With the NBA’s salary cap projected to rise to $94 million this coming summer, per The Vertical’s Shams Charania, and $107 million in 2017-18, according to USA Today‘s Jeff Zillgitt, conventional wisdom suggests top-tier free agents such as LeBron James and Kevin Durant will sign so-called one-and-one deals—a two-year contract with a player option in Year 2—to maximize their earning potential over the next half-decade.
Conventional wisdom might be wrong, though.
As Goodwin Sports’ Nate Jones pointed out in May, looming uncertainty over the league’s next collective bargaining agreement should be ever-present in the minds of free agents as they weigh their options this summer:
Players cannot assume that the 2017 pot of gold will be there when the league has the option to opt out of the CBA this winter.
— Nate Jones (@JonesOnTheNBA) May 10, 2016
B/C they can change structure on % of cap individual guys entitled to, % of CBA split with players, years, raise % https://t.co/HTHAzcwKEh
— Nate Jones (@JonesOnTheNBA) May 10, 2016
In theory, simple math dictates that the one-and-one strategy is far more preferable to signing a long-term deal this offseason, particularly for those in the 2007 draft class (such as Durant, Al Horford and Mike Conley). Under the current CBA, players with seven to nine years of service in the league are eligible to receive up to 30 percent of a team’s cap space as their starting salary in a new contract. Players with 10 or more years in the league, however, are eligible to receive up to 35 percent.
If Durant, Horford or Conley were to sign a five-year max deal this summer, it would be worth approximately $151.9 million, based on their projected starting salary of $26.4 million (via Charania). Even if the salary cap remained at $94 million in 2017-18, they’d be eligible for a five-year max deal worth roughly $177 million under the terms of the current CBA. That’s a difference of more than $25 million for one year of delayed gratification.
Of course, the salary cap isn’t projected to stay stagnant. Under a $107 million cap in 2017-18, Durant, Conley, Horford and their Class of 2007 brethren would be eligible to sign a five-year, $202.4 million deal under the current CBA rules. Even without factoring in the fifth-year salary of that contract (an eye-popping $45.8 million), those players would be receiving an additional $31.1 million over the next half-decade by pushing off signing a long-term deal by one season:
Long-Term Deal
One-and-One
2016-17
$26.4 million
$26.4 million
2017-18
$28.4 million
$35.2 million
2018-19
$30.4 million
$37.8 million
2019-20
$32.4 million
$40.5 million
2020-21
$34.3 million
$43.1 million
Total
$151.9 million
$183.0 million
For players such as James and Dwight Howard who are already eligible for the 35 percent max, the difference in earnings isn’t nearly as drastic. They’d be poised to earn approximately $10.4 million more over the next five years by signing a one-and-one this summer and inking a max deal next offseason rather than signing a long-term contract now:
Long-Term Deal
One-and-One
2016-17
$30.8 million
$30.8 million
2017-18
$33.1 million
$35.2 million
2018-19
$35.4 million
$37.8 million
2019-20
$37.7 million
$40.5 million
2020-21
$40.0 million
$43.1 million
Total
$177.0 million
$187.4 million
With that math in mind, what would compel any max-caliber player to eschew a one-and-one deal in favor of locking into a five-year max contract come July? Unless the league and the players’ association announce an agreement on a new CBA before free agency begins, all of the 2017-18 projections are exactly that: hypothetical situations that may be nothing more than smoke and mirrors.
Though both sides appear committed to proactively resolving their differences and avoiding a lockout—in an appearance on ESPN’s The Jump in March, Silver said he was “extraordinarily optimistic that we’re going to work through our issues and get something done”—those negotiations could become acrimonious at any moment. Last July, for instance, Silver hinted at the league’s stance (via Yahoo Sports’ Marc J. Spears): Even after signing a 2011 that was incredibly team-friendly, not every franchise is raking in the dough like Scrooge McDuck.
I don’t know the precise number and don’t want to get into it, but a significant number of teams are continuing to lose money and they continue to lose money because their expenses exceed their revenue.
… Some of the contracts we talked about. They still have enormous expenses in terms of arena costs. Teams are building new practice facilities. The cost of their infrastructure in terms of their salespeople, marketing people, the infrastructure of the teams have gone up, and in some cases their local television is much smaller than in other markets.
Unsurprisingly, National Basketball Players Association executive director Michele Roberts refuted Silver’s claims, saying in a statement (via Sporting News’ Brandon Schlager), “All of the data we have access to indicates that our business is thriving and will continue to do so in the near future. …Virtually every business metric demonstrates that our business is healthy.”
