Kevin Love's Next Contract - and ETO's

[shrink]

I had some questions about Kevin Love's next deal, particularly the ETO, and I was hoping someone could help me get things straight in my own mind.

For his current deal, Kevin Love signed extension on 1/25/12 for an assumed maximum salary for 4 years that starts in 2012-13.

2012-13: $12,922,194
2013-14: $13,891,359
2014-15: $14,860,523
2015-16: $15,829,688 .. ETO

Here's the sentence that confuses me from the bible.

A contract that contains an Early Termination Option (ETO) cannot be extended if the ETO is exercised (ending the contract early). A contract with an option can be extended if the player opts-in. A contract with an option can also be extended if the player opts-out, as long as the extension adds at least two new seasons onto the contract (excluding any new option year) and the salary in the first year of the extension is not less than the salary in the non-exercised option year.

So does this mean there is a special case when the initial sentence is not true?

-----------------------------------

If so, I think Love's options are:

1. Accept the ETO (terminate early), and enter free agency in July of 2015. (No extension)

2. Accept the ETO (terminate early), and accept an extension (must be for at least as much money than the ETO year, and at least two years) (True?)

3. Reject the ETO, (accept fourth year) and accept an (probably three year) extension from MIN

4. Reject the ETO, and don't sign an extension I suppose - just play out 2015-16.


Also, is there an earliest date that an ETO can be rejected? Larry notes the puzzling fact that there seems there is no indication of a method for informing the league office, but I'm curious about a start date? Perhaps three years after the extension is signed?

Love is on a max deal -- anyone have the dollar amounts he could get in free agency versus in an extension? If someone already has those numbers, I thought I'd trot them over to the appropriate boards for discussion, since Love's next team seems to draw a lot of talk these days.

Thanks all!

[DBoys]

1 I believe Larry was addressing the topic of "what happens if each type of option clause is declined " in parallel structure, with a meaning as follows:

RE AN ETO - - A contract that contains an Early Termination Option (ETO) cannot be extended if the ETO is exercised (ending the contract early).
RE A PLAYER OPTION - - A contract with an option can be extended if the player opts-in. A contract with an option can also be extended if the player opts-out, as long as the extension adds at least two new seasons onto the contract (excluding any new option year) and the salary in the first year of the extension is not less than the salary in the non-exercised option year.

2 About when an ETO can be declined, the better thing to examine is when it might truly happen (or not). And it's a relatively narrow window. Unless the player and team want to trade him in June immediately preceding the ETO year, there's no reason for a player to ever decline an ETO. So an "earliest" date, for practical purposes, that a player would ever decline an ETO would be in that after-season window, to facilitate a trade (one that otherwise would have to wait until June 30).

3 "Love is on a max deal -- anyone have the dollar amounts he could get in free agency versus in an extension?"

The operative issue is: if he intends to stay with Minny, his choice is 3 years or less on an extension, versus 5 if he waits another month. There are nickels-and-dimes that MIGHT be gained in the initial year of the extension (107.5% vs 105%, if his salary is over the max) but the additional 2 years really makes it pointless to crunch those precise numbers to compare.

4 Will Love opt out? Who knows, but my guess is he's likely not to. Waiting until summer 2016 for free agency would allow him to get a new max-length deal in summer 2016 before a new (and perhaps more restrictive) CBA in the summer of 2017.

[HartfordWhalers]

1 I believe Larry was addressing the topic of "what happens if each type of option clause is declined " in parallel structure, with a meaning as follows:

RE AN ETO - - A contract that contains an Early Termination Option (ETO) cannot be extended if the ETO is exercised (ending the contract early).
RE A PLAYER OPTION - - A contract with an option can be extended if the player opts-in. A contract with an option can also be extended if the player opts-out, as long as the extension adds at least two new seasons onto the contract (excluding any new option year) and the salary in the first year of the extension is not less than the salary in the non-exercised option year.

