Collective Bargaining Agreement

Explaining LeBron’s Contract

by Danny Leroux
Mar 18, 2014; Cleveland, OH, USA; Miami Heat forward LeBron James (6) smiles after a 100-96 win over the Cleveland Cavaliers at Quicken Loans Arena. Mandatory Credit: David Richard-USA TODAY Sports

With the reporting out there now that LeBron James will sign a two-year contract with the Cleveland Cavaliers that has a player option for the second year, I have seen some hand-wringing on Twitter about what that could mean. While it certainly could be used to change teams, even if LeBron intended to be a Cavalier for life it is the contract I would have advised him to take if I were his agent.

There are two major reasons why LeBron would want a 1+1 deal right now:

  1. Every single max player should want to become a free agent in 2016 — With a new, more lucrative national TV deal in place but the same Collective Bargaining Agreement, the best of the best will have an opportunity to make more money. Since CBA ties the individual maximum to a percentage of the salary cap, a big increase in the salary cap in 2016 with the new TV contract would mean higher salaries for max guys at every experience level.
  2. LeBron can make more next year by opting out and re-signing — The current CBA limits the raises a new team can sign a player to 4.5% of the first year salary on subsequent years of a contract. However, the rules also dictate that a player’s maximum on the first year of a new contract can never be less than 105% of the his previous salary. As such, LeBron opting out and then signing a new deal actually gives him a 0.5% raise over just opting in.  While that may sound like a small number, that difference would be $103,222 so it’s not exactly chump change.

 

With that in mind, I fully expect LeBron to opt out next summer to take advantage of the raise disparity, sign a new two-year deal with the second season as a player option just to maintain flexibility, and then opt out again in 2016 to sign the longer-term deal (likely three years plus a player option) with the new TV contract and larger maximum salary.

Also, now is a good time to correct some reporting out there that LeBron can sign a five-year extension any time soon. No matter what contract it comes in, the soonest LeBron can sign a five year contract is the summer of 2017 when Cleveland would get full Bird rights for the first time by virtue of him spending three full seasons there. Also, he would have to be a free agent in that year and who knows what the new Collective Bargaining Agreement will look like by then.