The details of LeBron James’s contract with the Cleveland Cavaliers are out, and they’re pretty interesting.
LeBron signed a two-year, $US42.1-million deal, according to Brian Windhorst of ESPN. The second year is a player option, meaning he can opt out after the 2014-15 season and become a free agent again.
The contract is unique among current NBA players. It gives LeBron the most power he could have gotten in the short term, and the most money he could have gotten in the long term.
Here’s why it’s so smart:
1. He set himself up to cash in when the league’s new TV deals go into effect.
Because of the league’s new TV deals, a maximum contract signed in the July of 2016 is going to be more valuable than a maximum contract signed in July of 2014.
LeBron could have signed a four-year, $US88-million max contract with the Cavaliers that would have ended after the 2017-18 season.
Under the collective bargaining agreement, the value of a max contracts is roughly 35% of the salary cap (as long as the player has been in the league for 10 years). Right now the salary cap is at $US63.2 million. So if LeBron signed a four-year deal with the Cavaliers now, his salary in all four years would be based on that 2014-15 cap number of $US63.2 million, even if the cap number jumped significantly over the life of the contract.
The cap number is about to jump significantly in two years — which, conveniently, is when LeBron will be a free agent.
The NBA salary cap is directly tied to “basketball-related income” (BRI), which TV rights are a big part of. The league currently makes ~$930 million per year from its TV deals with ESPN and Turner.
Those deals expire after the 2015-16 season. With the market for TV rights exploding, it stands to reason that the league is going to see a significant BRI jump with its new TV deals. MLB doubled its national TV rights deal in 2012, while the NFL’s TV rights jumped 60% in value in its latest negotiation in 2011.
Everyone expects the NBA to see similar increases. Those increases are going to boost the salary cap starting in 2016-17, which will, in turn, raise the value of maximum contracts starting in the summer of 2016.
2. He gave himself leverage, because he can threaten to leave at any time.
NBA free agents have all sorts of leverage. But the minute they sign their long-term contracts, that leverage disappears. They have to play for that team no matter what. They can huff and puff, but at the end of the day they can’t dictate the direction of the franchise.
LeBron’s deal gives him that power. He can leave after 2014-15 and 2015-16. Or he can at least threaten to leave — which is just as important.
Don’t like the coach? Want the owner to go over the luxury tax line? Want the team to go after Player X at the trade deadline? LeBron’s opinion will always legitimately matter within the organisation because it comes with the implicit add on of, “…, or else.”
These last two weeks have taught us that LeBron has more power than any American athlete.
He shut down the entire NBA for 10 days while he made his free agency decision. Instead of handing over that power to the Cavaliers by binding himself to the team for four years, he held on to that power by giving himself a year-by-year deal.
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