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The Pros and Cons of Incentives Within NBA Contracts



There are numerous benefits of having a job that pays on commission.

Admittedly, it's extremely stressful and risky to hold a position that provides compensation solely by this measure. However, it is an excellent way to encourage high performance by your employees. The greater the proportion of salary that is gained through bonuses, the greater the incentive to work hard at ones craft.

The NBA recognizes the importance of fielding players who are constantly striving for something greater. The desire to push yourself to the limit is where you discover who you really are. Much like the average business man is grinding to climb the preverbal steps of the corporate ladder, professional athletes strive to be the best "baller" on the planet. This is where contract incentives come into play.

Before you come up with the bright idea of creating a contract structure that pays out 50% of a players salary through incentives, just know that the CBA is fully aware of this scheme and they have built in a safeguard to prevent players from being exploited in this manner. Incentives are split up into two categories: "likely" and "unlikely." Likely are statistical marks that were reached last season, while unlikely signifies numbers that were not seen the season prior.

This distinction is important, because unlikely bonuses can only count for 15% of a players salary. There is no such limit on likely bonuses, because players have a high probably of reaching the figure again, since it was done just one season before. There is typically less variance in results created within a small time frame. Unlikely benchmarks create an element of risk within a contract and can be hard to achieve due to factors outside the athletes control. Imagine it's 2016 and you're Jeremy Lamb, coming off of your first NBA deal at age 23. You finally get your big break by signing a 3 year, $21 million deal with Charlotte, but $10 million is tied up in incentives that might be difficult to reach. Buzzkill, right? Right.

According to Bobby Marks from ESPN, there are 44 players this season that have some sort of incentive built into their contracts.

This represents an increase of 10 over the previous season. Obviously, players don't mind a few incentives being built in to their deal, because their agents will accept the minimal risk it presents to their financial future.

This begs the question...why haven't we seen more of them? Also, will this upward trend continue in the coming years? Before we can answer these questions however, we need to evaluate a few specific scenarios around the league.

Clint Capela appeared on the scene in the 2014-2015 season as a wide-eyed 1st round pick. He only played 12 games for the Rockets as he attempted to find his footing in the league. You might recall that he became infamous for being an absolutely atrocious free throw shooter early on, only hitting 4 of his 23 attempts. The NBA universe collectively sighed in disappointment each and every time he was hacked during the course of a game. Thankfully, he has improved in the four years since this unfortunate streak.. In fact, he grown by leaps and bounds with each passing season, to the point that Houston felt comfortable handing out a 5 year, $90 million contract extension on July 27th.

Only thing is, it's not really worth $90 million.

Or rather, it's not all guaranteed. You see, this is where our sweet friends called incentives come in. $1.5 million of salary each of the five years of this contract are tied up in incentives adding up to a solid $7.5 million. Clever, huh? That’s not all. The Houston front office went a step further by using two lofty benchmarks he reached last season as likely incentives...reaching the Western Conference Finals and hitting a 30% defensive rebounding percentage.

These goals may not seem too outlandish, until you consider two important details:

1. The Rockets have only reached the Western Conference Finals twice in the last 20 years and are currently 10th in the West with a record of 14-14

2. Capela barely reached a 30% rebound rate last season and he is only at 24% this season through 28 games

Soooo yeah. Neither of these goals look all that likely this season, or in the remaining years of his contract, for that matter. This means that the Rockets, deep into the luxury tax and reluctant to spend a dime more than necessary, might end up only paying Clint Capela, homegrown max player, $82.5 million over the lifetime of this deal. That's a huge benefit when saving dollars to fill out the rest of your unit is critically important to a capped out salary situation.

Nikola Jokic is on a much cleaner track to hit his incentives this season than Capela, that's for sure. After spending a season plus toiling next to (and behind when he was backup center) Boznian bruser Jusif Nurkic, The joker found his niche as a dime dropping maiestro and earned a healthy maximum contract extension from the Nuggets. This deal is reportedly worth $142.7 million over five years. Not bad for a former 41st overall pick! Looking at the terms of this extension, his incentives, if he were to achieve them this season, look to be quite beneficial for Jokic, as well as his NBA club, the Nuggets. He will earn $431,000 if his team reaches the 1st round and it doubles if they advance to round 2. It's not much of a bump for a guy with a base salary of $24.6, but every little bit counts.

Incentives like this are of the best variety, because they are mutually beneficial. In Capela's case, the Rockets incur a penalty on their cap sheet if he reaches those additional goals, but it is doubly expensive because they are $8.6 million over the luxury tax line. If the season ended today, they would be on the hook for $12.75 million in extra payments. Capela upping his game to the established benchmarks would exasberate that situation even further. Conversely, with an incentive structure similar to the one with Nikola Jokic, the added revenue from playoff success would more than offset the extra money they would owe him.

So circling back to the initial inquiry, why haven't we seen more of these deal sweeteners within contracts? Well as of this season, approximately 10% of all NBA players have incentives built in. It will never reach 100%, due to restrictions put in place by the CBA. Larry Coon notes in the CBA FAQ that player signed under a minimum or two-way deal are not eligible for incentives. This is most likely due to the nature of these contracts. They have such a low value compared to a normal deal that it wouldn't make sense to create more risk for the player by tying up any of it in incentives. Players under contracts like this don't typically get many minutes and opportunities to reach statistical milestones, so its a good thing that they are exempt. Fringe players need every dollar they can get. Curiously, rookie scale contracts don't seem to be exempt here. It would be interesting to see what effect incentives would have on player development. Sure the effort should be there, but how would that effect team chemistry? It could get dicey if a young prospect is out trying to get their own numbers each game. Might be better to set physical goals rather than statistical ones in these instances.

Additionally, not all players and their agents are comfortable with potentially leaving money on the table. As stated earlier, sometimes factors outside ones control like team play styles and injuries can derail progress. It would be unfortunate if millions of dollars were forfeited unnecessarily. This puts another cap on the incentive total.

One more detail to consider is that players are actually capable of receiving a signing bonus in a new deal. This may take the place of an incentive in many cases since it's guaranteed money handed out on the front end.

In the end, we will almost certainly see more of these small details added to future contracts. The rate of growth remains to be seen, but there aren't many negatives to adding in more rewards for player growth.


 
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