2 About when an ETO can be declined, the better thing to examine is when it might truly happen (or not). And it's a relatively narrow window. Unless the player and team want to trade him in June immediately preceding the ETO year, there's no reason for a player to ever decline an ETO. So an "earliest" date, for practical purposes, that a player would ever decline an ETO would be in that after-season window, to facilitate a trade (one that otherwise would have to wait until June 30).

3 "Love is on a max deal -- anyone have the dollar amounts he could get in free agency versus in an extension?"

The operative issue is: if he intends to stay with Minny, his choice is 3 years or less on an extension, versus 5 if he waits another month. There are nickels-and-dimes that MIGHT be gained in the initial year of the extension (107.5% vs 105%, if his salary is over the max) but the additional 2 years really makes it pointless to crunch those precise numbers to compare.

4 Will Love opt out? Who knows, but my guess is he's likely not to. Waiting until summer 2016 for free agency would allow him to get a new max-length deal in summer 2016 before a new (and perhaps more restrictive) CBA in the summer of 2017.

I terms of 4, your suggestion is that Love would play with only 1 year of security instead of 4 (or 5) to get 1 extra year of the current CBA versus a future CBA that may or may not be worse. I'm very speculative of that tradeoff.

[answerthink]

A couple of notes for you guys in case they are helpful as you contemplate your various scenarios:

Kevin Love’s Contract:
• I believe the numbers provided above are outdated. They were the original placeholder numbers that were used, but when the first season of his extension arrived and the max salaries for 2012-13 were defined, they were increased. His finalized contract amounts are provided here: http://data.shamsports.com/content/page ... wolves.jsp.
• I believe his contract contains a player option on the 2015-16 season (not an ETO).

Extension Rules:
• The largest allowable salary in the initial year of an extension can’t pay a player more than in a new contract. While the first year of an extension can be for up to 107.5% of a player’s previous salary, it is still subject to max salary rules (and thus the comparison of 107.5% to 105% isn’t relevant).
• It can, however, be less than in a new contract. And, for Love, based on current projections provided by the league, it figures to be significantly less.

Option/ETO:
• The windows during which options/ETOs may be exercised are described in Q58 of the FAQ.
• As is described, there is no mechanism for them to be declined. A team and player can mutually amend a contract to remove an option or ETO to facilitate a trade.
• Love’s option year figures to pay him significantly less, based on current projections provided by the league, than in the first year of a new contract.

I will abstain from providing you with what I might do, or what I think Love might do, because those are subjective opinions. But you should take note when contemplating your various scenarios that there are a couple of major events to come in the years ahead (including the expiration of the current TV rights deal after the 2015-16 season and the potential to terminate the CBA after the 2016-17 season) that will undoubtedly impact his decisions (and those of many other players as well), and he will have a lot more information before he needs to make them.

If you’re someone who likes to contemplate potential contract decisions for various players around the league, you’re going to have plenty of fun…

[DBoys]

AT brings up a good point. By the time Love gets to the final possible year of his deal, and is contemplating whether to keep what's on paper or get a fresh deal, the max contract numbers may have increased so much (from a new TV deal) that he'd be in line for a huge salary jump (with a max salary signing) by declining that final year. But we have no way of knowing if there will be a difference, and if so how much it might be, until we get there.

[answerthink]

You’re miscounting by a year. Love has an option for the 2015-16 season. The current TV deal extends through the 2015-16 season.

[DBoys]

The current TV deal extends through the 2015-16 season.

Okay. Nevertheless, it's more likely than not that by the time we get to the summer of 2015, Love should be able to get a sizable jump in salary by declining his option and getting a new max deal from someone.

The "break-even" point for the 2015 cap to have a max above or below his current number is only about 59.76M, and it seems incomprehensible that the 2015 cap wouldn't be set well above that number. For example, if the cap this summer jumps from 58.7M to 62.1M as projected and then next summer jumps to 66M, his max would be over 18.5M (rather than the 16.7 his option year offers).

