Kevin Durant Faces an Intriguing Free Agency Decision

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Four years ago, an upstart Oklahoma City Thunder team was blasting its way into the 2012 NBA Finals on the strength of four stud young draft picks — Kevin Durant, Russell Westbrook, Serge Ibaka and James Harden — who were each 23 or younger, supremely athletic and immensely talented. They seemed destined to stake their claim as the preeminent Western Conference powerhouse for the next decade or so.

Things haven’t worked out as planned thus far.

The Miami Heat went on to take out the Thunder in five games, in what appeared at the time to be the first of many such showdowns. But Oklahoma City then traded Harden to the Houston Rockets prior to the start of the 2012-13 regular season, after the sides couldn’t agree on a contract extension. Harden wanted a max contract that would’ve paid out $61 million over four years, while the Thunder were only willing to offer as much as $54 million.

It was a controversial decision, made as part of a long-term plan to avoid ever having to pay the league’s new and harsher luxury tax. As it turns out, though, Oklahoma City could’ve given Harden his max deal and still only have had to pay the tax for, at most, one season. The Thunder has since paid the tax twice in the three years since he’s been gone.

Over those three years, a Westbrook torn right meniscus ended any shot at a title in 2013, an Ibaka strained left calf contributed to the team’s premature playoff exit in 2014, and an improperly healed Durant Jones fracture in his right foot led to the Thunder missing the playoffs outright in 2015.

In that space of time, competition at the top end of the Western Conference stiffened. Stephen Curry established himself as the best shooter and his Golden State Warriors the best team in NBA history, while the San Antonio Spurs brilliantly reinvigorated their aging core with acquisitions of Kawhi Leonard and LaMarcus Aldridge.

Now we’re left wondering if a team once projected as an NBA Finals mainstay can return even once.

Durant will be 28 to start the 2016-17 season. The lanky 19-year-old rookie from the University of Texas has since collected an MVP trophy, four scoring titles, five (and soon to be six) NBA First-Team selections and seven All-Star Game appearances, but he doesn’t have an NBA title to his name. 

Does Durant truly believe his current Thunder team will ever have a legitimate shot at a return trip to the NBA Finals while facing not one but two of the more dominant franchises in NBA history?

If so, should he give the only professional organization he has ever known, the team to which he has devoted nine seasons, another shot? Should he sign a single-season deal with the Thunder that sets himself up to become a free agent alongside Westbrook in the summer of 2017? Or should he re-up for the long-term, and leave himself exposed to the potential that Westbrook chooses not to do the same the following summer?

If not, should he cut his losses, fold the hand, and seek out a better opportunity elsewhere? Should he try to join one of the elite franchises he no longer feels he can defeat? Or should he move over to the Eastern Conference, where the path toward a perennial NBA Finals birth is paved with fewer mine fields? And if he does move on, should he tie himself into a long-term situation, or would a short-term test run be best?

And how do the economics play into all of this?

This much we know: Durant is one of the very best players in the NBA today, and perhaps ever. He is going to demand a maximum salary, and he damn well should, no matter how stupid big the numbers get with the salary cap set to explode to a projected $92 million.

Max salaries are calculated based on a percentage of the salary cap. There are three levels, depending upon a player’s tenure:

• A player with 0-6 years of experience can make up to 25 percent of the salary cap
• A player with 7-9 years of experience can make up to 30 percent of the salary cap
• A player with 10+ years of experience can make up to 35 percent of the salary cap

Durant is currently a nine-year NBA veteran. He will qualify for 30 percent of the cap, or $25.9 million at current projections.

While the starting salary is the same no matter where he signs, the NBA’s Collective Bargaining Agreement gives the home team a financial advantage when it comes to re-signing its own players.

The Thunder can offer Durant one more year (five instead of four) and bigger annual raises (7.5 percent of the salary in the first season of his new contract instead of 4.5 percent) than can any other team. This translates to an offer of $149.0 million over five years, versus the $110.6 million over four years that other teams can offer.

Durant, however, could significantly increase his earning power by instead choosing to sign a two-year deal that includes a player option after the first year. In this scenario, he could decline his option and hit free agency again in 2017.

