The Catch with Two-Way Contracts

With the ratification of the new Collective Bargaining Agreement, NBA teams will have two new roster spots designated as “two-way contracts.” These slots will enable NBA teams to shuttle players back and forth between the D-League and the NBA. The difference between these new slots and players that are currently assigned to the D-League (like for example Diamond Stone) is that these “two-way contracts” differentiate the pay to be received by these players depending on whether they are in the NBA or D-League. If they’re in the NBA, they’re paid the standard NBA minimum salary (or whatever is otherwise negotiated). Yet if they’re in the D-League, they only receive a seasonal salary of $50,000 to $75,000.

While this creation of sixty new NBA roster spots overall sounds gigantic, it may not be that impactful as one may think. First, players looking at these deals are likely looking at significant time in the D-League. As end-of-roster acquisitions, two-way contracted players will almost certainly see little or no initial time in the Association. These contracts function mostly to allow teams to retain rights on players, at a reduced cost. As a result, the expected pay for these two-way players is likely the lower scale indicated. Players thus face a calculated risk-versus-reward of whether to sign such two-way deals. On one hand, a two-way player would make about $25,000 to $50,000 more than D-League contracted players (whose salary remain dictated by the D-League’s set up - ranging from $19,000 to $26,000). On the other hand, these players see their options of being called up to the association greatly reduced. Instead of auditioning in the D-League for any NBA team to call them up, two-way players are stuck in the ranks of their particular team. That is especially significant when players consider that the new CBA is raising the minimum salary next year.

The starting yearly salary for a player with zero years of experience in the NBA is projected/estimated to be $815,615. That means a player that signs merely a ten-day contract would make potentially $47,977. As such, a player willing to bet upon himself could be handsomely rewarded. Whether multiple ten-day NBA contracts or the mere opportunity to audition at the NBA level, the benefits clearly exist to avoid being bound to a two-way contract. Indeed, there is already some precedence for players gambling on themselves.

A growing trend in NBA has been for players, drafted after the first round, to seek contracts larger than what late-first round draft picks receive. This has been made possible because first round picks have their salaries bound and structured to a certain percentage of the salary cap. Second round picks meanwhile can negotiate for whatever they want and NBA teams have seen their salary space explode. Jordan Mickey (33rd pick overall in 2015) ended with a larger salary in his rookie year than four first round draft picks did. Alternative, K.J. McDaniels was selected 32nd overall in 2014, signed a mere tender agreement with the 76ers, and thereby gambled on himself to produce enough to earn a better contract later (instead of accepting a lower paying multiple year deal then). He thereafter signed a 3 year, $6,523,127 deal with the Rockets the following summer.

So what to make of these two-way contracts? On one hand, teams will get the chance to call dibs on more players and some younger players may benefit from the deal. Yet if a player is offered a two-way deal with a team like the Clippers, the contract would realistically have no foreseeable playing time (or earning opportunity) in the NBA. A player may be savvy financially with signing a generic D-League contract in that case to keep options open. On the flip side, expect some NBA teams (like the Clippers) to be conservative with handing out two-way contracts. Two-way contracts may be an excellent alternative for teams when faced with a need for stop gap measures. Ten-day contracts have been the popular way for teams to fill 2nd/3rd string gaps for short times. Yet teams often let players go after their second ten-day contract because rules require teams to offer a contract for the remainder of the season if a player is to be retained thereafter. Two-way contracts could let teams offer a pittance of salary for the flexibility to keep a player on retainer after they have served two stints on ten-day deals.

In the end, one shouldn’t rush to think that the introduction of these contracts will help sprout a new era of D-League basketball or player development.