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Money Lessons from the Jeremy Lin Contract Saga

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Jeremy LinIt was hard to miss Linsanity this past NBA season, even harder if you are one of the many misery loving fans of the New York Knickerbockers. Having lived away from New York (Pittsburgh for nearly six years, then Baltimore for almost ten), a bad New York Knicks team meant little television time and almost no attention from the sports media. They weren’t stellar while I was in high school, reaching the Finals once before they ran into the twin towers of San Antonio (Robinson and Duncan), but they were entertaining and you had to cheer for Patrick Ewing. The epic battles against Reggie Miller and the Pacers plus the bitter rivalry with the Heat (PJ Brown flipping Charlie Ward on the free throw line!) made it fun to watch, even if the team would have years of malaise afterwards.

So this past season, seeing Jeremy Lin capture the basketball world’s attention for about two dozen games was awesome. Too bad the Knicks let him go to Houston because they didn’t want to open the wallet a little wider. He would’ve been pricey (but worth it?) but it would’ve been great for a fan like me.

Here’s what I learned watching him play:

You & Your Family are Priority One

As a restricted free agent, the Knicks could match any offer given by another team. So Lin and his agent went out to get an offer. They got one, a fat one, from Houston for three years and $25 million dollars. It would be about five million in each of the first two years followed by a “poison pill” $14 million in the third year. It’s a pretty rich contract and one that the Knicks declined to match. Was it financial? You could look at the luxury tax implications but the salary wasn’t ridiculous in terms of point guards. It was high for someone with Lin’s history and the structure was terrible for a team signing him, but ultimately you have to do what’s good for you and yours.

You could point to the Knicks “giving him a chance” and how he “owed it” to New York to stick around, but that’s crap. You only get so many shots in life and when you see it, you have to take it. Lin did get a chance and he performed. Now he’s being rewarded for it.

Financial Discipline Is Crucial

Part of the financial reasons why the Knicks didn’t keep Lin had to do with the luxury tax. In some sports, there’s a hard cap of how much you can spend on player salary. In basketball, there’s a luxury tax (like in baseball). If you exceed the salary cap, you have to pay the other teams in the league a tax. There are a lot of different exceptions to the cap but the basic tax is the team owe $1.50 for each dollar over the cap. That amount increases to $1.75 if you exceed the cap by $5 million to $10 million. $2.50 for amounts $10 million to $15 million. Anything $15 million and over is subject to a tax of $3.25. It’s punitive and designed to be punitive.

When you look at Lin’s contract, coupled with the other big contracts on the team, it was clear that without some changes, the Knicks would be over the cap by a significant margin. Calculations were that the third year would cost the Knicks around $60 million, once you factor in the tax. That’s because Carmelo Anthony would be owed $24.4 million, Amar’e Stoudemire would be owed $23.4 million, and Tyson Chandler would be owed $14.6 million. Poor discipline in the past led to this (though that’s not to say what they could do in the future – which is unload one of those contracts).

Sometimes It’s Not About Money

Now that people are playing monday morning quarterback on the whole thing, myself included, word is getting out that perhaps it was not all about money. There’s talk that people were upset about his commitment after not willing to play against Miami last year when his knee was 85%. There’s talk about how Lin was unhappy the Knicks didn’t approach him sooner or how Lin was being ungrateful. I don’t know what the whole story is, I suspect we’ll hear about it in the coming weeks, but emotion plays a big role in these types of decisions. Much more than you’d expect.

Don’t Show Your Cards Early

Here’s the part of the whole saga that boggles my mind – the Knicks’ front office has a big mouth. When the terms of Lin’s initial agreement were first released, it was four years for around $28 million. It was a deal that the Knicks could’ve accepted, so they decided to say they would match anything. Houston called their bluff and the actual signed contract was for $25 million over three years.

When you’re negotiating, don’t tell the other side what you plan to do! They should find out what you’re doing… when you actually do it. The Knicks should’ve said they wouldn’t match that offer, Houston might have backed off a little, and then the Knicks could’ve matched. Instead someone who wanted to feed the media made the decision much harder.

I wish Lin the best of luck, too bad it won’t be in a Knicks’ uniform. :(

(Photo: nikka_la)

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13 Responses to “Money Lessons from the Jeremy Lin Contract Saga”

  1. DMoney says:

    Good piece. I think the Knicks were very short-sighted by letting him go. And they really need to be more upset at that “ridiculous” $98M contract they gave Stoudemire.

    P.S.

    PJ brown flipped Charlie Ward and it was on the baseline :)

    And how can we forget Van Gundy hanging onto Zo’s leg for dear life.

    • Jim says:

      Haha yeah, I fixed that mistake about Ward vs Childs… it’s been a few years. :)

      That Van Gundy shot and his hair after he gets up is priceless.

  2. Touger Thao says:

    Hey Jim,

    jLin actually got me watching the NBA again. I stopped once Jordan retired (not the 1st or 3rd time, but the 2nd time!). I hope he does well in Houston and I hope they assemble a good team around him. I honestly am not a Knicks fan however, I am a JLin fan!

    Side Note: “Your and Your Family are Number One”? Is it supposed to be “You and Your Family are Number One?”

    • Jim says:

      Ha, you are correct!

      I stopped watching when I moved to Pittsburgh for college because I stopped watching as much TV and there wasn’t a local basketball team. After moving to Baltimore, I went to one Wizards game when Jordan played just to see him play… even if it was just a shadow of greatness.

  3. Matt M says:

    But Jeremy didn’t have to back load the deal he signed, he and his agent did that to prevent the Knicks from matching and screw them over if they matched it. In fact players typically want the deals to be front loaded.
    Is Lin worth 30 million in three years, maybe from a marketing/money making standpoint but not from a basketball standpoint.

    • Evan says:

      Did Lin back load the deal? From my understanding the team makes the offer

    • Texas Wahoo says:

      “But Jeremy didn’t have to back load the deal he signed, he and his agent did that to prevent the Knicks from matching and screw them over if they matched it. In fact players typically want the deals to be front loaded.”

      Actually, they did have to backload the deal, because Lin the new collective bargaining agreement limited any offer for Lin to $5 per year for the first two years. The Rockets had to backload the contract because the first two years of the deal were limited. Here is an article that discusses it written before the Rockets were even involved:

      http://www.grantland.com/story/_/id/7764300/what-next-chapter-jeremy-lin-story

      • Jim says:

        I read that too… the CBA and the luxury tax gets so complicated. The Rockets could spread the salary out across all three years but the Knicks would have to take the hit in the years it was setup, which is why the third year poison pill worked so effectively.

  4. I mean the Knicks have made so many bad moves it wouldn’t have surprised me if they signed Lin. The guy has only started 25 games! But he did drop 40 and 15 one game, not many other PG’s have done that in their career!

    Knicks don’t need the money from Lin though, they are the number 1 or 2 richest franchise I think.

  5. Mike says:

    If I were Lin I wouldn’t want to play with a hater like Carmelo.

  6. Kudos to Lin and to his agent. The lifespan of any pro athlete is short and he got a great deal from Houston. From what I’ve read the tax savings of playing for Houston vs. New York are quite significant as well.

  7. DirtyDubbz says:

    You know he is going to get paid more millions then games played. There is a very good chance that his apex is being a 6th man (combo guard) off the bench. If turns out to be a top 15 starting PG then the deal should have been matched, almost anything else (ignoring the potential Asian TV/jersey market) the Knicks did the right thing

  8. zapeta says:

    The Knicks front office made a huge mistake by showing their cards early. Worst thing you can do in a negotiation!


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