Kawhi Leonard takes $11 million less to re-sign with the Clippers: What legal risks are involved in NBA players' pay-cut contracts?
Lead-in: Star Players Taking Pay Cuts to Extend Contracts—The Contract Game from a Legal Perspective
According to reports by well-known reporter Shams Charania, Los Angeles Clippers star Kawhi Leonard voluntarily took about $11 million less in new contract negotiations to preserve salary-cap flexibility for the team, and is expected to finish his career with the Clippers. The news sparked heated discussion in basketball circles, with fans praising his spirit of sacrifice. From a legal perspective, however, a professional athlete's pay-cut extension is far from as simple as taking less money. It involves a range of legal issues, including changes to labor contracts, salary-cap compliance, tax planning, retirement clauses, and remedies for breach of contract. In China, although NBA rules and the U.S. labor law system differ from domestic ones, the legal logic in professional sports contract disputes, salary adjustments, and player rights protection is comparable. The lawyer team at Guangdong Zhiming Law Firm, drawing on its practice in sports law, labor law, and contract law, breaks down for readers the legal risks and compliance points behind the star player's pay cut.
I. Legal Nature of Salary-Reduction Contract Renewal: Modification of Labor Contract or New Contract?
From a legal perspective, when Leonard and the Clippers conducted extension negotiations before the original contract expired and agreed to reduce the total salary amount, this in substance constitutes a modification of the original employment contract or the early signing of a new contract. Under Article 35 of the Labor Contract Law of the People's Republic of China, an employer and an employee may modify the terms agreed in the labor contract through mutual consultation, and the modification shall be made in written form. Although NBA player contracts are governed by the U.S. collective bargaining agreement (CBA), if the scenario is transposed to the domestic professional sports field, such as a CBA player taking a pay cut to renew a contract, the principle of mutual consultation plus written modification must likewise be followed. In practice, many clubs orally demand that players take a pay cut on the grounds of team difficulties; players, out of regard for personal relations or fear of being frozen out, are forced to agree, yet afterward there is a lack of written evidence. Once a dispute arises, it is extremely difficult for players to defend their rights.
Lawyer’s note: Before signing any salary reduction or salary adjustment agreement, professional athletes should ensure that the contract terms expressly state the extent of the salary reduction, its duration, and compensation mechanisms (such as bonuses, endorsement opportunities, post-retirement arrangements, etc.), and should retain records of the negotiations. If a club uses pressure tactics such as “sign or be traded” to force a salary reduction, this may constitute duress, and the player may request rescission of the relevant clauses under Article 150 of the Civil Code.
II. Salary Cap and Yin-Yang Contract Risks: Compliance Red Lines Must Not Be Crossed
The NBA has a strict salary cap system. Leonard taking $11 million less is ostensibly to free up space for the team to sign other players, but if there is a behind-the-scenes promise of private compensation, such as future additional commercial endorsements, equity, or a post-retirement position, it may cross the red line of a yin-yang contract. A so-called yin-yang contract means that the two parties sign two contracts: one for filing, with a low salary, and the other privately stipulating the actual compensation, whether a high salary or additional benefits. Under China's legal framework, a yin-yang contract not only violates Article 146 of the Civil Code concerning false expressions of intent, but may also lead to tax violations.
Article 63 of the Law of the People's Republic of China on the Administration of Tax Collection provides that where a taxpayer forges, alters, conceals, or destroys account books without authorization, or overstates expenses or omits or understates income in account books, or files false tax returns, and fails to pay or underpays the tax payable, such conduct constitutes tax evasion. In the field of professional sports, if individual income tax or club income tax is evaded through yin-yang contracts, the persons responsible may face payment of back taxes, late payment surcharges, and fines, and if the circumstances are serious, it may also constitute the crime of tax evasion. In addition, the Chinese Basketball Association and the CBA Company also have strict penalties for yin-yang contracts, including fines, point deductions, cancellation of results, and even cancellation of registration qualifications.
