Power Play for Howard When Case Study

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Thus, the initial negotiation was not a difficult choice, as Miami had both the lowest opportunity cost and the highest benefits.

Later, when Washington re-entered the picture, it was because the league had raised suspicion with respect to the Miami contract with Howard. As a result, the cost-benefit analysis and risk analysis shifted. If Howard went to arbitration against the league, he would risk losing $50-60 million over the length of his contract. In this new position, Howard would have felt that we would make about $10 million less if he went back to Washington, since that was the last offer from that team at the time. In addition, the career success benefit did not have the same opportunity cost that it did before -- if Washington won back Bird rights to Howard it would be able to add him to a team full of quality free agents that it signed when he went to Miami. If the arbitrator sided with the Heat, however, Howard could keep his full benefit and would go to a team that looked good. The risk of losing the $50-$60 million, however, looked good, given that the league had taken an active stance against the deal. Howard had to understand that he had a high degree of risk if he sided with Miami and that if he lost it would cost him five to six times what it would cost him to not side with Miami.

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That Howard ultimately did not lose anything with Washington and was able to play with the extra free agents that Washington had signed was ultimately the best case scenario. That was unknown at the time Howard made his decision, however. Yet he understood that given the likelihood of loss in arbitration if he sided with Miami he was faced with a high likelihood of a major loss and instead he made the fiscally responsible decision to guarantee a lower loss. Howard made the right decision given the information at the time, given what the risk of losing the arbitration was and what cost of that loss would be. He chose the option that had the lowest risk and highest reward and ultimately it ended up with the best case….....

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