FanPost

The Financial Case for Keeping Rondo

Jared Wickerham

To begin: If you think Rajon Rondo just isn't that good, think there is no way he'll stay here even for a max contract if we don't have a second star in place, or hate math you're probably better off just stopping now.

With the apparent shift in the Kevin Love landscape likely putting him in Cleveland (remember when he would only ever want to go to California?) a lot of Celtic fans' attention will now be turned fully to the future of Rajon Rondo. In most cases they already have. While I believe trading Rondo if a fine option if the right deal comes along I also think there's a purely NBA-finances reason for keeping him that relates to the timing of his free agency both in his career and in the league direction. All of this relates to the nature of NBA maximum contracts which is why I said that if you don't think he's all that good, as in not good enough for the max, everything after this is probably going to be pointless to you.

The NBA has a complicated way of setting individual player's maximum contracts. A few days ago I made this chart to lay it out. The important elements when dealing with Rajon's potential extension are:

  1. The max is dependent on the player's years of service with buckets for 0-6, 7-9 and 10+ seasons. Rajon will have nine years of service after this season meaning he falls into the "30% max" bucket instead of the "35% max" bucket for players with one more year of experience than him.
  2. The max is set as a percentage of that season's salary cap and Rajon is up for an extension the summer before most people are projecting a significant rise in the cap.
  3. Maximum annual raises are not based on the changing salary cap but instead are a flat percentage of the first year's salary in every contract.

What this means is that if Rajon had one more year of experience he'd be significantly more expensive than he actually will be. If he were coming up for free agency one year later, and the salary cap rises, he'd be significantly more expensive. If he were either of those things, or especially both, he would not only be more expensive in his first season but would then stay more expensive and possibly become progressively more expensive as a percentage of the salary cap going forward.
In the end, the potential value of Rajon's extension is just a big (but basic) math problem. To establish the potential value we need to start with a few assumptions:

  1. The salary cap next year will be ~$68M. Larry Coon reported that the most recent projection is for $66.5M but historically the early projections have been conservative and for this example we want to err on the side of aggression just to be safe.
  2. The salary cap the following season will make a substantial jump. Zach Lowe reported that some teams believe it will make a massive increase to $85M after the next TV deal is signed. I doubt it goes that high but teams, agents and players are all operating like they think it's coming.
  3. The owner may lock out the players but if they do it will be over the percentage of revenues given to players and not over the basic structure of league contracts.
  4. If major changes are made to the CBA in a lock-out, a one time contract amnesty provision will be granted to all teams, as has been done in previous CBAs.

If these things are true we can map out the projected max extension for Rajon and compare it against what similar players will be getting paid. I wrote up a general overview of the impact of a fast rising cap last month. This will be Rajon-centric.


Potential Rondo max extension if the cap is $68M in 2015-16:

2015-16 2016-17 2017-18 2018-19 2019-20
$19,079,900 $20,510,893 $21,941,886 $23,372,879 $24,803,872

If Rajon were coming off his tenth season instead of the ninth a five year max-raises contract would instead be:

2015-16 2016-17 2017-18 2018-19 2019-20
$22,259,900 $23,929,393 $25,598,886 $27,268,379 $28,937,872

Right away there is value in re-signing a player at the nine year mark. You get a substantial discount in their max salary and you catch them a year earlier in their career at a point when you have to expect their production to tail off during the contract. A ninth year veteran is substantially more attractive than a tenth year veteran, unless you're talking about the transcendent, top-five type players where you're basically always getting a great deal.

This structure is not a coincidence. It's a purposeful decision by the NBA to spread talent. The way a team can operate when they have mini-max (0-6 years), mid-max (7-9 years) and top-max (10+ years) players under contract varies. A team cannot fit three top-max players under the salary cap even if they have no one under contract. A team with a mini-max and top-max player would struggle to make enough cap space to sign a third max player which is why Cleveland is better off taking Kevin Love now, while they can, instead of fooling themselves into thinking they could make the cap space for him next summer. Locking up a 10+ year vet who deserves the max (so again if you don't think Rajon does that's a different conversation) for the mid-max rate is a smart decision.

