I put this in the thread for JA but felt it might be better off in its own thread.
OK I will make the financial argument in better detail for everyone. For full disclosure while I know two of these players none of them are clients or are in discussions to become clients. The contract dollar amounts are available through google but I have a database that I can pull the actual contract for some of the more important details. Also I apologize for this being a little long but I thought I would show the actual contract implications.
In the 2014 draft I will provide analysis for Noah Vonleh (9th pick overall by Charlotte), PJ Hairston (26th pick by Charlotte), and Joe Harris (33rd pick by Cleveland).
I will start with Joe who signed a 3 year contract for 2,714,369.
Year 1 - 888,879
Year 2 - 845,059
Year 3 - 980,431
Year 4 - 1,251,245 - team option
The first year was the only guaranteed number. Joe had to make the roster and play in 25% of the games to guarantee years 2 and 3 which means he will earn the total of 2,714,369 before taxes and fees. He is with Priority Sports which is the premier NBA agency. They take 5% off the top of the contract. His agents fee was $135,718 for the 3 years. If the 4th year option gets picked up that number will go up. Good news for Joe though is the agents commission is deductible on his taxes.
Uncle Sam is Joe's least favorite Uncle. Between Federal and having to file state taxes in every state he plays a game. He will end up paying a conservative 50%. So over the 3 years of Joe's contract he will take home $1,289,325 or $429,775 per year.
Remember that only the first year money was guaranteed. He had to go out and earn the rest.
Now lets look at PJ Hairston who was selected just 7 measly spots before Joe but was a first round pick.
PJ signed a 3 year 3,604,324 guaranteed deal with a 4th year team option and 5 year player option.
Year 1 - 1,149,720
Year 2 - 1,201,444
Year 3 - 1,253,160
Year 4 - 2,259,447 - Team Option
Year 5 - 3,334,994 - Player option.
Agent fee 5% - 180,216
Taxes 50% - 1,802,162
Take home pay for PJ is $1,802,162 or $600,720 per year.
PJ's pay is guaranteed and is 39% more than Joe's. Also the team and player options are a lot higher for PJ.
Finally lets look at a lottery picks economics.
Noah Vonleh was the 9th pick and signed a 3 year/$7,913,280 guaranteed contract.
Year 1 - 2,524,200
Year 2 - 2,637,720
Year 3 - 2,751,360
Year 4 - 3,505,233 - Team Option
Year 5 - 4,749,590 - Player Option
Agent fee 3% - $237,398
Taxes- $3,956,640
His 3 year guaranteed income is ~ $3,719,242 or $1,239,747 per year.
So to sum it up lottery picks make double what a late first round pick does and 3 times as much as an early 2nd round pick.
Also of consideration is the fact that 90% of fourth year team options get picked up on lottery picks.
So if I am giving JA advice (which I am not for further full disclosure) I would tell him to come back to school and dominate so he can give himself certainty that he will be a first round pick and get the 3 years guaranteed. That is how you build certainty.
Sorry that this is long but I thought it would be interesting to show the economics in the decision.
The economics in Basketball contracts are very different then the contracts in football or baseball. I can discuss those as well if you would like to know why you are better off being undrafted then being picked in the 7th round for example.
OK I will make the financial argument in better detail for everyone. For full disclosure while I know two of these players none of them are clients or are in discussions to become clients. The contract dollar amounts are available through google but I have a database that I can pull the actual contract for some of the more important details. Also I apologize for this being a little long but I thought I would show the actual contract implications.
In the 2014 draft I will provide analysis for Noah Vonleh (9th pick overall by Charlotte), PJ Hairston (26th pick by Charlotte), and Joe Harris (33rd pick by Cleveland).
I will start with Joe who signed a 3 year contract for 2,714,369.
Year 1 - 888,879
Year 2 - 845,059
Year 3 - 980,431
Year 4 - 1,251,245 - team option
The first year was the only guaranteed number. Joe had to make the roster and play in 25% of the games to guarantee years 2 and 3 which means he will earn the total of 2,714,369 before taxes and fees. He is with Priority Sports which is the premier NBA agency. They take 5% off the top of the contract. His agents fee was $135,718 for the 3 years. If the 4th year option gets picked up that number will go up. Good news for Joe though is the agents commission is deductible on his taxes.
Uncle Sam is Joe's least favorite Uncle. Between Federal and having to file state taxes in every state he plays a game. He will end up paying a conservative 50%. So over the 3 years of Joe's contract he will take home $1,289,325 or $429,775 per year.
Remember that only the first year money was guaranteed. He had to go out and earn the rest.
Now lets look at PJ Hairston who was selected just 7 measly spots before Joe but was a first round pick.
PJ signed a 3 year 3,604,324 guaranteed deal with a 4th year team option and 5 year player option.
Year 1 - 1,149,720
Year 2 - 1,201,444
Year 3 - 1,253,160
Year 4 - 2,259,447 - Team Option
Year 5 - 3,334,994 - Player option.
Agent fee 5% - 180,216
Taxes 50% - 1,802,162
Take home pay for PJ is $1,802,162 or $600,720 per year.
PJ's pay is guaranteed and is 39% more than Joe's. Also the team and player options are a lot higher for PJ.
Finally lets look at a lottery picks economics.
Noah Vonleh was the 9th pick and signed a 3 year/$7,913,280 guaranteed contract.
Year 1 - 2,524,200
Year 2 - 2,637,720
Year 3 - 2,751,360
Year 4 - 3,505,233 - Team Option
Year 5 - 4,749,590 - Player Option
Agent fee 3% - $237,398
Taxes- $3,956,640
His 3 year guaranteed income is ~ $3,719,242 or $1,239,747 per year.
So to sum it up lottery picks make double what a late first round pick does and 3 times as much as an early 2nd round pick.
Also of consideration is the fact that 90% of fourth year team options get picked up on lottery picks.
So if I am giving JA advice (which I am not for further full disclosure) I would tell him to come back to school and dominate so he can give himself certainty that he will be a first round pick and get the 3 years guaranteed. That is how you build certainty.
Sorry that this is long but I thought it would be interesting to show the economics in the decision.
The economics in Basketball contracts are very different then the contracts in football or baseball. I can discuss those as well if you would like to know why you are better off being undrafted then being picked in the 7th round for example.
