Options for Howard and Bynum
As impending free agents, should either consider an extension if traded?
Updated: July 30, 2012, 12:35 PM ET
By Larry Coon | ESPN Insider
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Getty ImagesConventional wisdom says Howard and Bynum should wait for free agency.
Everyone thought there would be a resolution to the Dwight Howard situation by now. Instead, August is almost here and Howard still a member of the Orlando Magic -- and just as determined to leave as he ever was.
The Brooklyn Nets, Los Angeles Lakers and Houston Rockets all tried to put together a blockbuster trade package, only to find dead ends. Compounded by Howard's childish ambivalence and waffling, everyone is weary and ready to move on. The Lakers are frustrated. The Magic are frustrated. Howard is frustrated. And now Houston has signed its draft picks, which means they can't be traded for 30 days -- as late as Aug. 25 if Jeremy Lamb is included in a deal.
So what's the holdup?
Ironically, the same system that was supposed to help give teams the ability to retain their players is now making it harder for the Magic to find a suitable deal for Howard, even when they are ready to trade him.
One confounding factor is teams' hesitation to give up the farm to acquire a star player as a one-year rental. Teams contemplating a Bynum acquisition face a similar predicament. Orlando wouldn't want to trade for Andrew Bynum only to find themselves in the same situation they were in with Howard.
Similarly, any team that acts as a facilitator by taking Bynum would need some assurance that he'll stick around past June. Such assurance has not been forthcoming.
One sticking point has been the rules related to extensions:
1. A free agent can sign for up to five years when re-signing with his prior team, or four years when signing with a new team.
2. Extensions are limited to four years, but always include the remaining years on the player's current contract. Players like Howard and Bynum therefore can only add three new seasons via extension. Even if the extension is signed on June 30, the day before the player becomes a free agent, the current season counts as one full year toward the extension.
It's an odd limitation, given that the league's goal with the new collective bargaining agreement was to help improve the ability for teams to retain their star players. So players such as Howard and Bynum are left to choose between adding three years of security via an extension, versus four or five by first becoming a free agent. It's no surprise that they might prefer to wait for free agency, even if they intend to re-sign with their prior teams.
But this means that any team trading for one of these players has to assume the risk of losing him in next summer's free agent market. Trade offers will be lower as a result, making Magic GM Rob Hennigan less likely to pull the trigger on a deal.
Let's look at four additional factors weighing down this process:
1. Injury risk
A four- or five-year contract could vanish if either player sustains a career-ending injury before becoming a free agent. Is this likely? Not necessarily -- Howard is coming off back surgery, but his surgeon said he should be fine even if he proves to be not quite ready by the time the season starts.
Bynum has a history of knee problems, but some of those injuries were flukes (like when Kobe Bryant rolled into his knee), and he completed the 2011-12 season without any issues. Players risk injury every time they take the floor, but career-altering or career-ending injuries are rare.
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2. Maximum salaries
There are three tiers, which are based on the number of years the player has been in the league. A player with 10 or more years in the league has a higher maximum salary than a player with seven-to-nine years, who in turn has a higher maximum than a player with fewer than seven years. The maximum salaries change each year in conjunction with the salary cap. For example, this year the maximum for a player with 0-6 years is $13,688,750; for a player with 7-9 years is $16,402,500; and for a player with 10 or more years is $19,136,250.
A player can always receive up to 105 percent of his previous salary in a new contract, even if that amount is above the league-wide maximum. Howard is on the books for $19,536,360 in 2012-13, and is slated to become a free agent next summer, when he will have nine years under his belt. This means that his 2013-14 salary can be up to $20,573,178 if he signs as a free agent.
The salary in the first season of an extension is limited to 107.5 percent of his previous salary, but cannot be above the maximum. This means that Howard could receive no more in an extension than he could receive by becoming a free agent. In other words, there is no incentive for Howard to sign as a free agent in order to receive a higher salary.
