How sneaker free agency works: The three types of shoe deals

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How sneaker free agency works: The three types of shoe deals

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How sneaker free agency works: The three types of shoe deals

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This is part one of a four-part series that gives readers a behind-the-scenes look at shoe deals and the sneaker free agency process, with insight from various NBA agents, sneaker executives and industry experts.

Today’s NBA players are earning tremendous sums of money from their respective teams, but that’s not their only revenue stream. Many players also get a substantial paycheck from their sneaker deal (and other endorsements). In some cases, that’s where players are earning their biggest paycheck.

“There are some players who make more money from their sneaker deal than their NBA contract,” one NBA agent said, pointing to examples like Derrick Rose (who makes more from adidas than the Pistons) and Kyle Kuzma (who makes more from PUMA than the Lakers). 

HoopsHype’s new four-part series delves into the sneaker business. First, we’ll focus on the different types of shoe deals. There are three tiers: signature deals, cash deals and merch deals. Here’s a breakdown of each type of deal:

SIGNATURE DEALS

These are for the league’s biggest stars, as there are only 17 players who currently have a signature shoe. These individuals either have their own sneaker or one in development (since the process takes 16-to-24 months). According to ESPN sneaker expert Nick DePaula, signature deals typically pay players a base salary between $5 million and $15 million per year (depending on the player) plus bonuses from a wide variety of incentives.

These players typically get a five-percent royalty on all of their footwear and apparel sales (although the percentage is negotiable). Players also get a product allowance, which determines how much free gear they will receive. When a player has a signature shoe, there’s constant communication with the sneaker company to go over ideas, colorways, samples, etcetera.

DePaula notes that the biggest stars (like LeBron James) often have multiple models that are released each year and these models all have different technology, price points and distribution. When you consider that James earns a large base salary, bonuses from incentives and royalties from all of his models and apparel, it’s clear that he’s getting some big paychecks from Nike.

LeBron James’ Nike shoes (Brett Davis-USA TODAY Sports)

Despite the fact that there are just 17 players with their own signature shoe, 65 percent of the NBA wears a signature sneaker model of some sort, according to DePaula. 

“So many players around the league are wearing Kyries or Kobes or another signature shoe,” he said. “There are about 20 players who are currently wearing adidas’ Dame 4s. When you have a signature shoe, not only are you wearing it, many people around the league wear it and give visibility to your name.”

CASH DEALS

There are roughly 70-to-100 players around the NBA who are on a cash deal. These players can make anywhere from $200,000-to-$300,000 per year on the low end and $2 million-to-$3 million per year on the high end, per DePaula. They have a base salary, a wide variety of incentives and a product allowance (that allows them to order gear for free).

These are players who are notable enough to pique the interest of a shoe company, but they aren’t deemed marketable enough for their own signature shoe. However, many of these players do have PE (player exclusive) sneakers. Bradley Beal is an example of a player on a cash deal since he’s an All-Star-caliber player and Nike gives him PEs with his own logo and custom colorways.

Every brand is different, but Nike typically rewards All-Star players and top picks (such as Ben Simmons) with PEs. Jordan Brand gives players a PE of their favorite Jordan model when they sign with the company, and any Jordan Brand player who wins a championship receives PEs with gold accents.

“Jordan Brand is different because they only have 31 or 32 players. It’s an elite group… and everyone on the Hornets,” DePaula said with a laugh.

“The bigger the star, the more elaborate the contract and the negotiations are,” former NBA agent Matt Babcock explained. “The shoe company will likely demand a lot more from a star player in return for the lucrative contract. For a star (on a signature deal), some common terms that would need to be negotiated are the number of appearances, commercials and offseason tours. For a role player (on a cash deal), it wouldn’t be as elaborate, although there are some similarities like incentives.”

Some players turn down cash deals because they would rather be a sneaker free agent since that allows them to wear different brands throughout the year. Gilbert Arenas may be the most notable example of this. After parting ways with adidas, he spent the 2010-11 season embracing his sneaker free agency and wearing a ton of different brands (even rocking a pair of Dolce & Gabbana high-tops at one point).

