Why Tim Duncan won’t exercise his ETO
The short answer to the question of whether Tim Duncan will exercise his early termination option (ETO) is of course not, he’s due $21 million next season. But let’s put that aside for the moment.
I contacted CBA Super Ninja Larry Coon about a question which occasionally pops up in our comment threads. Namely, is there any chance Tim Duncan does the Spurs a solid and uses his early termination option to resign for less money. Duncan is due to make $21 million next season, his final year under contract with the Spurs.
Starting with the obvious: Why would anyone leave $21 million on the table?
Well, Tim Duncan has previously restructured his contract to provide the team with greater financial flexibility. Some fans are hoping for more of the same, and they’re banking that Duncan is the most benevolent soul since John Chrysostom. Moreover, Richard Jefferson famously left money on the table last summer in exchange for a longer term deal with guaranteed money. Jefferson, most believe, will make more with his multi-year deal, signed under the current CBA, than he would have made under the next CBA.
Because of these things some ask, “Is there any chance Tim Duncan will terminate his contract this summer?”
Larry Coon points out that the circumstances surrounding Tim Duncan’s ETO are dramatically different than Richard Jefferson’s. Coon’s reasoning runs along the lines outlined above:
Duncan’s situation is a little dissimilar to RJ’s last summer. Last summer was the final offseason under the current CBA. By opting-out last summer and re-signing for more years, RJ was locking in additional years under the purview of the current agreement. Given the way the new CBA is likely to tilt, this seems prudent & he’s more likely to earn more through 2014 by re-signing under the current CBA than by playing 2010-11 under his original salary and then signing one or more deals under the next CBA. Since Duncan would be re-signing under the next CBA, this factor doesn’t exist for him.
But Coon went on to describe some of the factors, as stipulated by the current CBA, which could play into Tim Duncan’s next contract, should he choose to ink a new deal a year early.
First, there is the Over-36 Rule.
…it’s not a showstopper, but the Over-36 rule also presents some difficulties. This rule makes it harder for older players to sign long-term deals. It’s commonly misreported to say that a player Duncan’s age (35 this summer) can’t sign a deal longer than three years. But this isn’t correct — the Over-36 rule simply reclassifies the salary in later years as deferred salary, which counts against the entire contract (just like a signing bonus). This is a problem in most cases, but not when the player is re-signing for less money, because the lower salary creates the overhead that the deferred salary fills.
If Duncan were to exercise his ETO, he’d have to take an immediate pay cut because of the Over 36 Rule.
Under the current rules a free agent can sign for either the league-wide max, or 105% of his most recent salary, whichever is greater. Since Duncan’s likely to be above the league-wide max, the most he can get is 105%. This means that he can’t re-sign for as much as he’s already signed for in his option year.
Since Duncan makes $18.835M this year, his cap amount can’t exceed about $19.777M next season (I’m assuming the rules are the same under the next CBA. They won’t be more in Duncan’s favor, and if they’re more in the league’s favor then we’re back to my first point above). So his new base salary, plus a pro-rated portion of any salary beyond the third year of his contract can’t exceed $19.777M. This means he can sign a four-year deal starting at about $13.4M, for example, or a five-year deal starting at about $9.98M. Again, for most older players this would be a showstopper, but with your premise he’s taking a lower starting salary in exchange for a longer deal, so it’s a legitimate option.
The Over-36 rule doesn’t affect older players who sign three-year deals, so he could re-sign for three years with the only restriction being that the first year couldn’t be for more than $19.777M.
The Spurs could save either way. The new CBA might dictate a less cumbersome contract, even if Duncan chooses not to use his ETO.
At any rate, it’s unlikely Tim Duncan will use his ETO. The circumstances are too dissimilar to Richard Jefferson’s to warrant such a move.