In 2017, Durant will be a 10-year veteran, which would enable him to qualify for a max salary equal to 35 percent of the salary cap. The NBA is currently projecting the 2017-18 cap to explode higher again, this time to $107 million. At those levels, his max would be an estimated $35.4 million.

A starting salary of $35.4 million in 2017 would translate to an offer of $202.3 million over five years with the Thunder, versus the $150.2 million over four years for all other teams, in addition to the $25.9 million he would be collecting next season.

If you were Durant, then, which alternative would you prefer?

• $110.6 million over the next four years by signing a long-term deal with a new team this summer (after which you’d be 31 years old)
• $149.0 million over the next five years by signing a long-term deal with the Thunder this summer (after which you’d be 32 years old)
• $176.9 million over the next five years by signing a one-year deal with any team (including the Thunder) this summer, and then leaving the Thunder and signing a long-term deal elsewhere in 2017 (after which you’d be 32 years old)
• $229.2 million over the next six years by signing a one-year deal with the Thunder this summer, and re-signing with the Thunder on a long-term deal in 2017 (after which you’d be 33 years old)

There are four primary alternatives. Let’s break them each down.

RE-SIGN WITH THE THUNDER

The strong likelihood is that Durant will re-sign with the Thunder. It provides not only the best financial payouts but also the continuity of a relationship that has been established over the course of his nine NBA seasons.

But if he is to remain with the Thunder, the question remains as to what type of contract he would pursue this summer.

ONE + ONE DEAL

Durant signing a two-year, $53.8 million contract, which contains $25.9 million payout over the first year and a $27.9 million player option for a second year as an insurance policy against injury must be considered the likely scenario.

Such a strategy gives himself and his team one more shot to accomplish that which they came a single win away from accomplishing this past season (i.e., reach the NBA Finals)(1). It keeps the pressure on Thunder management to improve the team this summer, knowing he could leave the following summer. It links his free agency situation up with his close friend (Westbrook). And, of course, it maximizes his earning potential by setting himself up to sign a massive long-term deal with elevated payouts next summer – with a cumulative projected payout of $229.2 million over the next six years if he remains with the Thunder next summer, or $176.9 million over five years if he leaves.

Such a strategy has the potential to provide an even greater payout than is currently being forecasted, but also has its risks and complications. The $107 million salary cap projection off of which Durant’s elevated payouts would be based is a tenuous one. Standing between now and the realization of such a cap level are two things: (i) another NBA season, and (ii) a potential lockout.

Another NBA Season

On the one hand, while Durant’s max salary would be $35.4 million based upon the $107 million initial salary cap guidance for the 2016-17 season provided by the NBA, such initial cap guidance has in recent years proven to be conservative.

The league’s initial projection for 2015-16 was $66.3 million, while the actual cap was calculated a year later at $70.0 million. The league initially projected the 2016-17 cap at $89.0 million, while it is currently projected at $92.0 million. In each case, the cap projection provided one year early ultimately proved conservative by at least $3 million. And the $92.0 million figure is rumored to still be going higher.

That type of conservatism in forecasting future cap levels, historically speaking, has been both rare and anomalous. But for every potential $1 million increase in the 2017-18 cap beyond its current $107 million projection, Durant’s max salary would increase another $330K or so.

On the other hand, waiting another NBA season would expose Durant to potential massive losses if he were to sustain a serious injury before locking in his long-term deal. He does not, after all, have a history of perfect health on which to rely.

It would also make him an additional year older when trying to land the one final substantial contract to close out his career (either 32 or 33 depending upon whether he would negotiate for and exercise a player option on a subsequent deal with the Thunder, or 31 or 32 depending upon whether he would negotiate for and exercise a player option on a subsequent deal with any other team).

Potential Lockout

Then there’s the potential lockout to consider.

Both owners and players have the right until December 15 to opt out of the current Collective Bargaining Agreement, which would take effect following the 2016-17 NBA season.

