What do an extension for LeBron James and a new contract for Anthony Davis mean for the defending champion Los Angeles Lakers' future?
The Lakers' two superstars agreed to new deals this week that ensure they'll be in L.A. for several more seasons. AD, an unrestricted free agent, never entertained the idea of leaving the Lakers before reaching agreement on a five-year max deal with an early termination option for 2024-25, according to ESPN's Adrian Wojnarowski.
With their stars in place for the foreseeable future, how are the Lakers set up to win for years to come? Let's take a look.
Financial incentives create timelines
It worked out well for AD and LeBron that their contract situations -- both being eligible for new deals -- pushed them toward making similar decisions to commit now and remain teammates for additional years. Davis went for the full five-year max, while LeBron will be under contract through 2022-23 after replacing a player option for the 2021-22 season with a two-year extension.
In James' case, that's because of the decline in the projected salary cap in 2021-22 caused by the COVID-19 pandemic. Back when he signed his first contract in L.A. during the summer of 2018, LeBron probably planned on declining his 2021-22 player option and re-signing as a free agent, which would have allowed him to get a larger raise if the cap increased by more than 5% per year. That was a reasonable expectation given the cap went up more than 7% from 2018-19 to 2019-20.
Instead, because of the NBA's financial downturn, James' 2021-22 player option ($41.0 million) would actually have been greater than the maximum salary he could have made by becoming a free agent ($39.3 million, 35% of the projected 2021-22 salary cap). So LeBron pivoted to an extension, which allows him to exceed the max salary in order to receive a 5% raise from his 2020-21 salary, putting him at $41.2 million in 2021-22. He'll then get another 5% raise in 2022-23, when the cap will again likely go up the minimum 3% determined by negotiations between the NBA and the players association.
For AD, taking the five-year max is a surprise outcome because of a different sort of salary-cap math. Davis currently has eight years of experience, putting him in the bracket of players whose maximum salary is 30% of the cap. (Davis would have been eligible for a 35% max on a supermax extension with the New Orleans Pelicans, but passed in favor of compelling them to trade him to the Lakers.)
That would have changed in two years, when AD would have the 10 years of experience necessary to reach the 35% max bracket and could have potentially re-signed for a larger salary even with the cap staying relatively flat. But in an uncertain NBA economy, Davis chose the route with more years and more security.
Who else will be on the 2021-22 Lakers?
Even with their stars under contract, the Lakers still could have an eventful 2021 offseason. Just two other players are under guaranteed contract beyond this season: guard Kentavious Caldwell-Pope, another Klutch client who re-signed last month in free agency, and veteran center Marc Gasol.
Because of max salaries for LeBron and AD, the Lakers don't have a path to max-level cap space. At most, they could create about $22 million under the projected cap if they wiped their books of all other salaries besides their two stars'. So signing a third superstar in free agency is not realistic.
Instead, the Lakers will probably focus on re-signing as many of their own free agents as possible. They'll have full Bird rights on reserves Alex Caruso and Kyle Kuzma -- the latter a restricted free agent if he doesn't agree to a contract extension by Dec. 29 -- as well as newcomer Dennis Schroder.
Negotiations could be trickier with new center Montrezl Harrell, who signed a two-year contract as a free agent with a player option on the second season. The Lakers will have only non-Bird rights on Harrell, meaning the most they can offer him without using cap space is a 20% raise off his current salary, $11.1 million. If Harrell plays well with the Lakers and has a more robust market than he did this offseason, that might not be enough to compete with long-term offers elsewhere.
It's possible the Lakers could again use their non-taxpayer midlevel exception next offseason, but it would be tricky. That would leave them about $28 million under the hard cap to fill out their roster, including new contracts for Caruso, Harrell, Kuzma, Schroder, Wesley Matthews and Markieff Morris -- who are making a combined $36.3 million this season.
Most likely, then, the Lakers will use their smaller taxpayer midlevel exception and focus on re-signing as many of their own free agents as possible. That would make trades a more likely source of improvement than free agency in the 2021 offseason.
Title window up to LeBron
As we look to 2022 and beyond, the composition of the rest of the Lakers' roster isn't nearly as important as James' future. As long as he's both in a Lakers uniform and still the NBA's premier postseason force, the team will be a championship contender -- and perhaps still the favorite.
It's worth noting that LeBron chose to come to L.A. and commit long-term in a different fashion than he did during his second stint with the Cleveland Cavaliers. While LeBron's tendency to play on shorter contracts in Cleveland was partially a financial necessity to keep pace with a rapidly rising salary cap, it also served to put pressure on the Cavaliers to remain focused on putting a championship-caliber team around him.
By contrast to LeBron's last Cleveland years, his time with the Lakers has been remarkably quiet since the arrival of Davis as a co-star. For a championship team from a major media market during a pandemic, the Lakers' title run was about as free of off-court drama as possible. Now LeBron's extension was announced quickly and with little fanfare, ending any conversation about his possible 2021 free agency before it could ever start.
Only one factor seems able to change James' commitment to the Lakers: the potential of a father-son partnership with his eldest, Bronny, that would be unprecedented in NBA history. If the NBA changes its age limit to allow players to enter the draft directly out of high school once again, Bronny could be in the league by 2023, when LeBron is a free agent. That would be the first time the Lakers should reasonably feel anxiety about the possibility of LeBron leaving -- although before that, several things have to happen, including the rule change and Bronny's development.
That leaves the question of when time might start catching up to James, and that's one I've given up predicting. What LeBron has already accomplished by continuing to be the NBA's best postseason player at age 35 with 17 years of professional experience is already off the charts. Eventually, James will feel the effects of aging, but I'm not willing to bet on when that might happen.
As a result, the Lakers' window to compete for additional championships remains wide open for now.