When news emerged of LeBron James’ contract details, most of Northeast Ohio was likely surprised and caught off guard. “He just committed to a long-term future in Cleveland, why only two years? Why an opt-out?” The clear-cut answer lies within the NBA’s Collective Bargaining Agreement, signed back in 2011.
LeBron is dead-on with his Cavaliers contract. If he truly wants to maximize his earnings – and as the best player in the league, he certainly deserves to – then he absolutely set up the right deal and his management team did a great job. Let’s start with the basics, all found via the fantastic Larry Coon CBA FAQ website.
Cleveland signed LeBron to the maximum possible salary for two years with a one-year opt out. They signed him as a free agent to their available cap space from the Miami Heat, meaning they signed him without owning his Bird rights. This is important when it comes to future raises.
Max deals signed without Bird rights carry only 4.5% annual raises from the first year’s salary. When signed with Bird rights, the annual raise is much higher at 7.5% (and contracts can include a fifth year, hence why players turn down money when signing away from their team). However, as a free agent, LeBron would guarantee himself at least a 105% increase on his previous year’s salary. Huh? Check out the math below.
By opting out, LeBron guarantees a minimum 5% raise, not the set 4.5% raise for max deals signed without Bird rights. The added 0.5% of his salary guarantees him of at least $100K more for the 2015-16 season. But that’s not the only reason why this is advantageous for LeBron. He’s thinking bigger.
The NBA salary cap actually increased by 7.5% this summer to approximately $63.065 million for the 2014-15 season. If the cap increases by more than just 5% for next year, LeBron would be advised to re-work his deal in summer 2015 and make more money with a new maximum contract based on that year’s cap number.
It is expected that the cap number will increase to at least $67 million next season and perhaps skyrocket even further. With the NBA’s new TV deal taking place for the 2016-17 season, the cap could go over $80 million in summer 2016. If the year-over-year cap increase is larger than 7.5% (LeBron’s annual raise with a new max with Bird rights), then again LeBron would be advised to re-work another deal.
So yes, it makes a ton of sense for LeBron James to go year-to-year for now1. It’s not necessarily an indictment on the Cavaliers by any means. It does mean that the circus of LeBron’s future will continue to be a topic and the Cavs will spend more money on his salary than if he had signed for the long term. But this is a pretty clear business decision.
William Perlman/The Star-Ledger
It’s possible the cap’s growth will stall somewhat after summer 2016 and thus, LeBron might finally sign a long-term deal. [↩]
Jacob Rosen is a long-time contributor to WaitingForNextYear. He's also a writer online at SportsAnalyticsBlog and Nylon Calculus . An Akron native, Jacob is a current MBA student at the University of Oregon's Warsaw Sports Marketing Center. You can follow him on Twitter @WFNYJacob or e-mail him at udjrosen(at)gmail(dot)com.