LeBron James took a risk when he signed his short-term contract with the Cleveland Cavaliers in July.
He could have signed a four-year deal worth $US94.5 million guaranteed. Instead, he signed a two year, $US42.1-million contract designed to make him a free agent when the league’s new TV deal kicks in in 2016.
At the time, it looked like the value of the TV deal would double — resulting in a salary cap bump that would significantly increase the value of LeBron’s potential max contract starting in 2016.
On Monday we got the details of the new TV deal, and it’s even more massive than anyone expected.
ESPN and Turner will pay the NBA a reported $US2.66 billion per year — a 186% increase from the previous deal. Since the salary cap is directly tied to “basketball related income” (of which TV money is a huge part), the deal will increase the salary cap by an estimated $US25.8 million (45%) starting in 2016-17. And, significantly for LeBron, it will increase the value of the league’s maximum contract by $US9 million per year.
That’s a huge spike, and LeBron is positioned perfectly to take advantage of it because he took the unusual step of signing a two-year deal instead of a four-year deal.
In addition, waiting two years to sign a long-term deal with Cleveland bumps up the value of his annual raises. Under NBA rules, a free agent who leaves his team to sign elsewhere (like LeBron this summer) only get 4.5% annual raises. But a player who has been with his team for at least two years and re-signs there can get 7.5% annual raises. LeBron will qualify for that 7.5% annual raise in two years under what’s called the Early Bird exception.
His max salary would have started at $US22.1 million with $US1 million annual raises if he signed a max contract this summer. His max salary will start at an estimated $US31.1 million with $US2.3 million annual raises if he signs a max deal in the summer of 2016, assuming the salary cap increases by 45% because of the new TV money.
When you add it all up, LeBron’s estimated max contract starting in 2016-17 will be four years, $US138 million. His estimated max contract this summer was four years, $US94.5 million
As long as he stays healthy, signing a two-year deal will have made him an extra $US43 million in the long term.
Business Insider Emails & Alerts
Site highlights each day to your inbox.