Photo by Doug Pensinger/Getty Images

MERCH DEALS

Most of the NBA is on a merch deal, which means the player isn’t getting paid to wear the sneakers, but they do get a product allowance. These players are typically end-of-bench guys or big men (because there’s a commonly held belief in the sneaker industry that big men can’t sell shoes, which we’ll get to later in this series).

Not only does a merch-deal player get free product to wear during games, these players often get a product allowance as well. They basically get store credit and can order anything they want online (from sneakers to clothes to women’s and children’s apparel for their family).

Most players on a merch deal have a $25,000 product allowance, but that amount is negotiable. Each year, players must spend their allowance by September 30 and the money doesn’t roll over to the following season.

When players have funds remaining as September 30 approaches, they’ll either add a friend or relative to their account or find ways to give back. Some players order jerseys and shoes for their old high school or AAU team while others order gear to give away at their summer basketball camp. 

“Look at it this way: If you’re a max player, you’re trying to get a signature deal. If you’re a mid-level player, you’re likely going to get a cash deal,” NBA agent Roger Montgomery said. “And if you’re a minimum player, you’re just going to get free product.”

Every NBA team has a storage room either at their arena or facility where they have a bunch of shoes in their team’s colors that brands send them. For players who don’t have any shoe deal, their team’s equipment manager will typically provide them with free shoes from this room.

ROOKIE DEALS VS. VETERAN DEALS

It’s worth noting that there’s a difference between a player’s first shoe deal when they enter the NBA (their rookie deal) and when they’re a veteran who goes through sneaker free agency.

Most rookie deals are finalized shortly after the NBA draft because the shoe companies want to see when a prospect is drafted and which market the player lands in before committing to them. Rookie deals are typically four-to-five years long and players can earn big money if they’re a top pick (especially if they’re in a large market like Los Angeles or New York). 

“With a rookie, you just don’t know how they’re going to turn out,” said AND1’s head of sports marketing Dexter Gordon. “That’s why a lot of times, when an agent has a lottery pick, they try to hurry up and lock in a sneaker deal. I have to decide whether to put my money on a rookie with a lot of upside when I don’t know what’s going to happen or go with a veteran who has proven himself and is a bit safer because I’ve seen them play in the league.”

Damian Lillard’s adidas shoes (Kevin Jairaj-USA TODAY Sports)

Some prospects bet on themselves and wait until they take the court to sign a shoe deal. Damian Lillard waited until after he played at the Vegas Summer League to sign his first shoe deal, which was a risky move. However, Lillard was named the co-MVP of the tournament after averaging 26.5 points, 5.3 assists and 4.0 rebounds, and his patience paid off when he inked a lucrative rookie deal with adidas.

The biggest difference between rookie deals and veteran deals is that the former is all about projecting a prospect’s upside and marketability (like NBA teams do in the draft) and the latter is about evaluating a proven commodity (like NBA teams do in free agency). And unless a top pick develops into a star, they will likely earn less money on their second sneaker contract.

“I think the second deal is often more of a rude awakening for guys rather than a raise,” DePaula said. “Top prospects get paid a lot and then some of those deals look bad very quickly. There’s one rookie who was a top pick in recent years and he got $2 million per year, but months into his NBA career, the company was realizing, ‘This deal isn’t going to work out.’ That player will most likely get a merch deal when his deal is up. Rookie deals are kind of a crapshoot.”

In 2018, PUMA thought they hit a home-run by signing the draft’s No. 1 pick (Deandre Ayton), the No. 2 pick (Marvin Bagley), the No. 9 pick (Kevin Knox), the No. 14 pick (Michael Porter Jr.) and the No. 16 pick (Zhaire Smith). Now, that group feels relatively underwhelming, especially since PUMA missed on the up-and-coming stars from that class: Luka Doncic and Trae Young. 

Check out part two of this series, which looks at what exactly has to be negotiated in sneaker deals and the many incentives that are included in shoe contracts. 

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