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Silver wouldn’t be publicly posturing about franchises losing money if the league office was content with the current CBA as is. What types of concessions the league seeks to extract from the players’ association is anyone’s guess—Roberts appears to be far more of a hard-liner than former executive director Billy Hunter—but players can’t assume that the new CBA will contain all of the same provisions with regard to contracts.
The league could seek to lower the percentage of annual raises for which players are eligible. Though unlikely, it could also push to roll back how much cap space a maximum contract can take up. That would run counter to the league’s stated goal of establishing parity, as it would facilitate the construction of more superteams, but owners eyeing the prospect of paying $40-plus million annual salaries could be leery enough to push for such a reform. Until the league and players’ union announce a new CBA, everything is theoretically on the table.
As Jones noted, tweaks to contract rules aren’t the only way 2017 free agents could be adversely affected:
That's not a large concession on the players part (in comparison to BRI % drop, Max salary % drops, raise drops), but would impact 2017 FAs
— Nate Jones (@JonesOnTheNBA) May 10, 2016
After signing its new nine-year, $24 billion contract with ESPN and Turner Sports in 2014, the league sought to smooth the increases in the salary cap over the coming years to avoid drastic jumps like the one set to occur in July. Under the proposal, players still would have received 51 percent of all basketball-related income, but the shortfall from the gradual cap increases would have been distributed to the union to be divided evenly among all players. That plan was dead on arrival for the players’ association, however.
“The proposal that the league submitted … would artificially deflate the salary cap,” Roberts said over All-Star Weekend, per ESPN.com’s Brian Windhorst. “And that, of course, meant that players’ salaries would not increase as much as they would otherwise were it not for smoothing. That pretty much was what killed it. It killed it in the eyes of the economists that made the recommendations, and it killed it in the eyes of the players.”
If the NBA can convince the players’ union to accept some form of smoothing, thus preventing the cap jumping from $94 million this summer to $107 million in 2017-18, it may limit how much free agents in 2017 can receive on a max deal (barring drastic changes to contract rules). Hypothetically, if the 2017-18 cap was only $97 million, the financial advantage of delaying a long-term deal would be negligible for those already eligible for the 35 percent max. At that point, the risk of suffering a career-altering injury between now and the 2017 offseason would likely outweigh the reward of delaying a long-term contract.
For players in pursuit of financial security, signing a long-term deal this offseason is the smart play. The uncertainty surrounding the new CBA is enough to make a five-year deal worth around $152 million (or $177 million for the 10-year veterans) palatable. Even if the cap does rise as projected and the new CBA doesn’t drastically alter the rules governing contracts, locking in a semi-discount now would enable those players’ teams more flexibility to build around them over the next half-decade.
For those willing to gamble, particularly in the draft class of 2007, waiting a year still carries far more reward than risk.
If owners are intent on preventing the formation of superteams such as the James-led Miami Heat, they should increase the percentage of the cap allowed for each maximum contract. If players with seven to nine years of experience could sign for 40 percent of the cap rather than 30, and if those with 10-plus years in the league could sign for 50 percent rather than 35, it would become mathematically impossible to assemble a team with three max-caliber players without paying an exorbitant luxury tax.
Even if the league doesn’t go that route, the players will almost certainly extract more concessions from the owners than they did during the last CBA negotiations. An infusion of $24 billion in revenue gives them far more leverage in the “teams are losing money!” argument, particularly with franchise valuations rapidly rising. Even if they don’t receive a larger share of the BRI pie, it’s not as though the cap will plunge from $94 million this year back to $70 million next summer. That genie is officially out of the bottle.
Jones acknowledged that in the worst-case scenario, players who delay their long-term deals until 2017 are likely just risking “ending up with [a] deal structure similar to 2016.” Though a career-threatening injury or health ailment could jeopardize their ability to secure such a contract—imagine if Durant, Conley or Horford turn down a long-term deal this summer and endure a health saga like Chris Bosh has the past two years—players who are already financially secure regardless of future earnings may be willing to gamble on the union’s position at the bargaining table.
Regardless of which option the top-tier free agents pursue this summer, none of them merit criticism. For those who sign multiyear deals now, long-term financial security could rightfully be their top priority, particularly if they’re on the wrong side of 30. Those who eschew a long-term deal in favor of a one-and-one contract with an eye on the summer of 2017, meanwhile, deserve credit for their willingness to gamble. When you’re dealing with this much money, there’s no “losing,” even if you aren’t fully maximizing your earnings.
Those willing to place their faith in the players’ union, though, could be poised for a far greater financial windfall than those who decide to sign a long-term deal in 2016.
All contract information via Spotrac or Basketball Insiders.
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