBA – going to get very choosy about where the NBA has teams? Wouldn’t that be the final nail in the coffin for cities like Kansas City and Seattle, that have so-so financials, who are trying to get in on the action? Oklahoma City appears to be a success story, thanks to a rabid fan base, but would a team ever get approved in a market that small in a world where the other owners had to cover losses? – Share Revenue, But Not Too Much October 21, 2010 ESPN True Hoop Blog

Both of these relatively accurately represent the reality of the current situation, and I do agree with Tim Varner’s point that an owners wealth not be inseparably tied to the financial health of the NBA or their respective franchises.  Owning an NBA team will not and probably should not be ever viewed as a normal business investment or held to the same standard of return on investment.  For all of the owners, there are soft returns such as personal enjoyment, prestige, and standing in their community.  There will always be at least some portion of franchise ownership that will be an exercise in vanity – a hobby if you will.

Where I differ greatly with Tim and Henry is in their conclusions.  What I infer from their writings is that this is not only an almost unavoidable fact, but also desirable.

Look, I have taken positions throughout this tome that are based only on some facts and assumptions.  All of them are subject to change, if given certain information that renders them incorrect or meaningless.  However, the following is a position that I can conceive of no realistic way that I could be convinced to change:

Treating NBA (or any sports) franchises as an expensive plaything for rich people is not only ultimately destructive to the NBA (or any league), it is also a bone-crushingly stupid business model.

The NBA is a business, and it needs to conduct itself as such.  To do that, they need to put each franchise in a position to be viable on an operational basis alone.  No sensible franchisor would adopt a strategy that says, “Hey, I know this is a bad location for my chicken joint, but the franchisee is rich and stupid, so he’ll keep it afloat.”

That thought process is utterly senseless.  It is predicated on the belief that there will always be an available billionaire with money burning a hole in their pocket.  It’s almost an intentional choice to create a bubble, and all bubbles eventually burst.  The league has been able to attract owners over the past decades because there was always the safety net of the increasing value of the team itself.  However, that’s been in decline, and Charlotte was sold at a loss within the last two years.

In his revenue sharing piece, Henry talks about wanting owners to “feel the heat,”  but how do you put heat on an “eccentric billionaire who is ready to spend beyond all sense?”  What part of being willing to spend beyond all sense guarantees that this “eccentric billionaire” isn’t the one that is corrupting the market?

It is a mistaken assumption that the market is set by the best and the brightest.  It’s actually set by stupidest surviving player – or the risk presented by the stupidest or most reckless player.  It’s why most rules are designed to restrict someone’s ability to do harm.

It’s also one of the reasons that I disagree with Tim Varner singling out Mark Cuban as a desirable owner.  It’s my opinion that an owner like Cuban is potentially much more destructive to the NBA’s long-term viability than, say, Donald Sterling.

Over the five years of payroll information I pulled,  Cuban’s Mavericks have spent $571 million in payroll and taxes.   Only Dolan’s Knicks ($568 million) were close.  He spent $97 million more than the two-time Champion Lakers, $158 million more than the 2008 Champion Celtics, and $215 million more than the 2007 Champion Spurs.

During that time, he paid Erick Dampier $44 million and Jerry Stackhouse $23 million.  Keeping in mind that my study started with the 2006-2007 season, it should be noted that he paid almost $35 million to Michael Finley – a player who hasn’t suited up for the Mavs since May of 2005.

This can’t possibly be behavior that we want emulated.

I realize that people will reflexively scoff at this criticism of Cuban.  The Mavericks, after all, have just swept the Lakers and could be headed towards a title.  They’ve won 50 or more games for 11 straight years…but that’s what makes Cuban such a threat.  He’s had success, but it’s probably more attributable to the presence of Dirk Nowitzki and the profligate spending of money than actually running the team well.  He basically writes more checks to paper over any mistakes or failed experiments they’ve tried.

None of this was done profitably, rather through leveraging Cuban’s wealth and his willingness to spend it – and that distorts the market.

