Alright, we need to pick 5 teams to contract to help fix the NBA. I'm going to suggest the following:
Sacramento Kings
New Orleans Hornets
Toronto Raptors
Minnesota Timberwolves
Memphis Grizzlies

I've heard others suggest the Bucks, Clippers, and Bobcats could go. I think 5 of the 8 would suffice, and I see that I've suggest 4 from the west, so an east team would need to go to the west in my proposal. If the Bucks are to be saved in contraction, they can go to the west. All the players that are under contract would need to go into a dispersal draft, but teams that drafted the players would need to take the current contract that the player holds. Draft order could be decided by a system of average win total over the last 5 years, with the least wins getting the highest picks. Obviously guys like Kevin Love, Chris Paul, Tyreke Evans, Rudy Gay, etc would be most valuable and probably would prefer to go to better teams, so the highest picks (without looking, I'm guessing Wizards, Clippers, Warriors, Nets, and Bucks) could get traded for future regular first round draft picks OR (let's say the Wizards are picking first) the Wizards draft Chris Paul and put him on the trading block for the highest bidder.

The NBA would need to realign divisions at this point, so the new NBA would look something like this:
WEST
Midwest Division
Thunder
Bucks
Grizzlies
Mavs
Spurs
Rockets
Nuggets

Pacific Division
Lakers
Clippers
Warriors
Suns
Jazz
Blazers

EAST
Central Division
Bulls
Pacers
Pistons
Cavs
Bobcats
Sixers

Atlantic Division
Knicks
Celtics
Wizards
Magic
Heat
Hawks
Nets

This version makes the league a little unfair, as there are 13 teams in each league which makes one division 7 teams and the other 6. Making the playoffs would be the same, however, with just two division winners (top seeds in each league) and then the rest of the conference seeding based on record. Based on the current alignment, the 2011 playoffs would have been seeded the same.

I think this makes the NBA more competitive and, with help from a new CBA, could take us back to the days where players don't just constantly walk away from their teams to get huge free agent deals. Maybe putting in something like the franchise tag that the NFL has, or possible the system like MLB has keeping young players under team control for the first 6 or so years of their career.

To add to what I've already said, I think with changing the divisions I'd also make the teams play a heavier weighted divisional schedule. Maybe it would be more like MLB, where you play each team in your division 4-5 times, and then 2 times with the other conference division, and just once against the other conference. They wouldn't play every team from the other conference, but like baseball with inter league play, you could switch off conferences every other year.

I'd be hugely surprised if contraction actually happened. I don't think it's a terrible idea, but I just don't see it happening. Teams move cities, but they don't really go away.

I would like to see the regular season schedule focus more on the division and conference games, similar to MLB or even the NFL, which is more open to cross-conference games.