While NBA owners love the current deal, which reduced the share of revenues allocated to players from 57 percent to the current 51 percent, players are naturally less thrilled. As a result of the shift, players have surrendered $1.5 billion over the past five years (an amount which figures to grow rapidly each season). They feel like they made significant sacrifices when the NBA was claiming poverty, and now that profits and franchise values are soaring, they’re likely to want some back.

On the one hand, if the players are successful in getting back some of their lost revenue split, it could increase future salary cap levels even more. Every percentage point the players gain back would vault Durant’s maximum salary higher by another $700K or so.

On the other hand, the current salary cap calculation contains a complex adjustment mechanism which increases the following season’s cap level if spending on player payroll and benefits in the prior season did not reach the 51 percent of revenues to which they were entitled. The theory behind the adjustment mechanism is that a higher salary cap promotes more spending, and therefore helps to ensure such a shortfall doesn’t happen again.

The implications they generate, however, can be quite severe. In fact, while the rise in the 2016-17 cap from $70 million to $92 million is based primarily on an explosion in revenues, the subsequent increase in 2017-18 to $107 million is based primarily on this artificial adjustment. In a potential lockout, this adjustment mechanism could potentially be re-worked, or even eliminated, which would decrease future cap levels considerably. Eliminating this adjustment mechanism entirely would have the net effect of reducing Durant’s maximum salary from $35.4 million to $31.0 million.

LONG-TERM DEAL

Durant could sign a five-year, $149.0 million contract (which contains $115.3 million payout over the first four years and a $33.7 million player option for the fifth year) and call it a day.

He could simply decide that he is happy in Oklahoma City, that Westbrook will return next summer (the two are surely discussing it), that the prospect of $149.0 million ($115.3 million) over the next five (four) years is enough, that the risks and complications of waiting an extra year to lock in his long-term deal  (as described above) aren’t worth the potential reward, and that securing one final lucrative long-term deal to close out his career would be significantly easier as either a 32-year-old (31-year-old) would be significantly easier than as a 33-year-old (32-year-old).

Of course, this isn’t a likely scenario.

If Westbrook were to choose to return next summer, he would be in line to earn a potential maximum-salary contract that pays out $3 million per season more, on average, than Durant would be making (as an eight-year veteran who qualifies for a maximum starting salary equal to 35 percent of the then salary cap, or $30.3 million). It remains unclear as to how well Durant would handle not being even close to the highest paid player on his team.

If Westbrook were to choose not to return next summer, the Thunder would no longer be a legitimate contender for an NBA Finals spot against the perhaps then far superior Warriors and Spurs.

SIGN WITH A NEW TEAM

If he is contemplating the possibility of leaving Oklahoma City this summer, the vast majority of NBA teams would or could conceivably create the $25.9 million in cap space necessary to sign him to a maximum contract this summer.

In such a scenario, any number of potential factors could resonate with Durant – joining a powerhouse team such as Golden State or San Antonio, playing under the bright lights of L.A. or New York, the fun in the sun of Miami, moving back home to Washington, and so on. Of course, each team he considers will undoubtedly pitch him on what would be his primary motivation for leaving – the prospect of future titles.

The Warriors and Spurs, however, would need to be considered the leading candidates to secure his services if he were to leave.

Golden State is fast becoming the league’s new “it” destination, replete with arguably the sport’s best player, the sport’s best team, a fun and up-tempo offensive system, and an upcoming move to San Francisco, among many other attractions.

San Antonio has Greg Popovich and perhaps the game’s best floor-spacing, of which a dominant scorer such as Durant could leverage to maximum benefit.

With Durant, either team could rule the Western Conference for years to come. And he knows it.

Neither team currently has the cap space with which to provide Durant’s his $25.9 million maximum salary, but the path toward creating it wouldn’t be all that difficult for either team.

The lone outside assistance the Warriors would need in order to surround Durant with its locked-in core of Stephen Curry, Klay Thompson and Draymond Green, among others, is a trade of either the $11.0 million expiring contract of Andrew Bogut or the $11.1 million expiring contract of Andre Iguodala without taking back any salary in return.

