Analyzing Lin’s $25 Million Deal

NBA restricted free agent Jeremy Lin signed a $25.1 million, three year offer sheet with the Houston Rockets. Rockets GM Daryl Morey clearly wanted Lin and knew his best chance was to lace the deal with some poison.

So he backloaded $14.8 million in the third year, which would cost the Knicks another $15 million in luxury tax. Ultimately, the Knicks decided to not match the Rockets’ deal.

Some believe the Rockets overpaid for Lin, especially since he’s started only 25 NBA games total. Of course, top-five NBA picks, who have zero NBA experience, are paid comparably over the life of a rookie deal.

Did the Rockets overpay to acquire Jeremy Lin? We will eventually find out. In the meantime, people will endlessly debate the merits of his deal.
So let’s examine three factors that likely impacted the Rockets deal:

1. Sometimes it pays not to be a first round pick. Had an NBA team picked Lin in the first round in 2010 draft they would hold his rights for up to 5 years. Because he wasn’t, Lin became a restricted free agent after two NBA seasons. Lin will earn $26.2 million over his first five NBA seasons. Only John Wall and Evan Turner, the first two picks in the 2010 draft, will earn more than Lin during that period.

2. No compensation for Knicks. The Rockets acquired Lin for the cost of the contract. No further compensation is due (via draft picks, players or cash). This allowed the Rockets to offer a premium to Lin and, in the process, make it more difficult for the Knicks to match this offer. For those who think this is unfair, remember, the NBA owners agreed to this system. On the flip side, the players agreed to cap maximum salaries of stars millions below market value in the same Collective Bargaining Agreement (CBA).

3. Box office appeal. Lin is a rare commodity in professional sports: A player who people pay to watch play. According to NBA, in the 2011-12 season, Jeremy Lin had the second highest-selling jersey in the NBA behind only Rose.

Idealists may wish professional athletes were paid based solely on what they produce on the court. But the NBA, like all professional leagues, is in the entertainment business. Winning generally produces more revenue, but not always. Just look at the Chicago Cubs, one of the most valuable franchises in sports. They have not won a World Series in 104 years. Or even been to one in over 60 years.

If you are still not convinced what drives salaries: the NBA’s CBA ties player salaries to league revenues, not wins. The stated goal of every professional team is to win titles, but the leagues have thrived by maximizing revenue.

There are three reasons why pro athletes deserve every dollar they are paid:

1. Supply and demand. Professional athletes are the chosen few who, through a combination of good genes and hard work, possess the ability to play sports at the highest level. Out of every 1,000 kids who are good enough to compete in high school, perhaps only one is able to make it into the pro ranks. Many want the job; few can perform it. Supply is tight. Demand, however, is enormous and growing. More and more people, in the United States and around the world, are shelling out more and more money to watch pro sports, in person and on television, including sponsors and direct payment by viewers.

2. Short careers. Depending on the sport, professional athletes play, on the average, for three to five years. Some can move into careers in coaching, front office or broadcasting. For most pro athletes, however, the return on the years they spent perfecting their skills must come during their relatively short time as a pro. No one should fault them for striking while the iron is hot.

3. Risk. Injuries are an inherent part of pushing the limits of human perfor¬mance, as professional athletes do every day. Unfortunately, many end up with injuries that cause pain and limitation of activity for the rest of their lives. In capitalism, we compensate for risk. The saying goes: “No risk, no reward.” Think of the converse: In exchange for great risk, athletes deserve to be highly compensated.

Those are the three reasons why pro athletes deserve their paychecks. The reason why they actually receive a large share of league revenue, however, is far more basic:
Players fought very hard, for many decades, for a fair system of compensation.

Every dollar that comes into the league is another dollar divided between players and owners. Players like LeBron, Kobe, Kevin Durant and Derrick Rose drive revenue. In Lin’s limited NBA career, he’s risen to their level. While the Rockets are counting on Lin’s basketball play, they are also banking on his popularity, in the United States and internationally.

Charles Barkley, who frequently gives do-as-I-say-not-as-I-do advice, understands the NBA’s core business. Said Barkley, “From the NBA perspective, they’ve got a product to sell. They’ve got to make it as attractive as possible to fans, viewers and corporate sponsors.”

Lin’s contract will pay him an average of $8.3 million per year, or 60% above the NBA average salary. For that, the Rockets should get an above-average NBA point guard and definitely one of the top salesmen in the game. On that basis, it’s probably a good bet.


Marc Isenberg
Twitter: @marcisenberg

About Marc Isenberg

Marc Isenberg is a nationally-recognized athlete advocate for high school, college and pro athletes. A national columnist for Basketball Times, Marc is a frequent speaker at elite basketball camps and athletic programs and teams, including UCLA, RbkU and the Orlando Magic. In 2012, Marc, with Nolan Smith of the Portland Trail Blazers, founded Hoops Family , an organization devoted to educating and mentoring basketball players—and advocating on their behalf.


Marc’s publications

Money Players: A Guide to Success in Sports, Business & Life

Compete: A Guide for College-Bound Basketball Players (in partnership with iHoops)

Go Pro Like a Pro

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