Henry Abbott had a slightly different take on ownership-as-a-hobby when writing about a couple of lawsuits filed against Cuban:

In recent months we’ve had the Bobcats sold at a loss, the Jazz owner saying almost any other investment the Miller family would have made would have been more profitable, as well as steep discounts on tickets in places like Minnesota and Washington. The Cavaliers, despite having one of the biggest stars in the sport, LeBron James, at a below-market contract, are said to be close to break-even. And even though the economy is weak, meaning it’s not an ideal time to sell, nearly a third of the NBA is either on the market or has recently changed hands, which tells you something about how those on the inside are projecting the next few decades.

Who cries for the owners? Nobody. But as fans, we want a league where teams can be run competitively as businesses, not just as hobbies.

All of which leads, of course, to the ongoing talks between the league and union about the next collective bargaining agreement. What is the main lesson of Perot’s lawsuit against Cuban? “It validates,” says Postolos, “David Stern’s argument about needing a new CBA.”

You never know whose numbers to believe, but the evidence is mounting that the owners may have strong reason to drive a very hard bargain with the players. The players union is coming up with a proposal of its own for the next collective bargaining agreement. I hope that takes the realities of 2010 into account. – Mark Cuban vs. the Bottom Line May 14, 2010 ESPN True Hoop Blog

I’ve bolded what I really want to emphasize.  Beyond the basic business reasons, we as fans must understand that we are stakeholders in the game.  Its success and viability are crucial to us.  We can only exert influence through our buying power – both at the gate and in terms of products that advertise on the NBA.

If it’s just a hobby, then isn’t it OK for the owners to do whatever they want with it?  It’s OK for Cuban and Dolan to spend like drunken sailors.  It’s OK for Donald Sterling to just sit there, put out a bad product and siphon off the profits.  It’s OK for the Maloofs to move the Kings to where ever they damn well please.

If it’s a hobby, then the basic seller-customer relationship changes.  It is no longer the NBA and its owners selling a product to us as fans.  The NBA remains the seller, but the owners become the customer, and the fan becomes less relevant.

Treating it as a business and not a hobby brings a much needed degree of rationality to the process.  It removes a layer of variability from an already difficult and speculative venture.  It potentially takes pressure off both owners who actually would prefer to be fiscally responsible, and it takes pressure off the cities that host them.  It’s better for the long term valuation of the franchises as well.

It’s the Owner’s Mess

“This is the owner’s mess” is a common refrain.  Fine.  It’s the owner’s mess, but this is how they clean it up:  hard cap, more flexible contracts, lower salaries going forward.

Again, I go back to the basic premise that this is one business, not 30.  Having small market teams like the Pacers or Bucks struggle is bad for the Lakers and the Celtics.  Right now, contraction is little more than a big stick being waved around in the opening salvos of a negotiation.  It seems to me that if the current CBA were to continue for another five years, that contraction would be an unavoidable fact.  There will be too many teams – New Orleans, Memphis, Minnesota, Charlotte, Sacramento, Milwaukee, Indiana – and not enough chairs/cities/owners when the music stops.  I could very easily see the Pacers reaching the point where they can’t sell, can’t get help from a broke city, and simply don’t want to take the losses any more.  What does the league do when faced with that situation?  Do they take over more teams, as they did with the Hornets?  That’s not a long term solution.

Once that weakness shows, then the vultures start to circle, and the TV money is at risk.  If the TV money is at risk, the league is at risk.

A bad business practice is a bad business practice.  Just because the owners were complicit in the creation of the bad practices doesn’t mean that they aren’t allowed to take steps to end them, or limit them, and it doesn’t mean that they should have to live with them forever.  As a business, the league cannot afford to put teams like the Pacers and the Knicks in salary cap jail for years for the mistakes they’ve made.  These are not competitors, they’re sister companies, and they drag on everybody’s bottom line.  At the end of the day, a pattern of poor management will damn a team, but one or even a short series of mistakes should not crush them.  Plus, it’s kind of hard to argue that the current system penalizes incompetence when the Clippers make money while the Spurs and the Magic lose money.

Keep It Simple, Stu

There is so much I don’t know.   Everything I’ve written here represents well-developed, but incomplete opinions based on imperfect knowledge.  Some may be inspired nuggets of wisdom, and some may turn out to be laughably wrong.  All, part, or none of what I hope or want may come to fruition in the new Collective Bargaining Agreement.

Whatever the form of the CBA, it will require a great deal of detail work, but it’s usually best to have it based on simple precepts.  This is why I favor a hard cap so readily.  It most clearly and directly addresses competitive balance and cost containment.

