Arenas Provision (’16 FA)

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While 2016 free agency is shaping up as the year of Durant due to the quietly shallow pool of top-tier talent, the more interesting plotline to me is what transpires with restricted free agency. With the annual Moratorium 3 days longer this year spanning from July 1st to July 11th, and in conjunction with the spiking salary cap projected currently to be $89M that will leave 20+ teams with sizable cap space, the restricted free agency climate is fascinating. Most of the “get” unrestricted free agents committed (unofficially) between July 1st and 5th last year, diminishing the market to secondary and restricted free agents rather quickly. If that trend follows suit after the Durant/Horford/Conley/Whiteside/Batum domino effect, there will be A TON of cap space left over, leaving space-laden teams with a dilemma. Will teams try to spend up to the projected $81.1M salary floor, or just distribute any amount under that figure to their current roster pro rata to preserve cap room for the superior 2017 class? Will teams risk tying up cap space for 72 hours after the moratorium signing RFAs to offer sheets giving the prior team an extra 3 days of the moratorium to prepare and likely having to overpay to disincentivize matching? This summer is largely uncharted territory, especially for secondary restricted free agents who don’t have presumed “wink-wink” deals with teams such as Detroit with Drummond and Washington with Beal to utilize lower cap holds to maximize free agent spending pursuits.   The following will explore under the radar projected RFAs and the interplay with the Arenas Provision of 4 players: Jordan Clarkson, Langston Galloway, Tyler Johnson, and Dwight Powell

Jordan Clarkson

Clarkson has shown is an excellent burst in pick and roll offensively over a large sample, particularly the ability to accelerate quickly and get to the rim with plus scoring instincts. He projects as a solid secondary ball-handler and a very capable pick and roll player, albeit with suspect vision, the latter hindering him from becoming a pure lead guard. If his improved catch and shoot three-point shot (48.4% per NBA.com) proves over time to be real, it will be a critical input factor to his market value.

Langston Galloway

Galloway is currently riding a ridiculous offensive hot streak (#1 in the league in offensive rating at 131 according to basketballreference.com largely due to shooting a blistering 56% from three) that will assuredly normalize. That being said, there are sustainable elements to Galloway’s game: tenacious energy fighting over screens and boxing out bigger players and reliable catch and shoot floor-spacing. He’s not a pure lead guard, but in the triangle he doesn’t have to be. He probably has more value to the Knicks in terms of positional versatility, but if he can shoot in the high 30’s from three he’ll be an attractive rotation option for many teams given his defensive ability.

Tyler Johnson

Johnson, similar to Galloway, is a rugged defender with good size, strength and underrated explosiveness as a finisher. He plays with fantastic energy and has a more crafty offensive game than credited for  and has the ability to step out and make perimeter shots. He’s more of a scorer than distributor, but has enough developing playmaking ability to thrive as a backup lead guard. The Heat didn’t just unload Chalmers for repeater tax concerns: they felt comfortable handing over backup lead guard duties to Johnson.

Dwight Powell

Powell, a pick and pop big man with positional size and a plus shooting stroke, has finally carved out a rotation niche with Dallas. He’s mostly played backup center due to a plethora of Mavs injuries after serving as a stretch 4 in summer league, and has shown surprising toughness as a rebounder (13.2 per 36) mixing it up inside. He was a high volume three-point shooter in summer league, exemplifying his potential range capability there, although he’s relegated himself to midrange shots thus far this season. An ideal third big in today’s NBA, Powell will have a list of suitors this summer.

As the baseline for each player’s merit has been explored, the following will look at the various options each will have as an RFA under the Arenas Provision Umbrella this summer.

I. Sign an Offer Sheet with Another Team

Governing Rules: Restricted Free Agency, Arenas Provision

Each of the above four free agents, being expected restricted free agents after tendered a qualifying offer with two years service accrued will fall under the Arenas Provision umbrella. I went into great detail about the subtleties of the Arenas Provision HERE in regards to KJ McDaniels last season, so I wont recite it expansively. The following points briefly summarize the provision in conjunction with typical rules of an offer sheet:

1.The first year maximum allowable under the Arenas Provision in 2016 is $5,628,000, the non-taxpayer midlevel exception, and the second year max is a 4.5% raise over that year one salary, or $5,881,260.

2.The third year of the offer sheet can increase to the maximum a player could earn without the imposed Arenas Provision, or a 4.5% raise over the estimated $20,915,000 (the max contract tier for veteran of 2 years service) in year 3 of the contract. Doing so would place additional constraints on the offer sheet team in having to fit the average salary of all the years in the contract combined into cap space in year one.

