LeBron James means business. The four-time MVP signed a two-year deal worth $42.1 million with the Cleveland Cavaliers, according to ESPN's Brian Windhorst. Under the terms of the contract, James will also have an opt-out after one year to give him flexibility in an uncertain NBA landscape.
Surprised? Don't be. It may seem odd that James, who said in his letter published on SI.com that he wants to retire a Cav, chose to ink a short-term deal with the organization. But the brevity of this deal should be seen as a tactical maneuver to maximize his earning potential, not necessarily an attempt to hold the Cavaliers and its fanbase for ransom.
Times are a-changin' in the NBA. Get ready to hear about the summer of 2016. That's when the two monster deals expire: James', but more importantly, the league's television rights deal.
The TV deal
Teams around the league are preparing for an enormous bump in the salary cap for the 2016-17 season once the league's TV deal expires after the 2015-16 season. Two more seasons of normality and then, boom, open up the floodgates.
The NBA currently receives an annual $938 million as part of its eight-year, $7.5 billion agreement with ESPN/ABC and TNT/Turner that will expire in two years. But early estimates suggest that the annual payout could see an increase of 50 percent or greater to nearly $2 billion. For reference, the previous deal, signed in 2007, saw a 20 percent boost over the previous one.
A rising tide floats all boats. Under the current CBA, James can only receive a max contract pegged to a percentage of the NBA's salary cap. Thus, if the salary cap goes up, so does James' earning potential. The league determines the salary cap by looking at the league's BRI (basketball-related income), which derives a big chunk of its cash from television rights contracts. Bigger TV deal, bigger salary cap, bigger payday for James and the rest of the league's elite looking for max contracts.
But timing is important. Execs around the league say it is unclear whether the new TV deal will be signed in time to see a significant rise in the 2016-17 salary cap. There are more unknowns about how exactly it will be incorporated into the system. Salary caps are determined by revenue projections and if the new TV deal is struck before the expiration date in the summer of 2016, the league will have a pretty good idea where to draw the line for the salary cap the following season. The projections are important because the TV cash won't have to be pocketed in order to establish the new salary cap line.
So how high will the 2016-17 cap be?
It's too early to know for certain, but teams are expecting a monster number. We haven't seen a 10 percent increase in the salary cap since 2005-06. The 2014-15 salary cap rose 7.5 percent from 2013-14 and a league memo sent out earlier this week projects a five percent increase in 2015-16. The recent bumps were new. The salary cap barely moved for five seasons between 2008-09 and 2013-14.
This season's rise of 7.5 percent will seem trivial compared the expected 2016-17 bump. One team's cap expert I spoke with is currently operating under a salary cap projection of $75 million for the 2016-17, which would represent a 13.2 percent bump compared to 2015-16. That's a huge number and it could soar even higher. A jump to $80 million, the number that Windhorst cited, would indicate an enormous 20 percent hike, larger than anything we've seen in the NBA since 1996 when the cap went up 44.7 percent from $15.9 million to $23 million. It's worth pointing out that while the TV deal jumped 20 percent in 2008, the salary cap moved up only 5.5 percent the next season.
In preparation for a much bigger jump, contracts are becoming increasingly shorter in the NBA, which means teams will repeatedly have cap space galore. That's not a good sign if you recently bought a player's jersey. More flexibility for teams may lead to more player movement. Five years ago, it would be absurd to imagine the league's best player signing just a two-year contract in his prime. But that's a reality now.
The 2016 free agency class
You thought the 2014 class boasts star power? Take a peek at 2016.
James is set to join Kevin Durant, Dwight Howard, Joakim Noah and Al Horford along with Chandler Parsons and Mike Conley. That's three of the top four vote-getters in the MVP race -- Durant, James and Noah -- all set to hit free agency at the same time. And don't forget about Kobe Bryant. He'll join the party, too, assuming he doesn't retire. In the event he sticks around, we'll see if the Lakers have enough confidence in him again to offer another gigantic deal when he's about to turn 39 years old.
With all the superstars hitting free agency, the league could undergo a makeover in 2016. Durant could hit free agency for the first time in his career and you can bet that several teams will leave room to lure him away from Oklahoma City. Word from James' camp is that he intends to stay with the Cavs long term despite his two-year deal, but James has now made two unexpected free agency moves in his two opportunities. The possibility, however remote, is there for James and Durant to link up in 2016 either in Cleveland or somewhere else.
Not every team is clearing the deck for 2016. The Knicks just signed Carmelo Anthony to a five-year deal that will hold him under contract through 2018-19. Same goes for the Miami Heat who dedicated a slice of their 2016 cap space to Chris Bosh. However, a $23.9 million salary may seem more reasonable if the salary cap rises to $80 million and a max contract could generate a starting salary as high as $28 million.
The effect of the 2017 CBA
James is also smart to lock in a short-term deal for another reason: the new collective bargaining agreement could change the game in 2017. Both the players union and the league can opt out of the CBA in 2017, which could scramble how contracts work in the NBA. Everything will be on the table.
One drastic change that could make James' decision look brilliant: the elimination of the max contract. As I outlined last week, the max contract has shorted James tens of millions of dollars over his career while also encouraging other stars to link up and build superteams. If limits on player salaries disappear or become more lenient, it's not unreasonable to suggest that James' salary in 2017-18 could range anywhere from $40 to $80 million, depending where the salary cap lands in 2017-18.
However, it's unlikely the players union goes for that. For every million that James adds to his annual paycheck, that's a million that another player doesn't see. And the union doesn't exist just to serve MVP candidates; it represents hundreds of players who could see their salaries plummet with the elimination of max contracts.
This is way down the road, but as you can see with the shorter deals, players and teams are paying close attention to the horizon now. If you thought James played hard-to-get in 2014, just imagine if his salary doubles in a few years.