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Interesting bit of news broken by Celtics boss Danny Ainge today on Toucher and Rich, as Ainge announced that the team has been in discussions about a contract extension for point guard Rajon Rondo. However, due to the financial restrictions placed on extensions as opposed to contracts signed in free agency (more on this in a bit), Rondo passed.

We did talk to Rondo about extending him,” Ainge admitted. “But that’s all part of the negotiation that will happen again this summer and most likely the summer after. I don’t know [if he will sign an extension], time will tell.”

...

“In the Collective Bargaining Agreement, there are limits on what can and can’t be done. Really it’s not that Rondo doesn’t want to accept an extension, but it’s just not financially smart for him to accept it right now,” said Ainge. “We didn’t think he would [sign], but we did try.”

Ainge went on to say that he didn't want to get into specific details of the proposed extension, but I did some research and it's pretty obvious why Rondo would say no.

There are big time financial limitations on extensions signed by veterans before their current contract expires, which would explain why we rarely see extensions signed. For example, the contract can only be for four years (it can be for five during free agency), and the player is limited to 107.5% of their previous salary. From Larry Coon's CBA FAQ page:

Veteran extensions are limited to four seasons, including the seasons remaining on the current contract. Even if the extension is signed in late June, the current season counts as one full season toward the total. For example, a contract with two seasons remaining may be extended for up to two additional seasons. However, an extension signed in conjunction with an Extend-and-Trade transaction (see question number 93) is limited to three seasons, including the seasons remaining on the current contract.

The salary in the first year of a veteran extension may be any amount up to 107.5% of the player's previous salary, but no more than the player's maximum salary in that season (i.e., the maximum salary the player can receive if he were to sign a new contract that year as a free agent -- see question numbers 16 and 17).

So if I'm reading this correctly, any Rondo extension would be limited to 4 years, and around $59 million (salary in Year 1 = $12.9 million, 7.5% raise over this year, with 7.5% raises each season). And the extension would start immediately, canceling out Rondo's salary for next year, and basically making it a three-year, $46 million extension on top of the $13 million he is already owed next season.

On the other hand, next off-season Rondo will be in-line to get an offer of around 5 years, $95 million from the Celtics (in this scenario Rondo will be eligible for a starting salary of approximately $16.4 million in Year 1, the maximum amount for players with less than ten years of service time). When you consider the $13 million he's owed next season, that means Rondo has the opportunity to make $108 million over the next six seasons if he waits and the Celtics give him the max. And even if they don't, he's likely to make much more than the 3 years, $46 million extra that he'd be getting by agreeing to an extension now.

So when Ainge says "it's not financially smart for Rondo to accept" - he's telling the truth. Rondo would be potentially forfeiting nearly $50 million in future earnings ($108 - $59 = $49) in exchange for immediate security, only Rondo already has that security because of the extension he signed back in 2009. That is, if I'm reading the cap restrictions correctly, which I'm never 100% sure I'm doing.

But it does appear that the Celtics are interested in keeping Rondo around, which is nice. Just don't expect anything to get done until Rondo hits free agency in 2015.

Listen to Ainge on T&R here

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For more of my articles, click here

Michael Dyer 1/23/2014 01:16:00 PM Edit
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