It’s also why my base assumption is that it’s in the best interest of the NBA, it’s owners, fans, and players that the new CBA provide a business model that allows economic viability and stabilized or growing franchise values for all 30 locations.

There’s a lot of stuff here, but…for me…it really all comes down to the hard cap.  A hard cap will not be a silver bullet that will solve all of the NBA’s problems, but I’m not foolish enough to want to try to solve all of the NBA’s problems.  It is, however, the simplest, most effective way to take the biggest step towards this well articulated goal:

“a system in which all 30 teams can compete, and, if they are well-managed, to make a profit.” – NBA Deputy Commissioner Adam Silver, April 15, 2011

This is what I think today.  All of these positions (save the one noted in the “Yacht” discussion) are subject to change based on new or better information.  I haven’t addressed all of the topics — we certainly need to make some attempt at understanding the profit/loss numbers and the need for a reduction in the BRI percentage guaranteed to the players, as well as a discussion of scarcity of resources (not enough “elite” players to go around) — nor have I exhaustively addressed the ones here.

As I said, it’s a conversation starter.

It’s one point of view.  What’s yours?

Note: It is important that I note three invaluable and eminently reliable sources that I use whenever I try to understand the NBA:  Shamsports.com, Basketball-Reference.com, and of course, Larry Coon’s CBA FAQ.

Shamsports was the resource for 2010 & 2011 salaries, while Basketball-Reference was used for all years prior.

Please check out those sites.

UPDATE: As far as terms of the new deal, Mike Wells has the skinny:

Bird will continue to take things year-to-year, welcome to stay as president as long as he wants, owner Herb Simon said.

Interesting

Says Larry:

“The past few months have been the most enjoyable since I took over as President of Basketball Operations,” said Bird. “To see our young players develop, to see us make the playoffs and then to see us compete in a hard-fought series with Chicago are indications we are headed in the right direction and it has made me even more determined to help this team improve further and go to the next level.

“I hope we can keep our core basketball group together and one of my first priorities will be to address the coaching situation.”

Says Herb

“I’m quite pleased with the success we experienced this past season and pleased with the direction our team is going,” said Simon. “I’m glad Larry is staying to help us continue in the positive direction we are going.”

So … that’s settled.

Now time to find a coach. I hear Frank Vogel is available.

“The big question of mine to him is, ‘Now that we have the money, will we be able to spend it?’ ” Bird said during his season-ending news conference. “We waited three years to get to this point, and now what can we do?” Mike Wells – Indianapolis Star

Later the same day, Rich Nye “the Sports Guy” for WTHR 13 reported that Herb Simon hoped Bird would stay with the team, and that the two would meet soon to discuss it.  Regarding Bird’s concerns about being able to spend the money, Nye wrote:

Simon responded that Bird’s questioning whether Simon would invest in free agent players “sort of disappointed” him. Simon says he has no problem spending up to the threshold of the NBA salary cap luxury tax.

So problem solved.  I mean, Simon’s “sort of disappointed” comment probably loosely translates to “kind of pissed,” but, no biggie.  Simon having no problem spending up to the luxury tax threshold should allay Bird’s concerns, right?

Maybe.

But maybe not.

It really depends on whether or not Bird thinks that luxury tax limitation will prevent him from fielding a contender or not.  It’s an open question with the new Collective Bargaining Agreement (CBA) on the horizon.  However, under the current CBA — or a new one that is materially unchanged — Simon’s unwillingness to pay the luxury tax would be a significant, perhaps insurmountable obstacle to building a team that could contend for an NBA title.

Death and Taxes

Consider the following information from the 2009-2010 season (salary info via Shamsports).

(In Thousands US $)

The chart above shows the average payroll based on whether teams qualified for the playoffs, and how far they went.  The Pacers and the other 13 teams that failed to qualify are in the “Lottery” bar on the far right, while the Lakers and the Celtics make up the “Finals” bar on the far left.  This shows a pretty dramatic correlation between spending and winning.

Of course, correlation does not equal causation.  That’s one of the favorite deflections of statistical information, but in this case it has some merit.  One of the most common counter-arguments that pops up whenever a small market whiner like me starts whining is that spending doesn’t equate to success.  This is true, and the simplest way to exemplify this is to just point at the New York Knicks’ payroll for the last few years.

