LeBron James and the theory of price controls

NBA salaries are subject to price controls at some margins, so neither Miami nor Cleveland could pay LeBron more.  Therefore a theory of profit maximization predicts LeBron will choose the deal that extends his career the most, so as to maximize lifetime income and perhaps also fun.  Another year playing also probably means higher endorsement income than a year in retirement.

In Cleveland he is not actually expected to win, at least not right away.  They can play the young guys a lot and rest his legs and extend his career, while developing the quality of the overall team.  And if the mix of players somehow comes through in a year or two, he looks like a basketball genius.  The East seems weak enough that Cleveland will at least make the Eastern Finals for the next few years, thus avoiding embarrassment.

Given their demographic structure and Bosh’s accruing softness, Miami is a contender only if it pushes LeBron very hard and thus shortens his career.  I speculate that he was very upset that he was pushed and played so hard all year long, to rest Wade, only to develop those disabling leg cramps at the end of game one against San Antonio in the Finals, which caused him to lose face.

I haven’t seen other analyses take career length into account.  LeBron is entering his thirties and watching the physical implosion of Kobe Bryant, one of his role models.  He knows Michael Jordan took two years off and ended up as a geezer on the Washington Wizards.  He sees Wade — one of his best buddies — a broken player at age 32.  Why not choose the outcome that might give him a few extra years of both salary and fun?

Addendum: Apparently LBJ is taking only a two-year contract with Cleveland.

James could have taken a four-year contract worth more than $88 million from the Cavs. But he now will be able to negotiate a better contract in two years and also has the choice to opt out after one season to renegotiate next summer. Player options only can come before the final season of a contract, another reason for the two-year deal.

That is emphasis added, the pointer here came from Angus.  I would mention that the theory of profit maximization is often underrated and that this Cleveland deal really is a good one for LBJ.

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