LeBron's 2-year contract made me reconsider LA's decision not to sign an extension.
The variable that wasn’t considered in Storyteller’s earlier BE analysis of LA’s options are new TV contracts that take effect in 2016-17, which apparently drove Jame's decision to take a 2-year deal. I wonder how much LA and his agent took that into consideration?
LeBron is taking a 2-year contract because he can sign a new contract in the summer of 2016 to benefit from a higher projected salary cap (and therefore higher maximum salary) based on new national TV contracts that take effect for the 2016-17 season. (The 2016 cap, and max salary, are based on projected 2016-17 revenues for the season ahead). Estimates are apparently as high as $80M for the 2016-17 cap.
James signed a two-year, $42.1 million deal, sources familiar with the process told ESPN.com, with the goal of re-signing with the Cavs before the 2016-17 season when a new television deal is expected to create a large jump in value of the maximum contract.
… Depending on how the new television contracts are put together, the salary cap is projected to leap to as high as $80 million in 2016.
If the salary cap goes to $80M the maximum salary for a 10-yr vet should be about $26M, up from about $21M now. (80/63 * 20.6M = 26.2M)
Aldridge could sign a 2-year extension now (actually just 1 additional year), which would also end summer of 2016, to get the higher maximum salary from the TV contract, AND also benefit from becoming a 10-yr veteran, eligible for approximately a 17% higher max salary than signing as a 9-yr veteran in 2015.
LA’s projected maximum salary in summer of 2015, as a 9-yr vet, is about $18.7M based on the newest salary cap projection. That is $7M per year less than waiting until 2016 to sign a new 5-year deal as a 10-yr vet with the higher TV income. Over 5 years that is a difference of more than $35M.
To get the additional $35M LA would risk never getting a 5-year deal if he had a career ending injury during the 2015-16 season. But it seems to me that $35M would be worth the risk of waiting a year, while still getting paid an additional $18M that year.
Conversely, that would cost Paul Allen $35M. It's hard to imagine LA's agent would overlook the TV contracts that LeBron is expecting. So I wonder if it was actually discussed and rejected by Neil and Paul. We only heard of a 4-yr extension offer (3 additional years) and a 5 (additional) year offer. Both of those would be at the 9-year veteran rate, and without the huge additional maximum salary increase from the new TV contracts.
Of course there is nothing to keep LA from changing his mind next summer and demanding a 1-yr extension then, so he can sign a 5-year deal in the summer of 2016 to get that extra $35M. After LeBron’s deal today, I wonder if LA signing a 5-year deal next summer is really going to go as smooth as we heard earlier this week?