Steph Curry is aware of the elephant in the room.
“One thing my pops always told me is you never count another man’s money,” the Golden State Warriors point guard told The Mercury News’ Tim Kawakami on January 14. “It’s what you’ve got and how you take care of it. And if I’m complaining about $44 million over four years, then I’ve got other issues in my life.”
Curry’s statement feels authentic. Despite growing up in an NBA family, Curry’s success was never guaranteed as a lightly-recruited slight guard out of high school. Even after averaging 28.6 points per game as a junior at Davidson College en route to an unexpected run to the Elite Eight, the Minnesota Timberwolves infamously whiffed twice in the 2009 NBA Draft, electing for guards Ricky Rubio and Jonny Flynn in his stead. Curry proved valuable on the court for Golden State when healthy early in his career, but significant ankle injuries limited him to just 26 games in his third season. The Warriors’ decision to offer Curry $44 million – $16 million less than the four-year max available for a player of Curry’s experience – suddenly appeared to some as a potential overpay. After earning “just” over $12.7 million over his rookie contract, seizing $44 million provided Curry with life-changing money in case his ankles proved to be his Achilles’ heel.
Of course, the rest as they say is history. Since signing his deal, Curry has blossomed into a superstar, earning two MVP awards, four All-NBA selections, and four All-Star appearances, while playing 394 of 410 possible regular season games. During the Warriors’ record-setting three-year run culminating in their second championship, Curry has been the fulcrum to the team’s on- and off-court growth, revolutionizing the sport by proving positionless pace-and-space basketball can win titles, while providing Golden State the financial flexibility to assemble a burgeoning dynasty. Without Curry’s 82nd ranked $12,112,359 2016-17 salary as a consequence of the league’s unprecedented salary cap boom, the Warriors never would have been able to add Kevin Durant last July after previously extending Klay Thompson and Draymond Green to near-max contracts.
While most two-time reigning MVPs and NBA champions may not have been so humble to share the spotlight with another transcendent superstar, let alone serve as his team’s fourth highest paid player, in reality, Curry never had the opportunity to demand a greater salary. The NBA’s Collective Bargaining Agreement restricts players and teams from negotiating raises absent sufficient salary cap space. Thus, Curry and the Warriors could only negotiate a raise to last season’s figure up to the max, but at the expense of signing Durant. With $35 million in off-court endorsements and the likelihood of a five-year, $207 million max extension looming after the season, the prospect of adding Durant justifiably exceeded Curry’s need for more money.
But what if in an alternate universe, Kevin Durant never came to the Warriors? What if, instead of approving an unprecedented massive cap spike, the Players Association acquiesced to salary cap smoothing? In such a world, Golden State would have lacked the cap space to sign another impact player or reward their superstar. A California labor law, however, may have provided Curry with a rare opportunity to circumvent the CBA, opt out of the final year of his contract, and earn a substantial raise.
On January 4, sports law professor Nathaniel Grow wrote an article on FanGraphs analyzing the impact of Section 2855 of the California Labor Code on baseball players’ potential free agency through the lens of Los Angeles Angels superstar outfielder Mike Trout. The “De Havilland Law” essentially provides individuals a right to void any contract for personal services in California exceeding seven years in length. Originally crafted as a public policy measure to protect actors from onerous agreements, the scope of “personal services” remains sufficiently broad to encapsulate professional athletes. In fact, California’s Assembly Committee on Labor and Employment considered passing a bill in 2007 exempting MLB, NFL, and NBA franchises from Section 2855’s reach after the Los Angeles Angels feared their eight-year offer to free agent outfielder Alfonso Soriano would be void upon signing. Unfortunately for the leagues, the measure failed to pass, presenting players with a potential cause of action against their franchises for contracts exceeding seven years in California.
While the obvious application of Section 2855 covers contracts that explicitly exceed seven years in duration, Grow’s analysis of California court decisions suggests that the law also applies to both (i) agreements featuring a series of one-year renewable options tacking seven years or more (e.g., team options), and (ii) contract renegotiations and/or extensions. In 2001, a federal district court held in favor of boxer Oscar De La Hoya in De La Hoya v. Top Rank, Inc., stating that a series of boxing contracts did not resemble separate agreements, but rather constituted a “continued, uninterrupted contractual relationship.” Top Rank appealed, but the parties settled out of court. Given the court’s favorable view toward employees, Grow discusses how many California business require their employees to spend one day “unemployed” every seven years to avoid triggering Section 2855.
Applied to the NBA, a player could theoretically elect to opt-out of his agreement with a California franchise after spending more than seven consecutive years with the organization. Since the NBA limits contracts to no more than five years, a player would likely have to rely on the tacking of options and subsequent extensions while still under contract. The typical player who could take advantage of Section 2855 would be one whose team exercises its third and fourth year team options on the player’s original rookie scale contract and subsequently agrees to extend the player before he reaches free agency. Other players may trigger Section 2855 if they re-sign with the same California franchise before hitting free agency, but such an opportunity remains less prevalent given the league’s restrictions on renegotiations and extensions. Teams also benefit from allowing their free agents’ contracts to expire (provided they maintain their “Bird Rights”) so they may first utilize cap space to import outside free agents before re-signing their players and exceed the salary cap.
