Berger: Crunching the numbers
It all seemed so simple when Cleveland's LeBron James, Miami's Dwyane Wade and Toronto's Chris Bosh signed three-year extensions three years ago this month. It was all about measuring their teams' progress toward a championship while maintaining the flexibility to find new homes in the summer of 2010 -- a year before the NBA's collective bargaining agreement expires.
|LeBron and D-Wade might have to come to grips with their options. (Getty Images)|
When James, Wade and Bosh signed their extensions in 2006, before the global economic downturn, they had every reason to believe the cap would exceed $60 million by the time their player options came due on June 30, 2010. All three would be eligible for the maximum salary of 30 percent of the cap in the first year of their free-agent deals, meaning the discussion would start at almost $20 million a year.
Not anymore. If the NBA's fears about further revenue erosion next season are well-founded, James, Wade and Bosh would be better off signing extensions with their current teams this summer.
Decision time began Sunday, when Wade became the first of the Big Three to be eligible for an extension. Bosh's one-year window opens at 12:01 a.m. Tuesday, followed by the most sought-after 2010 prize of all, James, whose extension window opens on Saturday.
"There's no question that if the cap goes down, as projected by the NBA, [James] stands to lose a lot of money," according to a legal source familiar with the matter. "He really would have to decide what's important to him and where he thinks he'd have the best chance to win."
That assessment depends on what James and the other two multi-millionaires consider to be "a lot of money." Based on their current salaries, collective bargaining agreement guidelines, and the NBA's projection of a cap as low as $50.4 million in 2010-11, James, Wade and Bosh would cost themselves between $2.7 million and $5.2 million apiece over the next four years by opting out next summer and signing new deals -- either with their current teams or new ones -- as opposed to signing extensions this summer.
• Berger: Revised 2010 scenarios
With two years left, including a player option for 2010-11, James, Wade and Bosh are eligible to sign three-year extensions this summer; only Bird free agents and players on rookie-scale contracts can sign six-year deals. Based on their current salaries and provisions of the collective bargaining agreement, each would make $79.4 million over the next four years by signing an extension with his current team before June 30, 2010.
By waiting until next summer and opting out, they would make $74.24 million over the next four seasons by signing with a new team or $76.72 million if they re-signed with their current teams or participated in a sign-and-trade. Re-signing with their own teams or doing a sign-and-trade also would be the only way to get a sixth year. But for the sake of an apples-to-apples comparison, looking at the next four years illustrates the impact of the shrinking cap on their decisions.
For James -- and likely for Wade and Bosh -- a few million spread over a $100 million contract is significant, but might not be a deal breaker. This would be especially true if the new contract were with the Knicks or Nets, where millions could be recouped through endorsements in the country's advertising mecca. For all three, some factors are more important than money. Wade received his extension offer Sunday, but stated emphatically last week that he wants to measure the Heat's progress toward contending for a championship before he signs it.
"The obvious caveat is that 'Bron will likely be OK with leaving a bit of cheddar on table," one rival executive said. "The cap going down makes it worse for the Cavs, because that makes an even louder case for more endorsement money to offset. Madison Avenue or Maple Street? I say 'A.' "
Executives around the league also believe James' decision will be based on how close the Cavs are to a championship. That feeling obviously is shared by the Cleveland front office, which made the bold move to acquire Shaquille O'Neal to help fortify LeBron's last title push before he is able to leave. Likewise, Toronto boldly landed free agent Hedo Turkoglu to complement Bosh.
|Will money be the determining factor in Chris Bosh's decision? (Getty Images)|
Henry Thomas, who represents Wade and Bosh, said his clients are looking forward to evaluating extension offers from their teams.
"You can editorialize about the numbers that you've heard from the NBA as far as what they projected the cap will be," Thomas said. "I'm aware of what the NBA has projected. They say that's a good-faith projection. Maybe it is, maybe it isn't. I don't know. But everything relevant to the guys making the decisions whether they should extend their contracts now or not is going to be evaluated."
The strategy employed by the Big Three stands in contrast to Carmelo Anthony's approach. Facing the identical situation in 2006, Anthony opted for security over flexibility with a five-year extension. Anthony can opt out of his contract on June 30, 2011 -- the same date the current CBA expires. If a new CBA hasn't been ratified by that time, 'Melo would be opting out without knowing details of the new salary structure. His one-year window for negotiating an extension -- his would be for two years -- also opens this month. Doing so would allow Anthony to lock in future years under the current rules and cap structure -- which is exactly why the Nuggets might not share his enthusiasm. The vast majority of NBA front office executives believe the new CBA will be more favorable to the owners.
Whatever the Big Three do, it is clear that the projected reduction in the cap will be extremely costly. If the cap had continued to rise incrementally to about $60 million in 2010-11, the marquee free agents would've been looking at max contracts next summer totaling $104.4 million over five years or $136.4 million over six years if they re-signed with their current teams. That's a lot of cheddar.
But David Falk, the super agent whose book The Bald Truth warns of pitfalls in the current NBA salary structure, said superstars like James, Wade and Bosh ultimately won't be hurt by the falling cap as much as the next level of players will be.
When the current CBA, which expires in 2011, was negotiated in 2005, Falk told NBA Players Association executive director Billy Hunter that two salary pools should be created within the cap: one for the max players, and one for the rest. Falk thought this would eliminate what he calls abuse of the mid-level exception while allowing the stars to get paid without hurting the middle-class players.
"If the cap goes down to $52 million and you have two max players, that's $32 million," Falk said. "That's 60 percent of the money. You only have $20 million for the other 11 guys. Those two guys should be in their own pool, and that's what I recommended to Billy in 2005. The stars are always going to get paid. Always. They're going to get paid first, because they're the foundation of the game. When the cap goes down, who it's going to hurt is the guys at the next level.
"If you make a movie and you put De Niro and Pacino in it," Falk said, "it doesn't matter who the third person is. That's where this thing is headed."
Indeed, several team executives said they are planning to carry fewer than the maximum 15 players next season in response to eroding revenues and cap space. One prominent Western Conference team already employed this strategy last season, carrying 12 players for the majority of the season and utilizing 10-day contracts for the 13th in an effort to save money.
"For players, the coaches, it was a definite luxury to have 15 players," an Eastern Conference GM said. "Everyone's going to have to adjust."
What adjustments will James, Wade and Bosh make? Decision time has arrived.