However, that is never the point. It doesn’t matter that spending doesn’t guarantees success.  It’s that not spending is likely to lead to failure.

Of the 16 teams in last year’s NBA playoffs, 11 were luxury taxpayers.  Of the five that weren’t, four were eliminated in the first round.  The lone non-taxpayer to make the second round was the Atlanta Hawks.  The Hawks lost four straight games to the Magic by an average margin of 25 points per game.

Win a Championship, Lose (More) Money?

The Los Angeles Lakers were the World Champions last year with a payroll of $91.4 million.  Indulge me in a little of flight of fancy, and let’s pretend that the Pacer organization and the Laker organization — rosters, coaches, front office — switched places last year, and Kobe Bryant led the Indiana Pacers to the title.

Now, let’s do a little math.

The (real) Indiana Pacer payroll was $66.7 million so flipping rosters would have added $24.7 million in costs.  The “new” payroll is also over the luxury tax threshold, which would have cost another $21.4 million in taxes, as well as the forfeiture of an estimated $3.5 million rebate the (real) Pacers received for being under the threshold.  In strictly roster costs alone, the “new” roster would have added $49.6 million in costs to the Pacers’ ledger.  Throw in the difference between the $3.0 million paid to then-Pacer coach Jim O’Brien and the roughly $10.3 million paid to Phil Jackson, and Herb Simon could have a Championship for only about $57 million more dollars in costs.

Of course, there are returns.  According to Forbes, the Pacers had $95.0 million in revenue, including $15.0 million in gate receipts.  Assuming sellouts every night (something that has not happened here for the NBA Pacers) and a doubling of average ticket prices, as well as 12 playoff games, would net Pacers Sports & Entertainment (PS&E) — after giving the league its cut — perhaps an additional $35.0 million in revenue.  This would leave about $22.0 million in additional payroll and coaching costs to be offset by additional broadcast, advertising, and other revenue. Maybe they could do that, maybe not.  It would be exceedingly difficult, as the local television contract and advertising market in a small market like Indy are never going to be all that lucrative.

But … even assuming that the Pacers were able to add $57.0 million in revenue through the various streams available to them, that would only offset the additional costs.  Which would mean that the Pacers would still have a loss of almost $17 million (Forbes).  It is not at all unrealistic to contemplate a scenario in which the Pacers would have lost more money winning a championship than they did going 32-50.

So, What Can the Pacers Spend This Summer?

There are two really big traps when discussing Pacer “cap space.”  The first is the use of expiring contracts in the discussion.  The Pacers have over $33.5 million worth of contracts coming off their books this summer, including over $5 million related to Jamaal Tinsley.  However, that number cannot be used as a proxy for their available cap space.

Without getting too far into the weeds, the NBA currently uses a “soft cap” system, which sets a salary cap ($58 million in 2010-2011), then allows teams to use various exceptions to go over it.  The Pacers are over the cap at $65.1 million for this season.

However, when a team drops well below the cap — as the Pacers will this summer — all of those exceptions (excluding the Minimum Player Exception) become unavailable to them.  Therefore, what you have to do is look at the difference between the actual (or expected) salary cap and the payroll under contract.  (This is certain to change under the new CBA, which will be the dictating document, but it is likely to become more strict, not less, so these assumptions are conservative.)  A side effect of this is that it is virtually impossible for the Pacers to go over the luxury tax this summer, so Simon’s limitation — for this year only — will be moot.

The Pacers have approximately $35.6 million in committed contracts for the 2011-2012 season.  Using the current cap figure of about $58,000, the Pacers would have a little over $22 million available cap space.  Approximately $2 million of that will go towards their 2011 draft picks (assuming they keep them), so they’ll have $20 million available to spend on free agents (or to take back additional salary in trades) this summer.

And here’s where the second trap rears its head — the future.

The Pacers have to pay attention not only to their available cap space this summer, but also must consider what impact this summer will have on future summers.   This is most notable when it comes to re-signing their current players – particularly the young ones.

Danny Granger is signed for three more years, but several other potential core players will come due soon.  Both Roy Hibbert and Brandon Rush will be due for new contracts next summer, while Darren Collison and Tyler Hansbrough become due the summer after that.

