The James Harden Extension: A Salary Cap Perspective

While the media was gathered at a Saturday afternoon press conference to introduce the Houston Rockets’ newest free agent acquisitions, the team made “a second announcement”: it had signed James Harden to an extension that will pay him the maximum salary through 2020 (the last season being a player option), locking up its franchise player for the long(er) term.

This announcement came as a huge surprise… to most.

“But how was that even possible?” you ask? Here’s how:

Players with deals of four years or longer who have been under their current contract for at least three years (like Harden) are eligible for a contract extension. An extension can prolong the player’s contract for up to four seasons (including seasons remaining on the player’s current contract). However, an extension alone cannot increase the player’s salary during the remaining year(s) on his deal, nor can it increase his salary in the extended years by more than 7.5% from the player’s previous salary.

But a renegotiation-and-extension of a player’s contract can increase a player’s existing salary up to the max, so long as the team has enough available cap room to provide such a raise. The Rockets had just enough space to do so. The Rockets used about $9.8 million in cap room to increase Harden’s previous salary of $16.8 million.

Harden’s extension will pay him $26.54 million this season, $28.53 million in 2017-18 and $30.52 million in 2018-19, with a player option for $32.51 million in 2019-2020.

Unless Harden dramatically underperforms his contract, expect him to opt out in 2019, at which time he will be a 10-year veteran and eligible (at least under the current CBA) for an even higher maximum salary. But with a boatload of goodwill in the bank (literally!), an opt-out by Harden would most likely be in order to secure another long-term deal with the Rockets rather than to bolt for another franchise.

This extension also provides the Rockets with a little more cost certainty for their star player prior to a 2017 CBA negotiation that could see a dramatic increase (quite possible) or even an elimination (less likely but still on the table) of the max salary. Note that, unlike in 2011, the players union’s leadership is comprised of superstars (including president Chris Paul and vice president LeBron James) who may be motivated to better compensate the league’s marquee players.

As I’ll touch on in further detail in my next salary cap update, this extension largely eliminates the Rockets’ remaining cap flexibility this summer and significantly hampers it next summer. However, avoiding the impending free agency limbo that the Thunder will undoubtedly face with Russell Westbrook this season may outweigh whatever that flexibility (which was not going to be sizeable, anyway) would have provided Houston.