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2013 NBA Offseason: NBA reimburses Oklahoma City Thunder for portion of Kevin Durant's contract

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The NBA voted to reimburse the Oklahoma City Thunder for a portion of Kevin Durant's supermax contract, signed in 2010. Here are the details.

By J.A. Sherman
/ new
USA TODAY Sports

(Update: Additional comments added from Tom Ziller)

(Update/Correction: League reimbursement was $8 million. See below.)

As I'm sure all of you Thunder fans were breathlessly refreshing their Twitter feeds last night hoping that some news would drop about the chances of the Thunder signing Mike Miller, an interesting little tidbit fell out of Zach Lowe's picnic basket and we all kind of stared at it wondering what it means. Here it is:

Er, what? Let's splice together Lowe's Twitter feed:

Owners today voted to reimburse Thunder "several million dollars" for rule change new CBA applied retroactively to Durant’s contract, per sources. The vote took place at today’s Board of Governors meeting, according to several league sources here in Vegas.

The Thunder protested at the time, and Board today voted - not unanimously, I’m told - to pay OKC the difference b/w old and new Durant max. Kevin Durant will still get his full super-max amount; league will reimburse OKC ownership the difference, sources tell Grantland.

Right, got it.

No, don't got it. What?

Here is a brief timeline, dating back to before the ever-popular lockout:

1. Kevin Durant signs an early max-extension deal in 2010, a contract that would go into effect in the 2011-12 season. The max contract's value at that time was undefined since it was based on the old CBA rule of 25% of the team's total salary cap.

2. The Perilous Peril Lock-out Arrives.

3. The lock-out ends, but with it comes a concession from the owners that is designed to reward players who have outperformed their rookie contract. Originally dubbed the "Rose Rule," the stipulation provided that these special players were eligible for a "supermax" contract that was comprised of 30% of the team's total cap spread out over 5 years.

(This is how the new rule can be read: "Max salary calculation remains the same as in the old CBA, with one exception. Any player in his 5th year is eligible to receive a max contract from his team of up to 30% (up from 25%) of the overall salary cap as long as he has accomplished one of three things: 1) he's made an All-NBA team (any level) twice; OR, 2) he's been named league MVP (Derrick Rose); OR 3) he has been voted in as an All-Star starter twice.)

4. The 2011-12 season kicks off, and Durant's agent notes to the league that his contract, which was signed prior to the new CBA but was beginning with the new CBA, makes Durant eligible for this "Rose Rule," and therefore a bump to 30% of OKC's cap instead of the negotiated 25%.

5. The league considered and approved Durant's argument, making Durant the first beneficiary of the "Rose Rule." CBA guru Larry Coon explained:

Durant meets the eligibility requirements for the Derrick Rose Rule, having been named to the All-NBA first team in 2010 and 2011 (he is also a two-time All-Star, but was voted in as the starter only once). However, it was unclear whether the league would allow the rule to be applied to a player who signed his extension under the previous collective bargaining agreement. The league decided last week that Durant does qualify, making him the first player so designated under the Derrick Rose Rule. He will receive the 30 percent maximum salary (30 percent of the salary cap), which is otherwise available only to players with seven to nine years in the league. His 2011-12 salary will be $15,506,632 and his five-year extension will total $89,163,135.

Had Durant not been granted the larger maximum salary, his 2010-11 earnings would have been $12,922,194 and his five-year extension would have totaled $74,302,616. By being granted the larger maximum, Durant earns an extra $2,584,438 this season and an extra $14,860,519 over the life of his extension -- quite a Christmas bonus.

6. Durant gets paid. More specifically though, he got paid more than the Thunder organization believed he had originally negotiated for. Instead, when Durant became eligible for the "Rose Rule" salary bump, the league automatically increased his salary based on his qualifications.

7. It is reasonable to think at this point that the league increased Durant's salary via edict outside of the Thunder chain of command because OKC believed that they were only entitled to pay out Durant's originally negotiated 25% of cap salary. As Lowe points out, a majority of the rest of the owners agreed as well.

8. By the league compelling the Thunder to pay more than they had originally negotiated, OKC put forth a reasonable case that the league should therefore reimburse the difference between what OKC originally promised to pay (25%) and what they were compelled to pay (30%). The majority of owners agreed with this as well.

9. The net result is that the Thunder will be reimbursed almost $15 million $8 million by the league.

Correction: Zach Lowe reported on 7/31/13 that the reimbursement was $8 million, not almost $15 million.

10. Does this reimbursement in any way effect the Thunder's cap situation? Darnell Mayberry says, "no."

In other words, this is why we all got a little bit excited last night:

All this would be wrapped up nice and lovely, but SB Nation's Tom Ziller says, "Not so fast." Ziller writes:

But here's the thing that strikes me as supremely odd about the whole situation: in January 2012, a month after the league granted Durant the super-max, the NBA also allowed the Thunder to sign Russell Westbrook to a "Designated Player" deal even though the collective bargaining agreement capped the usage at one per team.