In legal practice, we have encountered amateur leagues or semi-professional clubs making disguised salary payments under the names of sponsorship fees or signing fees, circumventing salary caps and taxes and fees. We recommend that players and clubs consult a professional sports law attorney before signing any supplementary agreement to ensure that the contract structure is lawful and transparent.
III. Retirement Clauses and Player Rights: Legal Implications of an Expected Retirement with the Raptors
It is reported that Leonard is expected to retire with the Raptors, but the report then mentions the Clippers, which may indicate confusion in the information. Regardless of which team a player ultimately retires with, retirement clauses in professional sports contracts deserve attention. Typically, player contracts stipulate matters such as retirement timing, post-retirement compensation payments, jersey retirement, and Hall of Fame recommendations. If a player retires early due to injury, must the club still pay the remaining salary? Under Article 42 of the Labor Contract Law, if a worker is sick or injured for reasons unrelated to work, during the prescribed medical period, the employer may not terminate the labor contract under Articles 40 and 41. However, professional sports contracts often contain special provisions; for example, an injury retirement clause may provide that the club pays only part of the guaranteed salary.
When signing a contract, a player should pay particular attention to the following clauses: the proportion of guaranteed compensation, injury trigger conditions, allocation of commercial rights and interests after retirement, non-compete restrictions (such as whether the player may join the management of another team after retirement), etc. If a club exploits its superior position to draft manifestly unfair standard terms, the player may invoke Article 497 of the Civil Code to assert the invalidity of such terms.
Moreover, if a player is traded after taking a pay cut, whether provisions such as trade kickers and no-trade clauses remain valid must also be clearly stipulated in the contract. Leonard took $11 million less; if he did not receive a corresponding no-trade clause or player option in exchange, then if the team subsequently trades him, his financial loss will be impossible to make up.
IV. Tax and Cross-Border Compliance: Global Taxation Issues Behind Star Players’ Salary Cuts
NBA players usually play in various U.S. states and Canada (the Raptors), involving federal taxes, state taxes, city taxes, and even cross-border taxation. If Leonard retires with the Raptors, Canadian non-resident tax issues must be considered. In China, professional athletes who go overseas to play also face global taxation and tax credit issues. Under Article 1 of the Individual Income Tax Law of the People's Republic of China, an individual who has a domicile in China, or who has no domicile but has resided in China for a cumulative total of 183 days in a tax year, is a resident individual, and shall pay individual income tax in accordance with this Law on income derived from within and outside China. After a player takes a pay cut, if total income decreases but tax planning is improper, could take-home income actually rise instead of fall? This requires calculation by a professional tax lawyer.
At the same time, when a club pays post-pay-cut salaries, if it fails to withhold and remit individual income tax in accordance with the law, under Article 69 of the Law on the Administration of Tax Collection, where a withholding agent fails to withhold tax that should have been withheld or fails to collect tax that should have been collected, the tax authorities shall recover the tax from the taxpayer and impose on the withholding agent a fine of not less than 50 percent but not more than three times the amount of tax that should have been withheld but was not withheld or should have been collected but was not collected. Therefore, both players and clubs should ensure that the tax provisions in pay-cut agreements are clear and compliant.
Conclusion: Professional Sports Contracts Are No Small Matter—Lawyers Advise Planning Ahead
Leonard taking $11 million less to sign an extension may look like sports news, but it is actually a vivid lesson in contract legal risk. From changes to employment contracts and preventing dual contracts to retirement clause design and cross-border tax compliance, every step can plant the seeds of a dispute. For professional athletes, coaches, and even amateur sports participants, before signing any salary adjustment, transfer, or retirement agreement, they must seek review by a professional lawyer. Guangdong Zhiming Law Firm has deep expertise in sports law, labor law, and contract law, and can provide players, clubs, and sports agencies with one-stop legal services such as contract drafting, compliance review, dispute mediation, and litigation representation. Victory on the field depends on strength; rights off the field depend on the law.
