NBA

Does Keeping Jeremy Lin Make Financial Sense For The New York Knicks?

As this post is being written, the Knicks have 13 hours and 2 minutes left to match on the Houston Rockets’ offer sheet to Jeremy Lin, with New York expected to wait until the last second to decide if it wants to keep its most globally-popular player ever. Some Knicks fans have been pleading with owner James Dolan and the Knicks’ brass to match the offer sheet, which would pay Lin close to $25 million over three years.

From a basketball standpoint, it’s difficult to say whether this move would help or hurt the Knicks. Lin has 25 career starts (25 starts in which he performed extremely well) but no one can say whether he could keep up that torrid pace that captivated pretty much everyone with a pulse. Predicting future performance is impossible.

What’s black and white, though, is the dollars and cents.

1. The third year of Lin’s contract is what would kill the Knicks.

Lin could have originally accepted a two-year offer to play for the Knicks in excess of $10 million. That is what his offer sheet is paying now in its first two years. It was the third year, which Lin renegotiated with the Rockets and which will pay Lin close to $15 million, which creates a snag. With the Knicks already over the cap threshold, Business Insider reported Lin’s raise in year three could force New York to pay up to $68 million in the luxury tax (although that number most likely settles somewhere around $35 million.)

2. But he’s already made a ton of money for New York.

Lin has already been a financial goldmine for New York. At the height of Linsanity, the point guard’s economic impact spanned far beyond the sale of merchandise. Madison Square Garden’s stock rose to all-time highs, and the hype surrounding Lin even helped Dolan to renegotiate a new deal with Time Warner Cable. The Knicks will—with or without Lin—continue to make money off that television deal.

3. Without Lin, MSG’s stock and Knicks merchandising dollars suffer.

The value of Lin merchandise would completely plummet, as reported today in the New York Post:

Mitchell Modell, the sporting goods company’s president, told Bloomberg his store would have to slash prices on 40,000 Lin-related items.

“We’re going to have crazy, crazy prices — like $5,” said Modell, whose store currently has t-shirts for $24.99 and jerseys for up to $89.99.

The stock would also take a hit, as shown by last week’s activity. Speculation alone of Lin leaving New York caused the MSG stock to drop millions Friday when the market closed:

Stock in MSG closed at $36.59 Friday, but plummeted in the first 15 minutes yesterday and closed down $0.59. With 62 million shares outstanding, that’s a $36.58 million loss — with four analysts telling The Post it was all an emotional reaction to the Lin news, not any long-term issue with the Garden.

As previously stated, the Knicks will retroactively make money off of Lin with or without him on the roster, as he was a major reason Dolan was able to renegotiate a television contract. (Time Warner Cable and MSG were in a dispute, and Time Warner stopped carrying the network. But this blackout came at the height of Linsanity, forcing Time Warner back to the negotiating table, knowing it needed to broadcast Knicks game with such increased attention.)

Of course, there are other ways the Knicks can navigate around paying that ludicrous luxury tax in 2014-2015. The simplest way would be to trade Lin. With his contract only paying out close to $10 million in its first two years, the Knicks could always trade the point guard before his salary takes that astronomical jump in year three. Or, the Knicks could trade other high-salary players to create cap relief. Another more complicated way to avoid the luxury tax, pointed out by CBS, is to take advantage of the stretch provision created in the NBA’s new collective bargaining agreement. This provision allows teams to cut a player, but not have to pay his salary in one season. The Knicks could cut Lin before year three and pay the $15 million he’s owed over the course of the next three seasons, leaving a dead $5 million on the books.

The Knicks have already earned a great deal of found money from Jeremy Lin. No one expected a player that had been cut by two teams to put in the performance and create the hype he did. Any further gambling by the Knicks now would be like going double-or-nothing on the blackjack table at Vegas in the midst of a winning streak; the Knicks have the potential to win more, but they also have the potential to lose it all. And again, everything the Knicks have earned up until now has stemmed from a surprising performance. It’s time to either cash out, or take this thing to the house.

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