by Andrew Brandt
June 30, 02010
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Please indulge the momentary break from football, but the business of sports is jumping as the two-year LeBron James watch enters its flashpoint tonight at midnight when his existing contract with the Cleveland Cavaliers expires.
LeBron is the most discussed and anticipated free agent in sports since free agency arrived on the sports landscape in 1976 with the Messersmith/McNally arbitration in baseball. And in baseball and basketball, unlike football, free agency truly matters (column coming soon).
LeBron could radically augment the brand of his chosen franchise and, if that franchise does not continue to be the Cavaliers, devalue the brand of the Cavs and, yes, the city of Cleveland. The Cavs were recently valued by Forbes at $476 million, the fifth highest valued franchise in the NBA. That valuation may be dropping soon.
With the collectively bargained restraint of maximum contracts, LeBron’s value becomes even greater. Were he a superstar free agent in another sport without maximum contracts, the earning possibilities would be far greater.
The NFL has several collectively bargained restraints on top players but has no limit on what players can make as does the NBA. Although like the NFL, the NBA wants to take back some of the gains the players have made in compensation over the recent years, one would think the target of the NBA’s wrath is the middle class of dozens of $5-10 million players rather than the fifteen or so “max” players.
Of course, no one will feel sorry for LeBron and the other max free agents: Dwayne Wade, Chris Bosh, Joe Johnson, etc for “only” making $16 million or so. However, for the star value they bring their franchise as a fixed cost, they are highly underpaid. Imagine Jack Nicholson, Tom Hanks or LeBron chum Jay Z limited by maximums on their earnings. LeBron and his 2010 band of brothers are giving up tens of millions of dollars due to the maximum rules.
An NBA franchise acquiring LeBron would thus have a capped cost for his services to go along with the startling brand enhancement that he would bring. The asset value of the team would soar with LeBron under contract along with cost certainty to his earnings without any need for negotiation of his contract! The only negotiable item is the number of years. It is simply one of the best value-acquisitions in the history of sports.
Primer on NBA maximums
In the event a player re-signs with his current team, that player can earn a six-year contract with annual raises of 10.5%. This is a built-in advantage for the incumbent team as a new team can only offer five years and annual raises of 8%. And in the NBA -- unlike the NFL -- the number of years on a contract matters greatly, as the money is guaranteed.
Although the 2010-2011 NBA Salary Cap number – on which the number for the maximums will be based -- will not be known until July 8, let’s assume the maximum for this season will be $16.5 million.
Based on that number, the maximum amount that the Cavaliers could offer LeBron, the Heat could offer Wade, the Raptors could offer Bosh, etc., would be $129 million over six years while the most a new acquiring teams could offer is $97 million over five years.
$32 million is a lot of money. However, this may be one situation where the players are actually being genuine in saying “It’s not about the money.” This is more about power and my sense is James and Wade are going to show that their plan hatched three years ago will show them as the ultimate power players in team sports.
Tomorrow I will look at what I think will happen, and the possibility of shorter deals to continue to courtship process beyond 2010 for a couple of more years.
The confluence of circumstance of the talent of LeBron and company combined with the NBA maximums has led to an incredible value proposition. Of course, that’s why teams have been clearing the decks for two years for this moment.
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