LeBron, LeBron, LeBron.
With the 2013-14 NBA season in its infancy, it seems as though the biggest topic of conversation is whether LeBron James is going to opt out of his contract with the Miami Heat two years prior to its expiration and sign a new mega deal. As pundits weigh in and teams’ salary cap experts scramble to figure out how they might be able to get their hands on the greatest player of this basketball generation, Dwyane Wade’s potential free agency looms quietly in the background.
In 2010, Wade signed a six-year, $110.1 million contract with the Miami Heat. The contract provides Wade with the option to opt out in 2014 and 2015. The purpose of opting out for any player is to secure a more lucrative deal than the one he currently has. However, for Wade, his decision to opt out should be guided largely by his age. Similarly, teams seeking to sign Wade must also be cognizant of his age as his free agency approaches.
When it comes to Wade’s age, on the surface, the biggest question is how many playing years he has left. However, below the surface and crouched in the 2011 NBA collective bargaining agreement lies another issue: the Over 36 Rule.
The NBA’s Over 36 Rule exists to recognize the reality that even though NBA players may be signing contracts that will not expire until after they are 36-years-old, the likelihood of them playing until that age is slim. The Over 36 Rule applies when a player signs, extends or renegotiates a contract that is four-years or more in length, and the player will be 36-years-old or older when at least one of those seasons begins. If the Over 36 Rule applies to a player’s contract, a portion of his salary may be reallocated towards the calculation of the salary cap in other years.
When it comes to Wade, who turns 32-years-old in January 2014, the Over 36 Rule and its operation is something his representatives and teams alike must be aware of. In a perfect negotiation setting, Wade’s agent will secure him a five-year contract taking him into the twilight of his career. If Wade’s representation seeks a five-year contract, the point at which Wade opts out of his current contract plays a considerable role in how the Over 36 Rule impacts the salary cap of the team signing him.
The Over 36 Rule is concerned with the age of a player as of the date of the start of the NBA season, which the collective bargaining agreement defines as October 1. If Wade opts out of his contract in 2014 and signs a five-year contract that summer, he will be the following ages at the start of the proceeding five NBA seasons:
|NBA Season||Dwyane Wade’s Age|
When it comes to the Over 36 Rule, for teams wanting to sign Wade to a five-year contract, it may be in their best interest if he opts out in 2014. The reason for this, is that it is in this time frame that the Over 36 Rule arguably has the least impact on a team’s salary cap. With respect to a five-year contract signed by Wade in 2014-15, the Over 36 Rule would operate in one of two ways.
First, assume that Wade unexpectedly retires before this new five-year contract expires. If that is the case, the portion of his salary he is due for 2018-19, when he is 36-years-old, would be distributed in a pro rata basis and added to his team’s salary cap for the 2014-15 through 2017-18 seasons. For teams like the Miami Heat who are expected to face salary cap crunches as they attempt to re-sign James, this could pose a problem.
In contrast, assume that Wade clears waivers and plays all five years under the new contract. In that case, the Over 36 Rule would not impact his team’s salary cap until 2016-17. Under the Over 36 Rule, at that point, the salaries remaining on his contract will be aggregated and attributed to the three years remaining on his contract. In simpler terms, what this means is that if Wade is still playing in 2016-17, his salary in that year will be higher than what is negotiated because of the Over 36 Rule. This again has salary cap implications for the team who signs him. However, these implications aren’t as large as those discussed in the hypothetical above where Wade is no longer playing in the fifth year of his contract.
For the Miami Heat, it would arguably be in the team’s best interest salary cap wise if Wade does not opt out of his contract either in 2014 or 2015. First, there is the obvious point that the team may be able to secure Wade for less money in 2016 when he is 34-years-old than they will be able to in 2014 when he is 32-years-old. However, the less discussed issue is that it is in 2016 that the Over 36 Rule has the least impact on the Miami Heat’s salary cap. One provision of the Over 36 Rule provides that if a 33-or-34-year-old enters into a five-year contract with his prior team that triggers the Over 36 Rule, only his fifth year salary is distributed pro rata.
Why is this a benefit to the Heat? First, it’s important to understand Wade’s age at each point of a five-year contract entered into in 2016:
|NBA Season||Dwyane Wade’s Age|
Teams looking to sign Wade to a five-year contract in 2016 other than the Heat will be subject to the Over 36 Rule beginning in the fourth year of the contract. This means that those teams would have to distribute the salary he is owed in years four and five of the contract on a pro rata basis in 2016-17, 2017-18 and 2018-19. The Heat, however, since they are Wade’s prior team, wouldn’t be subject to the Over 36 Rule until the fifth year of the contract. This means that the Heat would feel less of a burden on their salary cap, as they would only have to reallocate one year’s salary over the course of four years, as opposed to two year’s worth of salaries over three years.
The big take-away here, is that just as in 2010, if Wade wants to remain with the Heat or move to another competitive team, he will likely have to compromise. And while most pundits pinpoint that compromise being about salary or years on a contract, perhaps the biggest compromise Wade will make is what year he will opt out of his current contract.