At the stroke of midnight Wednesday, Anthony Davis agreed to a 5-year max extension worth $145 million. Minutes later, Kawhi Leonard agreed to a max contract worth $90 million. A few hours later, Damian Lillard agreed to a max extension worth $120 million.
Why Damian Lillard will make a lot more money than Kawhi Leonard
Not all maximum contracts are created equal.
All three players are young, with 3-4 years of service. In fact, Davis and Lillard were taken in the exact same draft (2012). So why are their max contract amounts so different? A few reasons.
1. Timing is everything
Max contracts in the NBA are based on two things: years of service and the salary cap level when the contract goes into effect. Players who have been in the NBA six or fewer years are limited to 25 percent of the salary cap in the year the deal takes effect. Players with 7-9 years of service can make up to 30 percent of the cap. Players who have been in the league at least 10 seasons can sign for 35 percent of the cap.
That's not in play for Davis, Leonard and Lillard: All three have fewer than six years of service. But Leonard, drafted in 2011, is currently a free agent, which means his max deal goes into effect for the 2015-16 season. As such, it's based on the 2015-16 salary cap. That number hasn't been officially set, but rumors suggest it will land at $69 million. The first year of Leonard's max deal, then, is worth 25 percent of that $69 million figure, or $17.25 million. Since Leonard is signing with the team that owns his Bird rights, he's eligible for 7.5 percent annual raises. That means his five-year contract is worth a maximum of $90 million.
Lillard and Davis are not free agents: there is still one more season left on their rookie deals. They are agreeing to what’s known as the Early Bird extension, which is an opportunity to lock in an new contract to go into effect after their rookie deals expire. As such, the deals Lillard and Davis will sign this month take effect in 2016-17. So they are based on the 2016-17 salary cap level.
As has been reported at length, the salary cap is going to explode in 2016 because of the NBA’s lucrative new national TV deal. We won’t know for sure where the cap will land until next summer, but current estimates place it at $90 million. That’s the estimated number being used to figure out the max for this year’s crop of Early Birds. The first-year max salary for Early Birds whose extension takes effect in 2016-17 (25 percent of $90 million) is an estimated $22.5 million. Add in the 7.5 percent annual raises Early Birds are eligible to receive and the contract is worth $120 million over five years.
But that doesn’t explain why Davis is on tap to make an additional $25 million.
2. The Rose Rule
The 2011 NBA labor deal introduced a new provision allowing some Early Birds to sign even bigger deals. Known as the Rose Rule, it allows teams to sign Early Birds and players who have completed their rookie deals (like Leonard) to contracts beginning at 30 percent of the salary cap if that player has won MVP, been named to an All-NBA team twice or been voted an All-Star starter twice before the new contract goes into effect.
Neither Lillard nor Davis have actually met that criteria. Davis will almost assuredly meet it, barring a serious injury. He has one All-Star start and an All-NBA honor under his belt, and he's an early favorite for 2016 NBA MVP. The Pelicans clearly offered the Rose Rule contract to Davis, provided he meets the league-mandated criteria. That means that if he does meet the criteria, his max first-year salary is 30 percent of $90 million, or $27 million. Add in the annual raises and you end up with the max 5-year, $145 million deal that's been reported.
Lillard has no All-Star starts and one All-NBA team berth, so he could still become eligible for a Rose Rule boost. But it would appear, based on early reporting, that the two sides did not negotiate that into Lillard’s new contract.
Regardless, while Davis is practically a shoe-in to be eligible for the Rose Rule, Lillard is far less certain. (His third-team All-NBA honor this year was a bit of a surprise.) Without the Rose Rule boost, Lillard’s max deal is worth just $120 million. He is not eligible to make more.
In conclusion, the NBA Draft class of 2012 got pretty lucky. They are going to end up making buckets more than those equal or better players who came just one year before.
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