First things first: Barring some major change of heart, LeBron James will be back with the Cleveland Cavaliers next season, despite declining his player option for 2016-17 on Wednesday. This was the plan all along for James when he came back to Cleveland, because it’s all about making the most money.
By declining said option for next season, LeBron will increase his salary for 2016-17 from an estimated $24 million to approximately $27.5 million, assuming he stays with the Cavaliers. If he chooses to sign elsewhere, LeBron could make as much as $31 million next season (although seriously, he’s not going anywhere).
Why? It’s all about the NBA’s super-dense Collective Bargaining Agreement, which sets up all of the hoops players have to jump through to get their money, and the fact that with the league’s new TV deal, the salary cap is about to increase from $70 million in 2015-16 to an astounding $94 million in 2016-17.
Remember, the "max contract" in the NBA isn’t a specific dollar amount; rather, it’s a percentage of the salary cap. A player with 10 years of experience or more, like LeBron, is eligible for a contract that would pay him 35 percent of the cap. A guy like Kevin Durant, who has more than seven years in the league but fewer than nine, is eligible for 30 percent of the cap.
But that percentage only applies to the first year of your deal, not for the years after that. Instead, the CBA spells out how much of a raise you’ll get each year for the life of the contract. The biggest raise you can get is a 7.5 percent increase on your salary from the year before. And that’s how most superstar deals work. A guy signs for the max contract as a free agent, then his salary increases by 7.5 percent from that number every year.
And that’s why LeBron has been signing the type of deals he has so far in Cleveland. As you’ll recall, we’ve seen this movie already. When he first announced his return in the summer of 2014, James originally signed a two-year deal that gave him the option to tear up the contract and renegotiate after the first season. That deal paid him the max salary for the 2014-15 season of roughly $20.5 million.
So if LeBron had let his original contract from 2014 play out, he would have been paid just over $21.5 million for the 2015-16 season. But by declining his option this past summer, James was able to negotiate a completely new deal that wasn’t limited to those 7.5 percent increases. As a result, he signed a contract in the summer of 2015 that paid him $23 million for last season and once again gave him the option of becoming a free agent after one year. That’s just savvy business sense — and, of course, it keeps the pressure on the Cavs to keep building championship contenders, since LeBron theoretically could leave at any moment.
There’s one more twist in James’ current contract situation, however. Eagle-eyed readers will note that LeBron will have to take $3 million less to stay in Cleveland this year compared to leaving for another team, which doesn’t make sense on the surface. But the Cavs are way over the salary cap, which affects how much they can pay the King.
In a normal situation, a team that’s over the cap can use what are called "Bird rights" to re-sign its own free agents to max contracts. However, because LeBron has only been in Cleveland for two years, he’s eligible for "early Bird rights," which would limit him to 175 percent of his previous salary. Obviously, such an increase would mean a max deal for LeBron at that $31-million mark. However, because James is likely to sign another two-year deal with a player option for the second season, the Cavs technically won’t be able to use his early Bird rights, either; such a contract must be for a minimum of two full years with no option on the second year.
Cleveland, then, must use "non-Bird rights" to retain LeBron, and those deals are limited to a starting salary of 120 percent of what the player made the year before. That’s where we get the $27.5 million price point for James’ services with the Cavs next year.
And just as a word of warning, this is all going to happen again next year. The salary cap is projected to leap from $94 million in 2016-17 to $108 million in 2017-18. By then, LeBron will likely be ready to sign a long-term deal, since the influx of TV money will be over and the salary cap will normalize beyond 2018. And that deal will pay him his full max salary, which should rise to over $35 million by the start of the 2017-18 season.