Not All NBA Maximum-Salary Contracts Are Equal

DeMarcus Cousins just signed a new "max contract" with the Sacramento Kings.
DeMarcus Cousins just signed a new “max contract” with the Sacramento Kings.

I recently suggested to a friend that it may not be in the Knicks’ best interest to sign Carmelo Anthony to a “max contract” if he opts out of his current deal next summer, as expected. “How can you say that Anthony is not worth a max deal when Sacramento just committed max dollars to DeMarcus Cousins,” he responded, with a look of disbelief.

Without delving into the merits of Cousins’ deal—a topic for another day—I explained to my friend that Cousins’ contract is worth a total of $62 million. A new “max deal” for Anthony would cost the Knicks in excess of $129 million.

The term “maximum-salary contract” or “max contract” for short, is generally used to describe a deal in which a player receives the most amount of money per season allowed by the collective bargaining agreement. The phrase is thrown around so haphazardly that many fans are under the false impression that all “max contracts” are equal. In fact, as demonstrated by the Cousins-Anthony comparison, max salaries can vary tremendously depending on numerous factors, including how the long the player has been in the league, his previous contract and the team he signs.

Under the CBA, players have both a minimum and maximum salary based on how many years they have played, though several exceptions apply. Players who have been in the NBA for 0-6 seasons can sign a deal worth up to 25 percent of the salary cap ($13,701,250 in 2013-14). Those who have spent 7-9 seasons in the league can earn up to 30 percent of the cap ($16,441,500 in 2013-14), and players with a tenure of 10 years or more can receive a maximum of 35 percent of the salary cap ($19,181,750).

Exceptions to the limits for players on rookie deals

The CBA limits the length of a rookie’s contract to four years. An exception to the rule is that each team can sign one “Designated Player” under a rookie contract to a five-year deal. Teams can only name one “Designated player” (A team cannot name a new designated player until the last one’s contract expires), though they can trade for another team’s designated player. No team can have more than two total designated players on its roster.

Members of the media have repeatedly referred to Cousins’ new contract as a “max deal” because he will be making the maximum amount of money allowed over a four-year period, though the label is misleading. The Sacramento Kings chose not to name him their “Designated Player,” though they were free to do so. They could have paid the talented big man the maximum amount allowed for an additional season.

Paul George just agreed to a new five-year deal with the Indiana Pacers.
Paul George just agreed to a new five-year deal with the Indiana Pacers.

Paul George, who like Cousins is heading into his fourth season, was recently named a “Designated Player” by the Indiana Pacers and signed a new five-year deal reportedly worth between $80 and $90 million, depending on the salary cap. You may recall that the Minnesota Timberwolves irked forward Kevin Love when they refused to name him their “Designated Player” in January, 2012. Minnesota signed Love to a four-year contract, opting to save the “Designated Player” label for Ricky Rubio.

There is even ambiguity in the term “max contract” as it applies to George’s deal.

The Derrick Rose Rule

Derrick Rose won the MVP award in 2011.
Derrick Rose won the MVP award in 2011.

The CBA includes an exception known as “The Derrick Rose Rule” (Rose was the only player it applied to when the CBA was passed in 2011) which allows a “Designated Player” to earn 30 percent of the salary cap (as opposed to the standard 25) if he meets certain criteria. To be eligible, the player must have been voted a starter in the All-Star Game twice, MVP or named to an All-NBA First, Second or Third Team twice. So far, only Rose and Blake Griffin have accomplished one of those feats on their rookie deals.

James Harden agreed to a provisional “5th year, 30 percent” deal with the Houston Rockets when he was traded to the team on the eve of the 2012-13 season, but failed to meet the criteria. Like Harden, George is guaranteed a fifth year, with his “30 percent” status contingent on him meeting the criteria. George was named to the All-NBA Third Team last season so he can cash in with another All-NBA selection.

The difference between Harden’s deal, which is limited to 25 percent of the cap and Griffin’s at 30 percent is in excess of $15 million.

Maximum-salary exceptions for veterans (The Larry Bird Exception)

The Larry Bird exception will enable the Knicks to pay Carmelo Anthony more than other teams.
The Larry Bird exception will enable the Knicks to pay Carmelo Anthony more than other teams.

Veteran contracts work a little differently. For starters, a free agent’s maximum salary in the first year of his new contract can never be less than 105 percent of his salary in the last year of his old contract. That rule applies even if it puts the player’s salary above the percentage of cap space typically allowed.

In general, like players on rookie contracts, veterans cannot sign deals longer than four years. The “Larry Bird Exception” is designed to provide incentive for players to re-sign with their old team. A player obtains “Bird rights” by playing for the same team or under the same contract for three consecutive seasons. Those rights transfer with a player if he is traded. They enable a player to re-sign with his current team for a greater duration (five years) and more money (with annual raises of up to 7.5 percent of his salary in the first season of the contract, compared to 4.5 percent increases for non-Bird contracts.)

Take Carmelo Anthony for example. He is scheduled to make $21,388,953 in 2013-14. If he opts out of his contract after this season he can sign a four-year deal with another team, beginning at $22.457 million (105 percent of $21.389) with increases based upon changes in the salary cap over the following seasons. If he re-signs with New York, he can make $22.457 in his first year, with annual increases of 7.5 percent of that $22.457 million ($1.684 million) for another four years. The rest of his contract would look like this:

2015-16: $24.141 million
2016-17: $25.825 million
2017-18: $27.509 million
2018-19: $29.193 million

Depending on the cap number over the next few seasons, the Knicks can offer him in the area of $33-$34 million more than other teams. That gives you an idea of how much money Dwight Howard left on the table when he relinquished his Bird rights to sign with the Houston Rockets instead of the Los Angeles Lakers. Yet, Howard’s contract with Houston is still referred to as a “max deal.”

If Anthony signs a max contract with the Knicks, he will be 34 years old in the last year of the deal and take up nearly half of the team’s cap space. It would be extremely difficult for New York to surround the star forward with the pieces necessary to win a championship. That is why I believe the Knicks should think twice before signing such an agreement.

Contracts signed under the previous CBA and a Kobe Bryant Mega-deal

Kobe Bryant will make over $30 million this season.
Kobe Bryant will make over $30 million this season.

Bird rights apply even if a player’s salary is in excess of 35 percent of the salary cap because it was signed under the old CBA. Kobe Bryant is owed $30,452,805 in the last season of a three-year extension he signed with the Lakers in 2010. In theory, the Black Mamba could sign a new maximum-salary contract with the Lakers that would start at just under $32 million. The remainder of the deal would shake out as follows:

2015-16: $34.374
2016-17: $36.772
2017-18: $39.170
2018-19: $41.568

The contract could total $183.859 million. That’s a lot more than the $62 million “max contract” Sacramento agreed to with Cousins. Of course, the Lakers will not offer their aging superstar anywhere near that amount, even though according to SI.com, Bryant has indicated that he does not plan on taking a pay cut next season.

* Salary cap information obtained from Larry Coon’s cbafaq.com