3.The fourth year could conceivably be offered at a 4.1% raise over year 3 salary, or an estimated $21,772,515; however, we have yet to see a 4th year tacked on to an Arenas Provision contract.

4.In accordance with offer sheet rules, any offer must be for at least two years not including options, and a maximum of four years.

5.Being as though none of the above players are coming off the 4th year of their respective rookie scale contracts, the maximum qualifying offer does not apply here.

The hypothetical maximum offer sheet from another team could be 4 years, $58,038,651, or more likely 3 years, $34,306,610.

(REFER TO THE TABLE AT THE TOP OF THE PAGE FOR CONTRACT SPECIFICS)

The Lakers, Knicks, Mavericks and Heat respectively will have the power to match any contract their player is offered with either:

1.Cap space,

2.The non-taxpayer midlevel exception; or

3.The early qualifying veteran exception (being as though each player is an early qualifying free agent).

Again, assuming any of the above players will command the max at any point in his upcoming contract seems a bit outlandish, but when you take the average over 3 years, or an estimated $11,435,536 figure, it seems more palatable for young players with potential under a spiking cap, at least worthwhile to explore.

Team Leveraging Points:

1.Right of First Refusal Diminishing Potential Suitors

Player Leveraging Points:

1.Potential Third Year Salary Leap in ‘18/19 Reflected as Actual Salary As a Potential Cap Space Crippler for the Prior Team.

2.Abundance of Cap Space Across the League Could Give Way to a Team Rolling the Dice on Normally Untouched Restricted Free Agent

II.Accept Qualifying Offer in 2016/17

Governing Rules: Restricted Free Agency, Starters Criteria

The second route Clarkson, Galloway, Johnson and Powell could take is accepting their respective qualifying offer for the 2016/17 season. However, this recourse is not without its flaws. Most players accept qualifying offers to escape the suppressed market of restricted free agency and become unrestricted free agents the following season. That scenario does not hold for the aforementioned four players though, for even if they accept their qualifying offers, they will still have accrued 3 years service at the time the 16/17 season ends, and any free agent with 3 or fewer years of service (not on a rookie scale contract where an option has been declined) can be tendered a qualifying offer and made a restricted free agent again. Thus, each respective team will still hold the right of first refusal even if their player accepts his qualifying offer.

Working in Clarkson’s and Galloway’s favor is a likely pay escalator on their qualifying offers via starters criteria. To qualify a player will have to either start 41 games or play 2,000 minutes this season (if he plays all 82 games he has to average around 24.3 minutes per game). Starters Criteria should be easily reachable for Clarkson (current starter and averaging 30.6 MPG) and Galloway (27.1 MPG as a reserve but his play will only warrant more minutes), as they only need to satisfy one or the other. Doing so would increase Clarkson’s and Galloway’s QO from $1,180,431 (the minimum salary of a 2 year veteran + $200,000) to $2,725,003 (the QO tendered to the 21st pick in the 2012 draft). This increase makes playing under an enhanced 2016/17 salary more palatable, but still unlikely.

Johnson (averaging 20.8 MPG as a reserve) and Powell (22.2 MPG as a reserve) will likely not be so fortunate barring injuries (and Powell is already benefiting from that).

It could be argued that Clarkson and Galloway especially could potentially throw a wrench in their teams plans by taking this route, for one dynamic advantage is they’d escape the confines of the Arenas Provision and be susceptible to first year full max offers under an estimated increased $108M cap in ’17. However, both cap holds in that year would still be a very manageable $5,177,506 (190% x $2,725,003), and both teams would still hold the right of first refusal. The same environment that existed in the first avenue described above would exist again here, but LA and NY will instead hold full Qualifying Rights and could offer both enhanced raises and an extra year. This avenue is prohibitively unlikely.

Team Leveraging Points

1.Restricted Free Agent Eligibility Again in ‘17/18

2.Manageable $5,177,506 Free Agent Amount Cap Hold in ‘17/18 for Clarkson and Galloway (assuming starters criteria met) and $2,242,819 for Johnson and Powell (assuming starters criteria not met).

Player Leveraging Points

1.Enhanced QO for Clarkson and Galloway Makes 1 Year Contract More Palatable

2.No Arenas Provision Restrictions in ‘17

III. Re-Sign via Cap Space or Early Qualifying Rights

Governing Rules: Restricted Free Agency, Early Qualifying Rights

The last and most realistic route are each team utilizing either cap space or Early Qualifying free agent rights to re-sign their respective player next summer.

