Is the NBA's CBA Costing LeBron James Millions?

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Is the NBA's CBA Costing LeBron James Millions?
Al Bello/Getty Images

LeBron James has a contract with the Miami Heat that pays him $109,837,500 over six years.

He's making $17.5 million for the current season and will earn $19 million next season.

If he doesn't exercise his early-termination option (ETO) in 2014, he'll get $20.6 million. If he doesn't use his player option in 2015, he can rake in an additional $22.1 million (per spotrac.com).

But according to Ethan J. Skolnick of the Palm Beach Post (via Twitter), James thinks he's worth more. Skolnick tweeted:

Wow. So there are in fact two questions. First, can LeBron be adequately compensated for what he does on the court? And second, is the collective bargaining agreement (CBA) costing him tons of money?

 

Endorsements

Taking into consideration his endorsement deals and the fact that Florida has no state income tax, the answer is most certainly yes.

According to Forbes, LeBron's annual income as of June 2012 was $53 million, making him the fourth highest-paid athlete in the world (behind Floyd "Money" Mayweather, Manny Pacquiao and Tiger Woods).

James has endorsement deals with Nike, McDonald's, Coca-Cola, State Farm, Dunkin' Donuts and Upper Deck.

Marc Serota/Getty Images
One of LeBron's signature Nikes.

So at $53 million per annum, the short answer is that he is indeed being adequately compensated for what he does on the court. If he weren't a player in the NBA, he wouldn't have any endorsement deals. 

And LeBron hasn't even reached the ceiling of his overall earnings potential yet.

Forbes.com writer Keith Turco examined LeBron's potential for surpassing Michael Jordan's marketing and endorsement prowess and wrote:

Most of us have heard of "The Jordan Effect." There are certain studies that attempt to prove that Michael Jordan influenced somewhere around $10 billion, yes, billion, in money spent by consumers…You can’t deny the impact that he had on the economy at the time...The Bulls paid him $34 million for his last season and they did it without hesitation. It was an easy decision. From the time Jordan joined the team to the time he left, the value of the team increased by an estimated 1,000 percent.

Between commercials, ticket sales, TV ratings, merchandise and stimulus to the local economies for both home and away games, LeBron would seem to be at least approaching the largesse that emanates from Jordan.

MJ got paid a lot of money; he also made a lot of people exponentially more money. Jordan is the gold standard, and there would be no LeBron without Jordan.

Of course, LeBron does not have six championships like Mike. He has one.

Streeter Lecka/Getty Images
MJ made so much money from endorsements, he is now the majority owner of the Charlotte Bobcats.

But the Heat's dominance of the Oklahoma City Thunder in last season's NBA Finals and LeBron's stellar play in the series silenced many of his critics. Skip Bayless' claim that James is not clutch no longer holds much water.

And LeBron adding a championship to his resume somehow quelled much of the animosity that resulted from his ill-conceived, hour-long "Decision" to "take his talents to South Beach." 

This will only further serve to increase his earnings from endorsement deals as the vehement LeBron haters soften and admit that he is truly great. It's easily conceivable that he could reach $100 million per year in endorsements alone.

That is more than "adequate," even for the amazing things he does on the court.

 

The CBA

But James clearly has a capacity to be bitter and petty.

When he talks about not being adequately compensated for what he does on the court, he is referring specifically to the salary he receives from the Heat. And he obviously believes that is inadequate.

On the basis of the new collective bargaining agreement, LeBron does not feel that he can receive his full earnings potential from an NBA team.

When a deal was reached to sell the Sacramento Kings in January, James fired out this furious tweet:

To be clear, he meant to ask, "what the hell did we have a lockout for?"

To provide a brief recap, the owners locked out the players in 2011 when the 2005 CBA expired. The lockout lasted five months and robbed the regular season of 16 games. It was the first time the NBA had locked the players out since 1998-99.

The primary issues which kept the NBA and owners divided from the players' union (National Basketball Players Associations, or NBPA) were the players' share of revenue, the luxury tax and the salary cap.

In the end, the agreement reduced the players' share of revenue from 57 percent to about 50 percent, made the salary cap more flexible and established a harsher luxury tax. The deal is good for 10 years and contains on opt-out clause for 2017.

Source: Forbes and Financial World

As the above graphic shows, the NBA pays a slightly higher percentage of its revenue for player salaries than other leagues on average. This made it somewhat plausible for NBA owners to say they were losing money.

The owners used this claim to facilitate the lockout. But as pointed out by Nate Silver of the New York Times (who also employed the above graphic), this assertion is dubious at best.