For an example of what can happen, let’s look at the Portland Trailblazers.

They had the second lowest payroll (to Oklahoma City) in last year’s playoffs at $58.2 million.  However, like OKC, their payroll was artificially depressed by the fact that their two best players — Brandon Roy and LaMarcus Aldridge — were still on their rookie contracts.  This year, Portland’s payroll increased by over $16.5 million — $13 million of which was the impact of raises to Roy and Aldridge.  (This doesn’t even consider the condition of Brandon Roy’s knees, and the $68 million or so remaining on his contract.)

This scenario brings up two potential alternatives for the Pacers, neither particularly attractive.

The first is that Simon’s luxury tax restriction remains in place, meaning that Portland has to forgo one of their recent signings or trades (Roy, Aldridge, Andre Miller, Marcus Camby, Gerald Wallace).  We’ve seen this before with the Pacers when they elected to let first Brad Miller and then Peja Stojakovic go on the open market.  The second is that Pacers do the signings, but then are paying the tax for a first round exit, and potentially have saddled themselves with an unmovable contract in the form of Brandon Roy.

A Beggar’s Choice

It’s the fear of the second trap that could cause the most cognitive dissonance between Herb Simon and Larry Bird.  If the league were to continue under the current CBA, and I were Simon, I would not allow Bird the freedom to “spend” the entire $20 million — at least not on free agents.  In my mind, spending all of that available cap space leaves me with two unappetizing possibilities.  The first is the distinct danger of being a taxpayer down the road as the contracts mature.  The second is ending up in the same salary cap prison that the Pacers have spent years trying to escape.

Of course, the CBA is almost certain to change this summer, and for small market teams like the Pacers, it is imperative that these changes be significant.  The current soft cap system allows for richer teams (be they large market or simply deep pocketed owners) to “buy the pot.”  Or … if not to outright buy the pot, they can certainly bully teams with their stack.  Quite frankly, this next CBA will likely determine whether teams like the Pacers will exist in their current form or city 10 years from now.

Personally – and I know this is somewhat oversimplified -  I’d consider anything short of a hard cap with significant restrictions on guaranteed contracts disappointing.  Players would hate to hear this, but I’d actually prefer a lockout that achieves these goals – even if it costs the full season – to no work stoppage and an agreement that hasn’t materially changed from the current one.

The hard cap is the best (albeit imperfect) mechanism for maintaining competitive balance.  The restrictions on guarantees prevents mistakes from being debilitating.  It’s all well and good to want to punish bad owners, but the truth of the matter is that it only hurts the NBA as a business to have its franchise put in jail for multiple years.  I am opposed to franchise tags because (a) the rookie contract and restricted free agency structure is sufficient, and (b) I actually think more player movement, not less, is the solution to teams being able to get better faster.

As of right now, however, it’s all up in the air.  I have no strong sense as to what kind of agreement will actually be worked out.  Until we find out what the new rules are, we only know the current ones.  And those current ones raise serious questions as to how much money is enough.

Vogel got a lot of love nationally throughout the Bulls series. In fact, a Facebook page has sprung up that has become a campaign headquarters of sort for Vogel. It seems that mainstream thinking is that the 37-year-old coach has done more than enough to return to the blue and gold. Here’s a sampling of the some of those comments.

Chris Mannix from SI had this to say:

It’s true, Bird will have options. The pool of head coaching candidates is a deep one. He could go for the veteran hand [Jeff Van Gundy, Rick Adelman, Mike Brown], the rising star [Mike Malone, Mike Budenholzer, Kelvin Sampson] or the experienced assistant [Lawrence Frank, Mike Woodson, Dwane Casey]. He could tap into the TV booth [Kevin McHale, Mark Jackson] or dip into the college ranks.

His choices are good. But there is one that stands out: Vogel.

Mannix then argues why Vogel should be retained:

“He simplified things, which was good for that team,” said an Eastern Conference executive. “He was always prepared and the players responded to him.”

There’s something else Bird will have to consider: Money. The Pacers ranked 27th in Forbes’ most recent team valuations; the publication called Indiana “among the most troubled organizations in the NBA.” It attracted an NBA-low 13,538 fans per game last season, the fifth straight year it’s ranked in the bottom five in attendance.

