As Dwight Howard and the Magic play out the end game of the trade deadline, they are charting a course through the eight different options the collective bargaining agreement creates:
Howard can play out the season with the Magic, become a free agent, and re-sign with the team for five years. This would give him a total of $109,229,064 through 2016-17. But the Magic don’t appear to be open to this option -- they’d rather trade him now than risk losing him as a free agent this summer.
Howard can play out the season with the Magic, become a free agent, and sign elsewhere. He could sign for four years at the same starting salary he’d get with the Magic, but with smaller raises. This works out to $81,114,453 through 2015-16. This is the scenario the Magic fear the most, so don’t expect to see him become a free agent this summer on the Magic’s watch.
Howard can decide he’s ready to make a long-term commitment to the Magic, and forgo free agency both this summer and next, instead signing an extension to remain with the team. This locks in the highest possible salary for 2012-13, $19,536,360. But an extension can total just four years -- and those four years include any remaining years on his original contract. Even worse, the current season counts as one full year, even if he signs an extension as late as June 30. As a result, if he signs an extension before June 30 he’d add two additional seasons and be paid $63,004,761 through 2014-15 (this includes the option year 2012-13 on his current contract). The Magic would be happy to have Howard make a long-term commitment, but would want it done before the 3 PM trade deadline.
If Howard signs an extension after July 1 he could add one additional season to his total, and be paid $86,936,802 through 2015-16. The only way the Magic would let this happen is if Howard first commits to the 2012-13 season by eliminating his early termination option. They can’t risk letting him become a free agent on July 1.
The Magic could decide they’ve had enough of the Howard drama, and trade him now. This appears to be the most likely scenario if Howard does not agree to alter his contract to eliminate his option to become a free agent. His new team would inherit the same dilemma that currently face the Magic -- Howard could become a free agent in July, but his new team could re-sign him for the same $109,229,064 through 2016-17 that he could get with the Magic.
If Howard is traded and becomes a free agent in July, he could also leave his new team to sign elsewhere. He could receive the same $81,114,453 through 2015-16 that he would get by leaving the Magic for a new team.
Howard also could be traded and sign an extension with his new team. But extensions that occur within six months of a trade are treated like extend-and-trade transactions, which limit the extension to three seasons -- again, including any seasons remaining on his current contract. This means he’d get just $40,537,947 through 2013-14 -- which appears to be his least desirable option from a financial standpoint.
Finally, Howard could be traded, opt-in with his new team for the 2012-13 season, and sign an extension after July 1 -- in fact, after the six-month anniversary of the trade (September 15). He would then be eligible to receive the full four years, giving him the same $86,936,802 through 2015-16 that he could get by extending with the Magic after July 1.
Be careful to avoid apples-to-oranges comparisons. It’s easy to compare $109 million to $81 million and conclude that it’s a no-brainer to take the $109 million. But it’s not that simple -- the $109 million is for one additional year, and if he takes the lesser amount for a shorter contract, the presumption is that he will sign for that additional year somewhere down the line. So he’s not “giving up” salary by taking the lesser amount -- he’s merely taking a risk of a career-ending injury occurring before he has a chance to sign.
It’s a complicated decision, and a tough choice, but it will be done by 3 PM today.