Why Two-Year Extensions Are The Latest Craze In The NBA

Within the past few days, New Orleans Pelicans guard CJ McCollum, Pelicans forward Larry Nance Jr. and Memphis Grizzlies center Steven Adams have all agreed to two-year extensions with their respective teams. They likely won’t be the last players to agree to two-year extensions this year, either.

It’s the latest sign that both players and teams are already operating with one eye on the 2025 offseason.

The NBA’s national TV contracts expire after the 2024-25 season, and the league is reportedly angling for more money from its broadcast partners. In March 2021, Jabari Young reported for CNBC that the league would “seek a $75 billion rights package, up from its current $24 billion deal, which pays $2.6 billion per year.”

If the NBA gets anything close to that, the salary cap could skyrocket starting in the 2025-26 season.

When the league agreed to its current nine-year, $24 billion deal with ESPN and Turner Sports in October 2014, it created a dilemma. That revenue goes into the pool of basketball-related income that determines the league’s salary cap, and under the current collective bargaining agreement, players are entitled to between 49 and 51 percent of the total BRI every season.

The league attempted to convince the National Basketball Players Association to agree to a cap-smoothing proposal in which the two sides would agree to fixed salary-cap amounts to prevent an enormous one-year spike. The NBA would have distributed the difference in revenue to the NBPA as a lump sum to be divided evenly among all players, but the players unanimously rejected that proposal.

Instead, the cap jumped by a historic $24 million (from $70 million to $94 million) in 2016-17. That allowed the Golden State Warriors to sign Kevin Durant in free agency, which set the stage for their dynastic run atop the league for the past decade. (They later signed-and-traded Durant for D’Angelo Russell, whom they eventually flipped for Andrew Wiggins and the draft pick that became Jonathan Kuminga.)

It’s unclear whether new NBPA executive director Tamika Tremaglio is more amenable to a cap-smoothing proposal than previous executive director Michele Roberts. Having now seen how a historic one-year spike played out—the 2016 free-agent class greatly benefited at the expense of future free-agent classes—perhaps the players’ union will be open to cap-smoothing this time around.

Either way, a major uptick in national TV revenue is bound to send the salary cap soaring in 2025-26 beyond. It’s likely no coincidence that McCollum, Nance and Adams have all lined up their new extensions to expire right before that offseason.

This past summer, only a handful of teams entered the offseason with any salary-cap space whatsoever. Outside of a few players—Jalen Brunson and Deandre Ayton in particular—most free agents either had to re-sign with their current squads via some version of Bird rights or settle for some version of the mid-level exception.

While the MLE will also rise in accordance with the cap—the non-taxpayer MLE reached a record $10.49 million this season—it’s far more beneficial to become a free agent when a majority of teams have salary-cap space. If the cap does jump by $20-30 million in one season again, there may be far more teams with cap space than there are players worth splurging on.

Back in 2016, a number of teams handed out major contracts that they immediately grew to regret. From Nicolas Batum (five years, $120 million), Hassan Whiteside (four years, $98.4 million), Chandler Parsons (four years, $94.4 million), Ryan Anderson (four years, $80 million), Joakim Noah (four years, $72.6 million) , Luol Deng (four years, $72 million), Bismack Biyombo (four years, $72 million) and Timofey Mozgov (four years, $64 million), that summer demonstrated the peril of teams having too much cap space and not enough good free agents available. .

Players and teams now have three years to plan ahead for whatever happens in 2025. They might take divergent approaches to that planning.

Players heading into the last year of their contracts should be angling for two-year extensions to ensure they’ll become free agents ahead of the 2025-26 season. Top-tier players such as James Harden, Kyrie Irving and Khris Middleton may instead prefer to test the free-agent market in 2023, but mid-tier players like Josh Hart, Caris LeVert and Jerami Grant might be better off taking a two-year extension. (Kentavious Caldwell-Pope already agreed to a two-year, $30.2 million extension with the Denver Nuggets in mid-July.)

Meanwhile, teams might prefer to lock up players for as long as possible ahead of the potential cap spike in 2025-26. Contracts that extend beyond then could look like a major bargain in a few years, even if they’re a slight overpay for now. This could particularly come into play for first-round picks from the 2019 NBA draft class, who are eligible to sign extensions until Oct. 17.

It won’t be easy for front offices and agents to navigate these dynamics given the uncertainty of what might happen to the salary cap in 2025-26. The ongoing negotiations over the league’s next collective bargaining agreement could also overshadow long-term extension discussions, particularly since “more punitive penalties for the luxury-tax system is a point of emphasis for the league and some team governors,” according to Shams Charania of The Athletic.

That uncertainty may lead both teams and players to prefer shorter-term extensions over the coming weeks and months. Don’t be surprised if more players soon follow in the footsteps of McCollum, Adams and Nance.

Unless otherwise noted, all stats via NBA.com, PBPStats, Cleaning the Glass or Basketball Reference. All salary information via Spotrac or RealGM. All odds via FanDuel Sportsbook.