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LeBron James opted out of his contract. Why that actually limits his options

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James has reportedly opted out of the final year of his contract. While that’s usually a mere formality, doing it this year effectively cut his choice down to three teams.

The first big plot point in the third installment of the LeBron James free agency trilogy was resolved on Friday. LeBron James has decided to opt out of the final year of his contract, according to Cleveland.com’s Joe Vardon.

In the past, this decision was a mere formality and told us nothing about his free-agent plans. James was deciding between making less annual money for only one additional season, or securing the option to sign for more money — either via a long-term contract or a two-year deal with a player option the second year for maximum flexibility. Of course James and any other player in this situation would opt out when given the choice.

Thanks to a variety of circumstances, this year’s opt-out decision was different. James’ decision had a significant effect on this season’s chase because it narrowed the field significantly. Unless you’re a 76ers, Lakers, or Cavaliers fan, your team pretty much has no hope to acquire James now.

Sorry, Rockets fans. Nothing is truly impossible with Daryl Morey, but their only real hope was if James opted in to force a trade, a la Chris Paul. Now, they lack cap space to sign James, and sign-and-trade possibilities are remote.

We’ll get to why in a second, but first, some context.

Why was opting in even a viable scenario? Thank Chris Paul

Last summer, Paul faced a dilemma. He was set on teaming up with James Harden on the Houston Rockets, but the Rockets lacked cap space to sign him.

That seemed to close the door on a potential union, as some idiot wrote. To create enough cap space to sign Paul, Houston needed to trim at least $25 million in long-term salary in a matter of days, and no team was going to take that much money into their open cap space without inflicting a ton of pain in the form of future assets.

But Paul found a unique way to make his journey to Houston happen. Rather than going through the formality of opting out and officially becoming a free agent, Paul opted in to help engineer a trade. All Houston needed to do was cobble together enough salary to match the $25 million Paul had left on the final year of his contract.

General manager Daryl Morey did so in amusing fashion, collecting an army of non-guaranteed contracts to pair with Patrick Beverley, Lou Williams, Sam Dekker, Montrezl Harrell, and next year’s first-round pick. The Clippers, not wanting to lose Paul for nothing, accepted the trade. That’s how Paul set up a trade to Houston and enabled the Rockets to maintain the mid-level exception to sign P.J. Tucker.

A year later, Paul is a free agent, but he’s expected to sign a long-term maximum contract to stay with Houston. That’s how he was able to find a unique way to choose the team he wanted in free agency, even if that team didn’t have enough cap space to sign him.

LeBron could have done the same, but didn’t

If LeBron wanted his pick of any of the 29 other teams in the NBA, he could have pulled the same move Paul did. He could have told the Cavaliers of his intentions to go elsewhere and give them his preferred new destination. Cleveland would then have been given a choice: call LeBron’s bluff and risk losing him for nothing in free agency, or accept a trade package back for a player leaving anyway.

Had the Cavaliers chosen Option 2, they’d have negotiated a legal trade package with LeBron’s preferred team, using James’ $35.6 million player option as the salary they must match. Any team could theoretically do that, though some can do it easier than others. Houston could have done that.

But he opted out. So why does that kill Houston’s chances

Opting out effectively limits the field to the following teams: Lakers, Sixers, and Cavaliers. The Lakers and 76ers are the only teams in the LeBron hunt with the cap space to sign him outright, and the Cavaliers have Bird Rights. None of the other potential LeBron destinations have enough cap space to give LeBron a maximum contract beginning at 35 percent of the salary cap.

That crucially included the Rockets, who would have gladly taken LeBron despite James Harden’s words after the NBA awards ceremony. Houston is well over the salary cap even before making decisions on Paul and Clint Capela. Even trading Ryan Anderson while taking no salary back won’t get them close enough to sign James outright.

It also includes the Celtics, Spurs, Heat, Clippers, and any other wild card LeBron destination.

Sign-and-trade scenarios are technically possible, but unlikely. Any team that executes a sign-and-trade cannot end up with a team salary more than $6 million above the luxury tax due to NBA rules. That’d make it difficult for James’ new team to fill out its roster, so it makes little sense for them wait and trade for James later when they could trade for James before he opts out and maintain that flexibility.

In the case of the Rockets, a sign-and-trade is functionally impossible because they also need to re-sign Paul and Capela. There’s almost no way for them to keep all those players and have a team salary less than $6 million over the luxury tax. I say almost because anything is possible with Morey, but it’d require trading away so much salary without receiving any in return that it’s functionally impossible.

Any team without cap space had to hope that LeBron opted in as a means of engineering a trade there. But now that LeBron opted out, they are almost certainly out of the running.

That’s why James’ decision to opt out was no mere formality this time around. This is now a three-team race.

This story was published before LeBron’s opt-out decision and was updated afterwards.