[answerthink]

A cap of $66 million wouldn’t quite get you over $19 million, but it would get you over $18 million. That’s partly why I mentioned above that it would be significantly more than if he exercised his option. (I wouldn’t use actual numbers though, both because the relationship between the cap and the adjusted cap off which max salaries are based isn’t as exact as you’re implying and because it’s multiple years out and people may run with them).

I don't mean to suggest he will opt out of his contract, rather just to provide the info for you guys.

As another small bit of good news, current cap projections for next season started at $62.5 million and have since risen to $62.9 million.

[HartfordWhalers]

A cap of $66 million wouldn’t quite get you over $19 million, but it would get you over $18 million. That’s partly why I mentioned above that it would be significantly more than if he exercised his option. (I wouldn’t use actual numbers though, both because the relationship between the cap and the adjusted cap off which max salaries are based isn’t as exact as you’re implying and because it’s multiple years out and people may run with them).

I don't mean to suggest he will opt out of his contract, rather just to provide the info for you guys.

As another small bit of good news, current cap projections for next season started at $62.5 million and have since risen to $62.9 million.

I understand you don't want to, but unless Kevin Love falls off dramatically and isn't worth a max contract, then financially the reasons seem compelling that opting out could get him a larger contract, offering long term guaranteed money, or even more money for just a 1 year deal. However, it would seem clear to me that the assumption should be that he will, as has almost every large contract player that wasn't viewed as a bad contract. Dwight would be the big exception, and exceptions happen. But that doesn't mean you cannot have 'reasonable' expectations and assumptions.

[answerthink]

I don’t really like to give my opinions in this forum. I really just like to help people out in their understanding of cap rules so that they can form their own. My opinion is no better than that of anyone else.

What I will say is that, in my opinion, you are thinking very clearly. Love’s situation is so interesting, at least to me, because his max salary has the potential to increase substantially in 2015-16 by declining his option, then again in 2016-17 when the new TV deal kicks in, then again in 2017-18 if the current CBA is terminated and the new terms are more favorable, and then again in 2018-19 because of his tenure in the league. On top of all that, there’s the issue of where he wants to play and whether and when such team will have the means to acquire him. I would imagine that it would make for a wonderful article for somebody who has a bigger audience than I do.

[DBoys]

the relationship between the cap and the adjusted cap off which max salaries are based isn’t as exact as you’re implying ...

Why not? If we use the correct "adjusted" max percentage, can we not predict the exact max for a specific player with a specific cap? In other words, my understanding is that each max (0-6, 7-9, 10+) rises or falls by the exact same percentage as the cap does; but I learn new things all the time.

My rounded 18.5M estimation (more precisely 18.4928) for Love with a 66M was based on the very same max percentage in play this season for that bracket. Are you saying that adjusted percentage (in each bracket of NBA experience) would be different from season to season?

If so, please elaborate on how/why that "adjusted" max percentage varies.
If not, I don't follow what you say I'm somehow incorrectly implying.

[answerthink]

My apologies for the confusion. I wasn’t referring to the $18.5 million projection. For some reason, I don’t actually remember reading that. But I get the same number at a projected $66 million cap.

I was referring to rounding to multiple digits. The ratio of projected revenues used in the calculations creates a perfect parallel because each is divided by the respective rate. But the presence of projected benefits and adjustments in the formula are not, and thus the ratio will be very close, because the magnitude of revenues dwarfs the other two, but won't be exact.

I shouldn't have even brought it up. I only noticed it because I leverage the ratio for certain calculations I like to make at the beginning of the year.

[DBoys]

My apologies for the confusion. I wasn’t referring to the $18.5 million projection. For some reason, I don’t actually remember reading that. But I get the same number at a projected $66 million cap.

I was referring to rounding to multiple digits. The ratio of projected revenues used in the calculations creates a perfect parallel because each is divided by the respective rate. But the presence of projected benefits and adjustments in the formula are not, and thus the ratio will be very close, because the magnitude of revenues dwarfs the other two, but won't be exact.

I shouldn't have even brought it up. I only noticed it because I leverage the ratio for certain calculations I like to make at the beginning of the year.

No problem. Thanks for the explanation..