Gary A. Vasquez/US PresswireHoward and Bynum are well positioned for recurring max deals in their careers.
Bynum is a more difficult case to analyze. He is slated to earn $16,889,000 in 2012-13, and would enter free agency next July with eight years in the league. This means he would be able to sign a new contract for $17,733,450 next summer (105 percent of his previous salary most likely will be higher than the 7-9 year maximum). For Bynum, a five-year contract starting at this amount would total slightly less than $102 million.
But what if Bynum becomes a free agent in 2015, when he has 10 years in the league? He will be better off financially if he can sign for more than $20.393 million that season, which would happen if the maximum salary for a player with 10 or more years in the league rises by at least 2.2 percent per year between now and then -- which seems like a safe bet.
This means one possible strategy for Bynum would be to sign an extension now, adding the full three years to his contract but including a player option in 2015. He could then opt-out that summer and re-sign as a free agent with 10 years in the league. If the maximum salaries rise 4.5 percent between now and then (matching the league's revenue projections) he will earn an additional $5.2 million in 2015-16 through 2017-18 -- certainly nothing to sneeze at.
So while maximum salaries will not weigh into Howard's decision, Bynum could be better off signing an extension now in order to become a free agent when he has 10 years in the league.
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3. Career earnings
The theory is a player will have greater career earnings if he signs his last maximum contract at the highest possible age. For example, a 31-year-old is more likely to command a five-year contract than a 35-year-old.
The limiting factor here is the Over-36 rule, which limits teams' ability to sign older players to lengthy contracts. The machinations of this rule are complex, but it all boils down to this: a 31-year-old player can sign a full, five-year contract, but a 32-year-old (or older) player can't. Both Howard and Bynum potentially will increase their career earnings if they time their contracts so they become free agents at age 31.
Stephen Dunn/Getty ImagesHoward and Bynum's financial futures are somewhat tied together.
Howard is 26 now, and will be 27 when he becomes a free agent next July. If he signs a five-year contract next summer with an option at the end of the fourth season, he will have the ability to become a free agent again at age 31 -- right at the perfect time.
However, Bynum would need to sign a six-year contract to become a free agent again at age 31, which is not allowed. In order to become a free agent again at the right time, he needs to sign two contracts, or a contract and an extension. Again, if Bynum signs an extension now and includes a player option in 2015, he could opt-out that summer and re-sign as a free agent. In addition to re-signing as a 10-year veteran, a five-year contract with a player option would allow him to become a free agent again at age 31.
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4. New CBA
The fourth factor to consider is the collective bargaining agreement. It runs through the 2020-21 season, but either side may opt-out in 2017 and re-open negotiations. This means there could be a different set of rules in effect starting with the 2017-18 season. Both Howard and Bynum may be safer if they sign new contracts in 2016, rather than waiting until there is a new -- and potentially less favorable -- collective bargaining agreement.
Bynum's aforementioned strategy of signing an extension with a player option works in his favor. If it looks like either side will opt-out of the agreement, he could play out his option year in 2015-16, sign a new contract in 2016 and not have to become a free agent again until 2021. Howard's situation is more difficult -- he would have to sign for one season fewer in order to become a free agent in 2016, or he could follow in Bynum's footsteps by signing an extension now. In either scenario he would be risking money for the sake of a hypothetical situation where a less favorable collective bargaining agreement awaits.
Bottom line for Bynum: Should he be involved in a blockbuster deal for Howard this summer, his new team would have to accept him as a potential rental. But they can rest somewhat easier knowing it is in his best interest to sign an extension before he becomes a free agent next July. However, if the Lakers extend Bynum in the near future, he will be off the market until close to the trade deadline.
Bottom line for Howard: Howard has indicated that he will re-sign in Los Angeles next summer, so they should trade for him now and negotiate a new contract with him next July.
Despite the Magic's recent grumbling about waiting to deal Howard, it's clearly in their best interest to trade Howard now and start the 2012-13 season without the circus that followed them last season and this offseason.