Why is that important? Because experienced coaches like Van Gundy, Adelman or Brown could command between $3 and $5 million per season, a price tag the Pacers are unlikely to pay. Even Frank and Woodson made in excess of $2 million in their last coaching stops. Indiana won’t get Vogel for less than $1 million, but entering a potentially lockout-shortened season, it might not have to pay much more than that, either.

Indeed, reasons not to retain Vogel are few and far between. Indiana has a pretty good thing going. It’s core group — Hansbrough, George, Hibbert, Darren Collison and Danny Granger — is 28 or younger and under the team’s control for at least the next two seasons. They will lop some $30 million off the cap this summer and Bird has made it clear that if another team is looking to sell a star, he’s interested in buying.

Vogel has a rapport with his players. They trust him, believe in him. And he believes in them. On his way to dinner with his coaching staff Thursday night, Vogel’s mind was already at work with ways to improve the team next season.

Meanwhile, Rob Mahoney of The New York Times NBA Blog Off the Dribble had this to say:

This series was marked by not only (Paul) George’s true arrival on the N.B.A. scene after a rocky rookie season, but also that of Frank Vogel, the Pacers’ interim coach for 38 games. Everything that George accomplished in this series was possible because of his coach’s insight, preparation and audacity.

Vogel had the nerve to allow George, a rookie swingman who had played 61 games as a pro, and started just 19 times, to defend Rose, the league’s likely most valuable player. More important, Vogel didn’t overreact to Rose’s 39-point and 36-point games — both Pacer losses – to start the series, as he stuck to the game plan that had given his team a fighting chance.

Desperation can act as a siren’s call to some, but Vogel was having none of it. Four of the games in this series ended in a coin flip as a result of Vogel’s strategic commitment, a great triumph for a No. 8 seed contending with what many thought to be the best team in the league.

Indiana’s players deserve credit for their effort and execution throughout the series, but Vogel proved himself to be a resourceful coach who doesn’t just put his players in position to succeed but also discovers new avenues to success.

In game five of the Bulls series, current TNT NBA analyst and former Phoenix Suns President of Basketball Operations and General Manager Steve Kerr used his forum to say this:

“It’s a no-brainer to re-sign (interim coach) Frank Vogel,” Kerr said. “They play hard, they play a lot of people and they play with a lot of energy.”

Eric Freeman of Yahoo! Sports Ball Don’t Lie had this to say:

So it stands to reason that Vogel and the Pacers would like to remove the “interim” tag from his title. And that is exactly what’s likely to happen soon.

All parties want this to happen — Vogel, the front office, the players, and the fans — which means a deal will almost certainly get done soon. Vogel deserves it, too. He made the Pacers relevant and exciting again when they had been punchlines for several seasons. That’s no small feat.

However, it’s important to note that Vogel is also a free agent. If a deal doesn’t get done soon, it’s possible to imagine another team with a vacancy — like, say, the Rockets or Warriors — making a gigantic offer for Vogel’s services. That might be seen as poor form, considering the Pacers are Vogel’s team right now, but no one ever said finding a good coach was a moral pursuit.

Yet that course of events would be unlikely. Expect Vogel on the sidelines next season and several more.

Ok… back to reality.

Look, I think Vogel did a good job with this team. He will probably be the coach next year. I have not seen anyone credible make a strong argument otherwise. There’s no denying the fact that he got the Pacers to the playoffs. That’s something that Jim O’Brien could not do in his tenure.

However, let’s interrupt the euphoria for a moment to ask a few tough questions.

Is the 20-18 finish to the season just a short-term bounce that was not an accurate representation of Vogel’s abilities?

The offense that we saw down the stretch consisted of a few very simple plays and became easy to defend down the stretch of tight games. Does Vogel have a real, cohesive offense that he will install for next year?

What defensive philosophy is Vogel going to adhere to that will best utilize the players on the roster?

Can Vogel be critical of players that don’t perform in big situations? For instance, when Roy Hibbert is close to a no show in four of five playoff games maybe the positive reinforcement simply isn’t working. Would Vogel be willing to jump on Hibbert if that’s what it takes to get him right?

I really think the answers to these questions are more important than the short-term excitement created by the competitive series with the Bulls. The reality is that if Vogel is hired we won’t know the answers to any of these questions until next season… but that doesn’t mean that you don’t ask the questions during his interview.