The owners also refused to open their books and prove it. 

As Silver points out, though ticket sales may have softened since the 1999 lockout, "licensing and media rights have increased at a healthier clip." TV money continues to pour in, and the global popularity of the NBA is continuously expanding. 

Still, the NBA succeeded in reaching a CBA that, while not unfair to players, was certainly amenable to the owners.

UC Irvine computer scientist and CBA genius Larry Coon has an excellent article on ESPN.com comparing the current CBA to the previous one. He also has an extremely detailed site dealing with frequently asked questions about the salary cap.

 

LeBron's Free Agency

Since LeBron James has an early-termination option in 2014, he's beginning to rattle his saber about his contract. Of course, his current contract was signed under the previous CBA, so his complaints are actually to lay the groundwork for negotiation under the new CBA.

So that is why the question is (or rather, will be): Is the collective bargaining agreement costing LeBron millions of dollars? Technically, the answer is yes. Without a CBA, the Heat could pay LeBron $60 million and give the likes of James Jones $1,000.

But that wouldn't be fair to James Jones.

I also don't think LeBron is selfish enough to become like Wisconsin Governor Scott Walker and seek to eliminate collective bargaining rights.

Collective bargaining agreements in sports seek to create workable conditions for all players that are still palatable to the owners.

But that's why James is expressing outrage over the sale price of the Kings. He wants as big a share of the pie as he can get, and he feels, as do some other players, that they got a raw deal with the 2011 CBA

That's part of the reason that NBPA head Billy Hunter was placed on indefinite leave on Friday (per Marc Stein of ESPN). 

Patrick McDermott/Getty Images
NBPA head Billy Hunter with Commissioner David Stern.

Ultimately, however, the maximum possible contract for a player like LeBron is the same under the 2011 CBA as it was under the 2005 CBA.

He purposely signed an extension in 2006 that was shorter than the maximum with the Cleveland Cavaliers following his rookie contract.

This was done so that he could increase his earnings and get the maximum 30 percent of the salary cap after his seventh year in the league in 2010.

He's no fool.

Neither are his fellow 2003 draftees Chris Bosh and Dwyane Wade, who both made the same exact move.

Doug Benc/Getty Images
The Miami Heat introduce their Big Three.

If James does use his ETO in 2014, he'll be back on the open market and able to sign another free-agent contract. He can take his talents wherever he pleases and choose the bidder that offers the contract with the highest pay and friendliest terms. 

 

The Salary Cap

But new CBA or old one, it doesn't really matter for a player like LeBron. He's been in the league long enough and has been successful enough that he meets all the criteria to receive the maximum possible contract.

You can't get more than the maximum.

In the end, if there were no CBA and no salary cap, LeBron would make more money in an unregulated, free-for-all market. But these things are a necessary part of playing in a league, being part of a team and being an employee.

Is LeBron James being adequately compensated by the Miami Heat?

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I think even King James would agree that playing in the NBA is preferable to barnstorming around the globe playing before Arab sheiks and Russian tycoons.

James' real beef is with the existence of a salary cap at all, and this is never going to change because the owners are not stupid. While the NFL and NHL have a so-called "hard cap" (a dollar amount which a team essentially cannot spend more than), the NBA and MLB have a "soft cap." 

You can spend more than the salary cap, but you have to pay the luxury tax, which is fairly exorbitant. Unlike in baseball though, basketball has max contracts, which is a ceiling on a player's maximum salary tied to a percentage of the cap amount.

That's why baseball (aside from Formula One) pays out the highest player contracts in sports. It also leads to dead-weight situations as seen with Alex Rodriguez, Ryan Howard, Cliff Lee and Johan Santana (all earning over $23 million a year and under-performing).

To a degree, LeBron is actually correct. As Chris Rock has explained, a sports star like LeBron James is rich, but the man that signs his check is wealthy.

Michael Cohen/Getty Images
Miami Heat owner Micky Arison at the 2011 labor negotiations. He is wealthy.

But the wealthy did not get that way by being foolish. Owners of professional sports franchises will always cry poverty to keep salaries down. And the owners will remain united about signing a CBA that doesn't empty one of their many, many bank accounts.

LeBron will have to settle for a maximum contract whenever he chooses to become a free agent sometime between 2014 and 2016. He'll never get the massive contract that Jordan saw in 1998 because it's precisely such a situation that precipitated the 1999 lockout.

James will take the $20-odd million in salary, and he'll have to settle for feeling adequately compensated by the $50-plus million he'll get from endorsements over the rest of his career.

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