Early Qualifying Rights permit each team to re-sign a player for 104.5% of the average player salary in 15/16, or the estimated average salary in 16/17. That specific number is not determined until the end of the moratorium on July 11th next year, but taking the average annual increase of the past two years in regards to average player salary multiplied by 104.5%, a conservative estimate is a figure starting around $5,828,475 (it could be slightly greater).

Utilizing Early Qualifying Rights requires a contract of 2 years without options (can be non-guaranteed) and a maximum of 4 years, permitting 7.5% raises. Each team could also simply re-sign their respective player with cap space for up to the expected maximum contract of $20,915,000. That of course is not realistic as the maximum another team can spend is the non-taxpayer midlevel (theoretically) in year one and teams are highly unlikely to bid against themselves.

The likely practice by each team individually will now be explored on a surface level.

1.Los Angeles Lakers

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Taking a reasonable cap order of operations in the 6 guaranteed contracts, Bass opting-in, and keeping the free agent amount holds/qualifying offers of Sacre, Black, Kelly, Clarkson and one minimum roster charge of $543,471 on the books, the Lakers would have $54,033,708 in projected cap space. Their Plan A will likely be pursuing max level players such as Durant and Whiteside in keeping Clarkson’s lesser hold on the books. If unsuccessful, they have a plethora of cap room to lock up Clarkson long term.

The salary for an average starting player is estimated to be in the $15M range with the spiking cap, so it’s reasonable to assume if Clarkson proves over the course of the season his shooting has improved and he substantially improves his defense his contract point of relativity could be that figure.  He is not permitted to earn quite that figure given the Arenas Rule suppression, but he could earn closer to that number if the Lakers lock him up long term with cap space.  Still, there are multiple leveraging points that the Lakers have operating in their favor and they again are unlikely to bid against themselves.  Given Clarkson is the only player here with starting level experience, it is at least feasible he could garner more than Early Qualifying Rights money.

2.New York Knicks

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The Knicks offseason will be shaped by the player option endgame of Afflalo and Williams, and at this juncture it is too early to authoritatively speak on that. They will have cap space regardless of what they do, the question is how much, a question that wont be determined until closer to June.

3.Miami Heat

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The Heat’s offseason predicament is somewhat clearer, being as though Whiteside will likely garner max money starting at a figure of around $20,915,000, and as an Early Qualifying Free Agent will have to be retained with cap space. With Wade expected to re-sign long-term on a 3 year deal to avoid the over 36 rule in the $12-15M annual range the Heat will not have much leeway with cap space. The likely recourse will be keeping Johnson’s reduced cap charge on the books and re-singing Wade, Whiteside and utilizing around $7-10M in space to acquire another impact player before utilizing the room exception (no cap hold).

4.Dallas Mavericks

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Similar to the Knicks, Dallas’ precise cap space will be contingent on what transpires with Parsons’ and Williams’ player options (Dirk has already noted he will likely opt in). Regardless, Dallas is looking at around $22-25M in cap space. Their first recourse will likely be to utilize Powell’s lower cap hold in pursuing a max level player like LA, and secondarily Powell can be re-signed using cap space if Dallas is unsuccessful pursuing their primary targets.

Team Leveraging Points (in addition to above points):

1.Immediate Salary Escalation

Player Leveraging Points (in addition to above points):

1.Threat of Signing Offer Sheet in Interim Could Generate Player Option Year

IV.General Contract Projection

Projection: 4 Years, estimated $25,936,714 (player option in ‘19/20).

This one size fits all construct (especially at it pertains to Clarkson) is not perfectly applicable given teams’ differing cap structure, but considering all 4 teams are destination markets and free agent suitors, keeping the aforementioned 4 players’ reduced cap holds on the books maximizing cap room and re-signing each with Early Qualifying Rights seems like Option A here.

The players again have little leverage as most restricted free agents do, but in this case they have even less here because the qualifying offer route does not have unrestricted free agency at the end of the tunnel. Each player might be able to gain a player option in the 4th year of his new contract as a carrot for sitting back and waiting for his team to make other moves with a lesser cap hold on the books/not signing an offer sheet with another team, but it is hard to see any non-Clarkson player getting much more than that.

A four year $25,936,714 contract is more than most second round picks see, and that guaranteed money is nothing to scoff at. We’ll see just how crazy teams who miss out on the initial free wave of free agents get in terms of offer sheets to RFAs.

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