The real value in timing is related to the direction of league revenues, though. The salary cap is a percentage of "basketball related income" (BRI). Maximum contracts are a percentage of the salary cap. When basketball revenues increase the salary cap increases so the maximum contract for new signings increases but already signed deals do not change. If you believe the cap is going to jump because of the pending new TV deal then signing a max contract player right before that happens is a good decision.

Let's imagine Rajon was a free agent in 2016 instead of 2015. He's a ten year veteran now and the salary cap has made a second jump from $68M to some new number. We can set a range of cap increases and compare what he would be worth as a ten year vet to what he would be signed for as a nine year vet the prior season, even with the full 7.5% raises that we could offer:

Max salary structure for a nine year vet signed in 2015 versus a ten year vet signed in 2016 (all figures in millions)

2016-17 Cap Proj Increase 2016-17 2017-18 2018-19 2019-20
2015 Contract 7.5% $20.5 $21.9 $23.4 $24.8
$68.0 0% $22.3 $23.9 $25.6 $27.3
$69.7 2.5% $22.8 $24.5 $26.2 $28.0
$71.4 5% $23.4 $25.1 $26.9 $28.6
$73.1 7.5% $23.9 $25.7 $27.5 $29.3
$74.8 10% $24.5 $26.3 $28.2 $30.0
$78.2 15% $25.6 $27.5 $29.4 $31.4
$81.6 20% $26.7 $28.7 $30.7 $32.7
$85.0 25% $27.8 $29.9 $32.0 $34.0

You can immediately see how, if you believe Rondo is a full max player, signing him next season could create a discounted deal almost as good as his current one. Even if we just take the middle figures and say the cap will see a 10% increase between 2015 and 2016 it's a $4M savings in 2016-17 for signings him from the 7-9 year veteran class on the lower cap. The annual increases are tied to the first year salary so those also are more in the 2016 signing and by the end of even a maximum five year contract with maximum raises signed in year nine before the cap jump Rajon is making $5M/year less than if he were in the fourth year of a contract signed a year later.

Salary_Diff_Trend

There's a reason LeBron James signed a two year contract. He (and his agent) thinks the cap is going to increase substantially. For LeBron it's less of a deal because he's already beyond the 10 year veteran line but even still he wants to be able to sign a contract after the cap jumps. If that structure is good for the player, the opposite is likely good for the team.

Now, all of this doesn't make keeping Rondo a slam dunk. We're all in the dark on the thinking of Rajon and the team. If Rondo says he won't come back to a rebuilding team you probably have to move him. If he wants a LeBron-type short term contract with opt-outs the potential value disappears. If you just don't think he's good enough, or will stay good enough, to be a building block then you've already made your decision. However, if he's willing to lock up $110M in guaranteed salary (like Bosh was) now it may actually turn out to be a good deal, regardless of how crazy that sounds, if you believe in his ability.

The last thing to keep in mind is that we may be staring at a future lock-out. If that comes and the cap is tamped down by a change in the terms it could be a disaster. If we sign Rajon thinking we're getting a deal and that his contract will be shrinking as a percent of the cap even with max raises and that changes it would be trouble. It's not a pleasant thing to consider but then the saving grace would be amnesty. The amnesty provision isn't meant to wipe away bad decisions even if that's what often happens. The real purpose is to indemnify teams against being punished for changes that they couldn't have known about. If revenues skyrocket but max contracts stay the same we would likely then have a new amnesty provision in our pocket in case the deal looks bad by the end.

To me, it comes down to a simple set of questions. Is he willing to lock in another long-term deal and do we believe in his talent? If the answers are "yes" it would take a big trade offer to take him away. If the cap is flying upwards the financial penalties for this kind of contract are nowhere near as severe as they used to be. Terrance Jones and Patrick Beverly and some non-guaranteed contracts have value but probably not as much as even just the chance of locking in a long-term bargain on a max-level player. Those opportunities don't come around very often beyond rookie extensions. A max contract might just make Rondo a very rich man and also give the Celtics the potential to keep their star while maintaining their long-term flexibility.

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