Joe Vardon of the Northeast Ohio Media Group has new details on LeBron James' contract, and it shows that the Cavs star is making some smart moves to maximize his earning potential.
Rather than signing a nine-figure contract with the Cleveland Cavaliers last summer, LeBron agreed to a two-year, $42.2 million deal with an opt-out clause after this 2014-2015 season.
According to Vardon, LeBron plans to exercise that opt-out clause this summer. He will technically be a free agent, but don't expect him to go anywhere. Vardon reports that LeBron plans to immediately sign another one-year contract with the team. In short, he's going to rip up his current 2015-2016 contract and replace it with a new one-year deal. In the process, he will make an extra ~$1.7 million.
It makes sense from a financial perspective.
LeBron is due to make $21.6 million in 2015-2016 under his current deal. When he signed the contract last summer, that was the maximum amount of money he could get. His max contract was capped at 35% of the 2014-2015 salary cap with 4.5% annual raises.
By declining that option for the 2015-2016 season, LeBron will be able to re-sign a new max contract under the same parameters (35% of the cap). But because the 2015-2016 salary cap will be significantly higher than the 2014-2015 salary cap, LeBron's max salary next summer will be larger than his max salary was last summer.
With a new contract, LeBron now stands to make $23.3 million in 2015-2016 — a $1.5 million increase from his current deal — based on the projected cap for next season from salary expert Larry Coon. Even if something crazy happens and the salary cap doesn't go up as much as expected, the rules are such that LeBron is guaranteed a 5% raise from his 2014-2015 salary if he signs a new max deal — which is still more than the 4.5% raise he was due under his old contract.
LeBron is now signing only a one-year deal because the salary cap is going to explode in 2016-2017 after the league's new TV deal. If LeBron signed a long-term max contract in summer 2015, it would be worth tens of millions of dollars less than if he signed a long-term max contract in summer 2016.
There is a reason NBA players never sign year-to-year deals like this. Most NBA contracts are guaranteed. For most guys, the smart move is to take the guaranteed money while you can get it. But for LeBron — who outperforms the maximum contract by a significant margin and has not had many injury issues in his career — it is a risk worth taking, especially considering the financial upside of signing a max deal in 2016.
LeBron is squeezing an extra $1.7 million out of the team while also setting himself up to cash in when the new TV money sends the value of max contracts through the roof.
