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In the NBA, the "Contract Year Phenomenon" is the idea that players perform better in the final year of their contract. The theory goes, if you want to make more money, you have to show you earned it.


On the flip side, players apparently perform worse the first year of their new contract.

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For example, let's look at RAPTOR WAR, a player's overall contribution to their team. In short, a statistically robust measure of a player's performance.

In the 2008-2009 season, Kobe Bryant went from having a 14.34 WAR to a 20.76 WAR. And then he slightly dipped down the next season - right after signing a new contract.

The very next year, LeBron James and Dwyane Wade had a fantastic year - a precursor to The Big Three. The next year, they had new contracts, and they weren't as good.

They aren't the only players to have seemingly had an above-average Contract Year.

But in these discussions, we sometimes forget about other players. Players that didn't have necessarily get worse after they signed, or players that only did worse their contract year.

Let's talk about them.

The Contract Year Phenomenon

Story by Raj Shah

In 2020, the world was grappling with a global pandemic, and the NBA was also struggling. The league somehow pulled off playoffs after a total hiatus in both games and training, leading to a spectacular Bubble Season.

I'm still wondering where that 2020 Heat Team went.

Players went on the record to discuss how they felt uncertain about playing that year - Jayson Tatum famously said that free agent players were "putting a lot on the line" by deciding they had to risk their health to secure a good contract.

So that makes sense - players are concerned about how much they can earn in the future. Let's see how this is reflected in their performance.

Let's look at some stats.
On the left, we have an Estimate of the Distribution of Player Performance during their Contract Year.

The data is from a subset of players that had contracts expire between 2003 and 2020.

This is technically a Kernel Density Estimator, which estimates the probability of a player having a certain Wins Above Replacement (WAR) during their Contract Year.

Essentially, most players had between 0 to 3 Wins Above Replacement during their Contract Year.

This means that the majority of contract year players netted their teams a few additional wins compared to a replacement-level player.

Now let's look at these same players, but the year before. As you can see, the distribution looks really similar.

Note: Any differences are not statistically signficant, even with a pairwise T-Test.

And now performance during the next year.

This distribution is a little different. But it shows that there's more players performing better in their new contract.

So - does that mean the Contract Year doesn't exist?

Density Estimation of Player Performance

−10−50510152025300%2%4%6%8%10%12%14%Performance (WAR) ValuesPercentage of PlayersContract Year
Not exactly - there has been a lot of prior research on this topic, showing different methodologies, and coming to some different conclusions.
  • Performance Variation in the NBA(Jean, Neal, Duke University, 2010) - This paper used Points, Rebounds, Steals, Blocks, and Assists to measure player performance. They found that players performed better in their contract year, but did not find a significant difference in performance in the year after.

  • An Analysis of the Contract Year Phenomenon in the NBA(Gaffaney, Tyler, Claremont McKenna College, 2013) - This paper used percent deviation from career average, and delineated players by age, position, and skill level. They found that certain players underperformed in their contract year, while others did not.

  • Show Me the Money(Ryan, Julian, Harvard College, 2015) - This paper used advanced metrics such as PER and WAR to measure player performance, and also delineated between different types of contract situations. They found a 3-5% increase in performance for median players in their contract year.

  • Gaming the System(Shields Wald, Ezekiel, UC Santa Barbara, 2016) - This paper used a different economic theory to explain the contract year phenomenon - finding evidence that players that were "overvalued" tended to be the ones that improved in their contract year.
So what does this all mean?
There are a lot of factors that go into seeing the relationship between player performance and contract year.

What might make it easier to understand is to see the data for ourselves.

One of the graphs below covers what we’ve already seen - the estimated percentage distributions for player performance, delineated by year related to contract. The other is a new one - this one shows how much a player's salary increases based on their change in performance during the contract year.

Both of these graphs are made up of 300+ players spanning 2 decades of NBA history.

Try seeing how Young Centers do in their contract year, or how younger Point Guards tend to get rewarded versus older Point Guards.

−10−50510152025300%2%4%6%8%10%12%14%16%18%20%22%24%Performance (WAR) ValuesPercentage of PlayersContract YearPre-Contract YearPost-Contract Year
−0.50.00.51.0−10−50510Played Better, Paid BetterPlayed Worse, Paid WorseDeviation in WARChange in SalaryPoint GuardShooting GuardSmall ForwardPower ForwardCenter
So What's the Takeaway?Does the Contract Year Phenomenon exist?

Kind of. Different players in different situations are going to act...different. And regardless of how they change their game, it's not a given that they'll get paid more.


So Why Does This Matter?
  • For Managers and Coaches, it's important to understand how players are motivated. Knowing that your rising new Center is in their contract year can be a good indicator that they might be looking to improve their game.

  • For Players, we saw earlier that they felt immense pressure to perform in their contract year. It's important to understand that the pressure might not be worth it - the data shows that the change in performance doesn't always lead to an increase in salary.

  • And for Fans, it's just another layer of the game to understand. It's easy to remember the players that had a breakout year in their contract year, but that's not the whole story - it's good to remember the players that didn't.


How Can I Learn More?
  • FiveThirtyEight - How Our RAPTOR Metric Works: FiveThirtyEight is a great resource for understanding advanced metrics in the NBA. They have a great explainer on how their RAPTOR metric works, and how it's used to measure player performance.

  • Baseball Reference - WAR Explained: WAR is a statistic used in multiple sports. Though this link is for baseball, it's a great resource for understanding how WAR is calculated and why it is used.

  • CBA Breakdown - Contract Types: This link is a great resource for understanding the different types of contracts - which is something this analysis did not control for. Different types of contracts might lead to different motivations for players.
Sources

Made by Raj Shah
94470 Telling Stories With Data
Christopher Goranson