Earlier this week, NBA superstar Kevin Durant announced his plans to leave the Oklahoma City Thunder for a two-year, $54.3 million contract with the Golden State Warriors. It's a move that's as financially shrewd as it is emotional.
"This has been by far the most challenging few weeks in my professional life," he wrote in an essay on The Player's Tribune, a website run by Derek Jeter (and where Durant serves as deputy publisher).
Durant, who has never played for any professional team other than the Thunder, said it will be difficult to leave a city that has "truly raised" him. Yet it's evident that the contract was too promising to pass up. With the Warriors, Durant joins NBA champions Stephen Curry, Draymond Green, and Klay Thompson in a superteam team that President Barack Obama once called "nuclear." His new membership also puts the team in a unique position to win the 2017 NBA championship title.
Of course, Durant also stands to make millions more through the contract. His free agency deal with the Warriors includes an opt-out in 2017--when salary caps are expected to be even higher than they are today. It also allows him to take advantage of the NBA's historic, $24 billion television deal with ESPN and Turner-- which is set to triple the league's rights fees.
Analysts point out that free agents now stand to make millions more by holding off on long-term deals, and instead signing short-term contracts. (LeBron James made a similar deal in 2015, when he opted out of his two-year contract with the Cleveland Cavaliers, and signed another two-year deal at a higher rate--also with an opt-out.)
"The pool of available money [in the NBA] is going to absolutely balloon over the next few years," says Jeremy Paul, the managing partner of RLP Wealth Advisors, a wealth management firm that works with athletes, entertainers, and entrepreneurs. "Players want the shortest deal possible to capitalize on the money that is coming next summer and the summer after, which could drive salaries up."
To his point, the salary caps are expected to jump by 34 percent to $94 million in 2017, and to more than $108 million by 2018, sources told ESPN.com. But short-term deals are a gamble for many players: If James or Durant encounters an injury down the line, for instance, they won't be guaranteed a steady income after their contracted two years are up.
"It makes sense when you have the same control and net worth as LeBron. But it comes with risk," said Paul. "Outside of sports, in any profession, the thought always needs to be 'what is enough' not 'what is the maximum.'" This is especially true for entrepreneurs negotiating the sale of their businesses, since they're often more inclined to make decisions based on the future, rather than current financial realities.
From a fiscal perspective, Durant isn't the only one to benefit. Foot Locker Inc. recently reported a rare decline in its basketball shoe business, citing lower-than-expected sales for Nike's signature lines of shoes from Durant and LeBron. Durant's move has been followed by speculation that Nike might have persuaded the NBA player to join the Warriors--as part of an attempt to steal market share from Under Armour (a competing retailer endorsed by the Warriors' Stephen Curry).
Matt Powell, a sports industry analyst from NPD Group, a market research firm, is skeptical that Durant's move signals any real impact on Nike's business. "I'm not sure it's really a great thing for Nike," he said. "It's important to understand that Durant represents less than one percent of Nike sales, so if it doubles it's still a tiny number."
Still, he says it's likely that Nike encouraged Durant to sign the deal. "I'm sure Nike would be very happy that Durant is going to a larger market team. I think sales [of his signature sneakers] were always somewhat suppressed by his being in Oklahoma City," Powell explained. "Nike would love it if Durant were to win a championship, and this is certainly lining up as a much better opportunity. So did they encourage him to think about this? I'm sure they did."