Bargaining and Power in NBA Contract Extensions
https://www.forbes.com/sites/curtisrush/2019/10/19/pascal-siakam-agrees-to-four-year-130-million-extension-with-toronto-raptors/#e562c2365944
Over a week ago, Toronto Raptors star forward Pascal Siakam agreed to a four year, $130 million max contract extension. The Raptors had until October 21st to offer this extension, otherwise Siakam would have became a (restricted) free agent this summer, meaning that other teams could offer him a contract, but Toronto could match any offer to retain Siakam if they desired. Siakam played a key role in the Raptors’ championship run last year and he’s developed as a player at a rapid pace, making the Raptors’ decision an easy one. Given his level of skill there was no doubt that some team would offer him a max contract, however his reasoning for extending with Toronto can be examined by considering bargaining and power in networks.
In professional sports, the player largely carries greater bargaining power than that of ownership given that the player is the commodity that fans come to see, and that they are not easily replaceable. Players who are highly skilled or have extreme potential, however, are able to demand the highest value contracts in the league based on the number of potential trade partners (teams) they can agree to a contract with, and the value of their outside options. For Siakam, his value is immense to any team in the league, and any team that has the salary cap space to sign him would certainly consider doing so. In the case of a max contract like the one Siakam received, it isn’t possible for the value of his outside option to be greater, unless there were other (non-financial) considerations, such as loyalty to one’s team or preference for a team’s location. Realistically, as a restricted free agent who is worth a max-contract, Siakam had no real outside options as his current team can always match all incoming offers. Given that the Raptors offered him the maximum amount he could otherwise get, he could reasonably assume that they’d match any offer if/when he became a restricted free agent after the season ended.
To better illustrate this concept, let’s consider a scenario in which Siakam is slated to become an unrestricted free agent (Toronto can’t match any offer to retain him) and the Raptors offered Siakam less than the max, say four years, $100 million. In this situation, Siakam, who represents the highest value node in a bargaining network that is also at the center of this bargaining network, would almost certainly reject this extension. He would do so because the number of other trade partners would include most teams in the NBA, and the value of his outside options would almost certainly be greater than this less than max contract that the Raptors offered him. With a player of his caliber, any team looking to sign him would reasonably offer a maximum contract, both because other teams would offer him the max, and because each team’s outside option(s) would be the other players on the market. If no other player can provide the same production per contract dollar (which is difficult to find in lieu of signing a star player), then a team should offer the max. From Siakam’s perspective, he can only sign with one team, so if any team offers less than the max, he should reject this offer as he can get more from other teams (his outside option).