The Spurs would require a bit more, but no less reasonable, assistance beyond its control. San Antonio would presumably need: (i) to trade the sure-to-be-highly-coveted Danny Green, which would get it most of the way there, as well as (ii) a smaller degree of outside assistance thereafter to get it the rest of the way there (including, as one example, a Tim Duncan retirement).

But if he is to leave the Thunder, the question remains as to what type of contract he would pursue this summer.

ONE + ONE DEAL

Signing a two-year, $53.0 million contract, which contains $25.9 million payout over the first year and a $27.1 million player option for a second year as an insurance policy against injury would perhaps be the best alternative for Durant if he were to leave the Thunder this summer.

Such a strategy would give Durant the opportunity to select a new team of his choosing. It would give him another crack at free agency next season (including a potential return to the Thunder) if his newly-selected team ultimately proves to be a less than ideal fit for him. And, of course, it would provide the second-highest earning potential of the four primary alternatives – a guaranteed $176.9 million over the next five years, after signing the elevated second contract next summer.

The strategy has the potential to provide an even greater payout than is currently being forecasted, but also additional risks and complications, because, as described in the “RE-SIGN WITH THE THUNDER: ONE + ONE DEAL” scenario above, standing in the way of the $107 million salary cap projection off of which Durant’s elevated payouts in his second contract would be based is: (i) another NBA season, and (ii) a potential lockout.

However, it also has an additional complication.

When a player signs a single-season contract with a new team, his new team gets only a weaker form of his Bird rights, colloquially called Non-Bird rights, which only enables it to exceed the cap in doling out a contract with a 20 percent raise.

Let’s do the math: $25.9 million (Durant’s 2016-17 max salary) x 1.2 (20 percent raise) = $31.1 million (potential 2017-18 payout).

This has three implications for any new team that is to potentially sign him to a single-season deal this summer:

1. Durant would certainly demand nothing less than his $25.9 million max salary this summer in order to protect his minimum earning power the following summer,
2. Even then, his new team would only be able to exceed the cap in doling out a long-term contract the following summer if his starting salary were to be no greater than $31.1 million,
3. If he demands more than $31.1 million the following summer — which, with a projected max salary of $35.4 million, is likely — it would require his new team to utilize cap space.

Durant would then need to limit his search for a potential new home to teams that not only have the cap space to accommodate his $25.9 million maximum salary this summer, but also have the projected cap space to accommodate whatever max salary projection he comes up with for the following summer.

Both the Warriors and Spurs at this point project to have the necessary cap space in the summer of 2017 to provide Durant his subsequent full maximum contract. For other teams, such as the Heat, things could get a bit trickier in that regard.

LONG-TERM DEAL

Durant could sign a four-year, $110.6 million contract (which contains $81.2 million payout over the three four years, and a $29.4 million player option for the fourth year) and call it a day.

At the end of the day, a guaranteed $110.6 million is still a ton of money. His off-court endorsement payouts dwarf his on-court earnings anyway (his 10-year deal with Nike alone is said to be worth around $300 million). It gives him the freedom to select the destination of his choosing. And, it gives him the chance to hit free agency again at the age of 30 if he exercises his player option, and 31 if not. That would almost certainly be young enough to secure one final full maximum contract to close out his career.

Three or four years with, say, the Warriors or Spurs, in that context, sounds pretty damn good.

This scenario would, however, produce the lowest-possible payout, leave Durant as potentially not the highest paid player on his new team as the years pass by (e.g., when Stephen Curry would hit free agency) and with no potential alternatives if his newly-selected team ultimately proves to be a less than ideal fit for him.

***

Durant has two distinct decisions to make this summer:

First… Does he want to give the Thunder another shot at his services, or does he want to leave Oklahoma City in search of a better situation?

Second… Does he want to lock in a long-term deal this summer, or does he want to sign a single-season deal this summer that would set him up to sign a substantially larger long-term deal in the summer of 2017?

What will Durant ultimately choose?

Only time will tell.

Notes:
(1) This sentence was updated on May 30, 2016 after the Thunder lost to the Warriors in seven games during the Western Conference finals.