Contract Negotiation NBA Teams Sports Agents Sports Business

A Behind-The-Scenes Look Into NBA Max-Contracts

As sports fans, specifically fans of the NBA, we hear about maximum contract deals through ESPN headlines and Twitter updates from ESPN Senior NBA insider, Adrian Wojnarowski. When we come to learn about these max contracts, these deals seem so simple because the dollar amount is set and publicized for the world to see. Yet, there is so much work that is put in behind-the-scenes between NBA team executives, the player and the player’s agent to make this max contract a reality.

The most anticipated free agency signing took place this summer when LeBron James decided to sign with the Lakers for a four-year, $153.3 million contract. As fans awaited impatiently for LeBron’s “2nd Decision” to go public, most fans do not realize the number of factors that LeBron had to consider before signing with the Lakers. As with anything in life, the younger you are, the less responsibilities you have. However, LeBron James, who turns 34 in December, may be in a battle against the undefeated Father Time. In this decision, LeBron had the future of his three young kids and his wife to consider before making a decision that will affect his career. Moving across the country and uprooting his family was a major lifestyle change in and of itself.

As one NBA agent states, “What people don’t understand is that there are so many layers to any contract – let alone a maximum contract”. With any decision, it is imperative that the NBA player does his due diligence before making a decision that will impact their life forever.

It is important to delve into the layers of a max contract and understand that not all max contracts are negotiated the same. For example, a player’s years of experience in the NBA is factored into how much of a percentage that a player can take of the team’s salary cap. A player with 0-6 years of experience can only make up 25 percent of the salary cap. A player with 7 to 9 years can take up 30 percent and a player with 10+ years can make up 35 percent of the salary cap.  Additionally, there are “bird rights” which are salary cap exceptions that allow a player to earn more money and sign for a longer deal if the player chooses to stay with their current team. Whether a max contract or a $3 million deal is being negotiated, there are still clauses throughout the contract that remain constant. For example, the “love of the game clause” started after Michael Jordan inked his first contract, protects the player from the liability of playing competitive off-season pick-up games. A clause that most NBA teams do not offer players in today’s game is a no-trade clause because it simply gives the player ultimate power over the organization.

The key to negotiating a max contract depends upon the amount of leverage the player has; the better the player, the more leverage the player and agent have over teams seeking out his talents. When a player can generate a max contract from their current team, it is very reasonable to assume that other teams will offer a max contract as well. As former NBA agent, Matt Babcock states, “this gives the player and the agent ultimate leverage in negotiations, which is why max contracts are generally very player-friendly deals”.

As NBA players weigh their options, the market of the team plays a very pivotal role. In LeBron’s case, signing with the Lakers opens the doors to endless off-the-court opportunities including Hollywood acting and producing roles, additional endorsement deals and a massive fan base. Financially speaking, teams in Texas and Florida have an advantage because there is no state income tax. From an NBA executive’s perspective, it is quite terrifying that teenagers are signing $100 million deals plus massive endorsement deals without playing in a single NBA game yet. A former GM animatedly states, “If you’ve never won, how am I supposed to know that you’re ever going to covet winning? When a high-profile rookie joins a bad team, they are given a nice salary and shoe deal from day one and they’re handed a starting role. They never have to earn anything”. Although an NBA team cannot guarantee if a rookie will win championships, there can be injury provisions negotiated if a top prospect has a history of injuries. For example, the Philadelphia 76ers and Joel Embiid agreed to a five-year, $148 million deal. However, due to Embiid’s history of foot and back injuries, an injury provision was negotiated. This gave Philly the option of waiving or saving money if Embiid reinjured himself and missed at least 25 games or played less than 1,650 minutes in a season.

The approach of negotiating the first and second contract for a player are different as well. For a player’s first contract, the team has the leverage in the negotiation because the players are willing to accept the team’s offer more quickly because it is life-changing money for the player and their family. However, leverage is in the hands of the player when the second contract comes around, especially if it is a max contract. This is because the player will usually have multiple teams offering a max contract. However, for some players such as Kyrie Irving and LeBron James, endorsement deals with companies like Nike trump their monetary desires for their NBA contracts. As an NBA insider states, “A player may make more money from their shoe deals than from their NBA deals over the course of their lifetime. Sometimes, players are willing to sacrifice some money during NBA contract negotiations because they know they have a ton of money coming in from their shoe deal. The relationship between the player and his shoe company is probably more stable and long-lasting than the player’s relationship with their franchise too”. This perspective can easily be defended after LeBron signed his Nike deal supposedly for over $1 billion.

The number of max contracts drastically rose in 2016 when the NBA salary cap increased due to the NBA’s new television deal. Players such as Mike Conley Jr. deserved the max contracts that they received. But, the drastic increase in the salary cap resulted in crazy contracts for players who weren’t considered maxcontract players, such as Timofey Mozgov, who signed a four-year, $64 million deal with the Lakers in 2016.

Due to the Warriors dominance over the last four years, NBA agents believe that it will be harder to negotiate max contracts for their clients because the mindset of NBA executives is “why would I give out max contracts, if we can’t win it all?”.

The summer of 2019 will be very similar to the summer of 2016 because several franchises have max level money available to spend. The bottom line is when NBA teams have the money to spend, they spend it. This begs the question: Which NBA organizations will be willing to offer max contracts to superstar free agents such as Kevin Durant, Kawhi Leonard and Klay Thompson?