Now Westbrook didn't sign a deal in January 2012 to give him 30 percent of the cap beginning in 2012-13 if he made another All-NBA team in 2011-12 (which he did). It wasn't a true Rose Rule deal. The deal was capped at the 25 percent level. But it was a five-year extension. Teams cannot sign a player to a five-year early extension while having another player they signed to a Designated Player contract on the roster. By virtue of the NBA granting Durant a Rose Rule contract (which was in excess of what Durant thought he signed in 2010), the NBA had made Durant a Designated Player ... and then a month later allowed the Thunder to sign a second Designated Player.

The league could have handwaved this away by saying that Durant wasn't technically a Designated Player because he signed his deal in 2010, before the lockout deal. But that doesn't jive with the salary boost the NBA itself approved at Team Durant's behest. Either Durant is a Designated Player, or he's not. Because of the NBA's decisions to retroactively grant Durant that status and then approve OKC signing a second Designated Player contract, the Thunder got an unfair advantage.

(emphasis mine)

Ziller is arguing that the Durant reimbursement is all fine and good on its own, but it brings back to life one of the screwier things that we witnessed during the early part of 2012. OKC had rewarded Durant with a 5-year supermax deal based on the "Rose Rule," and then signed Westbrook to his own 5 year deal where he could have potentially negotiated for a supermax deal of his own (Westbrook refused the pay bump). Did the Thunder receive an unfair advantage, and are now collecting a little bit of extra money on the side?

The one thing that I believe Ziller is missing on this is that he seems to be arguing that the "Rose Rule" and the player designation are the same thing. However, I think they are different. We expect to see them coupled together because of their specific nature - the "Rose Rule" can only apply to a superstar who has vastly outperformed his rookie contract, and the player designation goes to the player that the team believes is the bedrock of their future; i.e. the franchise player. Most often, that is going to be the same guy. However, there is nothing that I've seen in the language of the CBA that dictates that the two designations must be satisfied by the same person. It is my position that they can be decoupled, and this is what I wrote at the time of Westbrook's extension announcement:

Of course, we saw Kevin Durant satisfy these [Rose Rule] requirements and get the 5% pay bump via the new CBA retroactively (thus making him the actual first recipient of the Rose Rule), so the Thunder already have one 30% player. Is it even contractually possible to have a second 30% player?

In order to get this question answered, I turned to our friend Tim Donahue at 8 Points, 9 Seconds. If you recall, Donahue was instrumental in bringing forth a number of comprehensive ideas via his own site as well as in his collaboration with Larry Coon during the lockout, which greatly helped clarify the CBA situation.

Tim says:

By giving Westbrook a 5-year 25% extension, they've "designated" him. Therefore, they cannot designate any more players while that contract is in effect and on their roster. (They can also only acquire one by trade.)

However, the "designated rookie" rule and the "Rose Rule" are two different things. There is no limit on the number of "Rose Rule" players on a roster, so, yes, if Westbrook qualifies, then both he and Durant can get the 5th year 30% max.

[..]

Because of the way the new CBA language is worded, you can see that while the player designation and the 30% [Rose Rule] max are paired together, they can be de-coupled, and the Thunder's contract situation with Durant and Westbrook would allow for it. Durant's contract was signed before the new CBA, so he received the five year extension without consuming the player "designation." This left the "designation" option on the table for Westbrook to scoop up, so now he too can be a five year player eligible for the 30% maximum.

It is highly unlikely we will see this scenario ever again, since it took a specific moment in the NBA's history (the period of time right before a lockout) and a new rule (the player designation rule) and two of the elite players in the league being drafted by the same team a year apart for this to come together.

All this to say, the contract makes sense in a very lawyerly sort of way. I hope you've enjoyed reading something that, once again, amounts to this:

Welcome to the offseason.

***

Update1

After communicating with Ziller regarding our divergent analysis, he updated his post with this comment:

J.A. Sherman at WTLC and Kevin Pelton privately note that the Rose Rule (30 percent of cap for eligible second contract players) and the Designated Player clause (five-year early extension for one player on the team) are not necessarily tied together. It just is most likely to turn out that way, as with Derrick Rose. That makes sense as it relates to the league allowing a five-year extension for Westbrook, but it doesn't make sense with regards to the league telling the Thunder to pay Durant 30 percent of the cap in the first place. The league is acknowledging the length of contract Durant agreed to before the lockout, but not the dollar amount. Again, it's a weird situation in which the league clearly retracted its position after a vote of the owners. Just very weird.

I think that's right. It would make most logical sense for Durant to have either kept his old contract (5 years, 25% max, no Player Designation) under the old CBA rules, or amend it to adopt the rules of the new CBA (5 years, 30% supermax, Player Designation). It looks like Durant sought out the best of both worlds - keep his 5 year contract (old CBA), adopt the new supermax (new CBA), AND avoid the Player Designation (thereby allowing for Westbrook to get his 5 year extension). This is what the league agreed to, and even though it benefits OKC for the long term (two elite players with 5 year contracts, avoids compressing KD's supermax deal into 4 years), the arrangement still compelled them to pay out more than they originally negotiated for. The rest of the league owners therefore sought to make the team whole again by reimbursing that $15 million $8 million, even if on a pure equitable basis, you could argue OKC was unjustly enriched.

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