As such, a player in an analogous position to Curry at the end of the 2015-16 season represents the theoretical ideal plaintiff to test the California Labor Code loophole. As a first-round draft pick, Curry received a two-year contract with two subsequent one-year options that were duly exercised. Before the expiration of his rookie scale deal, Curry and Golden State agreed to the now infamous four-year, $44 million extension. After the 2015-16 season, Curry completed his seventh season with the Warriors, satisfying the requisite period under contract to exercise his opt-out, despite having another year on his deal he otherwise would have to perform under, which he did.
By opting out, Curry would have been able to earn a $26,540,100 salary in 2016-17, instead of the $12,112,359 figure he inevitably received, with the opportunity to negotiate up to an additional four years with 7.5% annual raises, per the terms of the CBA. Curry, likely privy to the NBA and NBPA’s labor negotiations last year, probably would have negotiated for a two-year deal with an opt-out after the first year to take advantage of the new CBA’s rules for a max deal starting at 35% of the cap – the proposed five-year, $207 million extension – instead of 30% under the old rules. By triggering the opt out, Curry would technically become a free agent even if he intended to immediately re-sign, which would likely re-start the seven-year clock to take advantage of Section 2855 again.
Now, even if Curry was aware of the De Havilland Law last summer, there are several reasons why he nevertheless would have refrained from opting out of the final year of his extension. First, opting out would have dramatically lowered Golden State’s chances to sign Durant. By becoming a free agent, Curry’s cap hold would have risen from his salary of $12,112,359 to $21,604,493 (i.e., 190% of Curry’s 2015-16 $11,370,786 salary, the required calculation for a player who earned more than the league average salary the previous season), which would have counted toward the team’s salary cap to retain his Bird Rights. Carving out the requisite cap space to afford Durant would have necessitated moving Andre Igoudala ($11,131,368 2016-17 salary) without taking on more than a league minimum salary. Such a move probably would have been possible; rebuilding teams like the Nets had plenty of cap space with little use for it, and maybe could have squeezed a draft pick out of the Warriors for the trouble or at least turned Igoudala into one by flipping him elsewhere. Nevertheless, losing Igoudala would have dealt a significant blow to Golden State’s depth and defensive versatility. By opting out, Curry would have made assembling last year’s championship roster impossible.
The most likely reason Curry never would have been tempted to opt-out: Curry himself. Even if he was dissatisfied with his salary, as one of the faces of the league, Curry’s reputation would suffer greater harm by challenging the league for an additional $10 million. Unlike when he signed his $44 million deal, Curry’s off the court endorsements this past year dwarfed his NBA salary.
While Curry no longer remains a valid plaintiff, another player from one of California’s four NBA teams – the Warriors, Los Angeles Lakers, Los Angeles Clippers, and Sacramento Kings – could weigh the merits of a challenge. After next year, for example, Curry’s Golden State teammate Klay Thompson will have accrued seven years with the franchise. Like Curry, he would have one year remaining on his deal, for a sum of $18,988,725. Should league revenues continue to grow, Thompson would stand to make millions more by becoming a free agent.
No matter who first tests the California Labor Code loophole, the NBA would surely mount a significant legal challenge. The league has a vested interest in maintaining competitive balance and eliminating inequity among its franchises. (For this reason, professional sports leagues should also consider state tax-neutral salary cap regimes.) Although the league and players failed to consider Section 2855 in the latest iteration of the CBA, the NBA would likely maintain that its collectively-bargained provisions should take precedence over California’s protections. As Grow intimates, however, lack of precedent presents a compelling controversy; while Section 2855 has never faced a challenge from a unionized employee, the Supreme Court in Livadas v. Bradshaw in 1994 held that federal labor law provided an employee basic protections, preempting the state labor commissioner’s deference to the provisions of an applicable CBA. Unlike the MLB, which experienced a joint Section 2855 challenge by Don Drysdale and Sandy Koufax in 1966, the NBA cannot easily settle a contract dispute given the league’s strict salary constructs; any supplemental compensation provided for via settlement would likely clash with a CBA contract provision. Prospective plaintiffs may ultimately find that the costs outweigh the benefits of pursuing litigation absent extraordinary circumstances.
As the NBA transitions to a new league year, the Warriors appear on the precipice of a modern dynasty. By staying the course, Steph Curry’s patience – and a little luck – provided the perfect storm to add Kevin Durant last July and exact revenge on the Cleveland Cavaliers this June. With two championships and perhaps more on the way, now Curry only needs to worry about counting his $207 million, and how to take care of it.