Maximum Qualifying Offer (’15 Kawhi/Butler)

The 2015 NBA offseason is perhaps most recognized for unrestricted free agent veterans such as Marc Gasol and LaMarcus Aldridge, and justifiably so. However, what transpires with two dynamic restricted free agents, Kawhi Leonard and Jimmy Butler, also warrants some look ahead attention. The circumstance of these two projected RFAs could also spawn a seldom used aspect of the CBA: the maximum qualifying offer.

What is the Maximum Qualifying Offer?

A maximum qualifying offer, described in Article 11 Section 4 of the CBA, is an enhanced version of a regular qualifying offer, and is offered simultaneously with a regular qualifying offer through June 30th prior to the new league year to designate a player a restricted free agent. It is not an extension or contract, but rather, an offer that remains outstanding until a player either accepts it or pursues another course, such as signing a new contract with the prior team, an offer sheet with a new team or accepts the regular QO. A maximum QO must be for the maximum salary applicable to the player in the first year, stem 5 years with the subsequent 4 years possessing the max allowable 7.5% raise over year one salary, be fully guaranteed (fully protected for lack of skill, injury, illness) and cannot contain any options of any kind. It also only applies to players coming off first round rookie scale contracts of 4 years experience.

Why Don’t We See Maximum Qualifying Offers More Often?

Typically, players who would garner max contracts in restricted free agency reach contract extensions on or by October 31st of a player’s 4th year of his rookie contract, which removes them from the maximum qualifying offer domain. Players of this nature such as Russell Westbrook are locked in ahead of time to virtually the same contract he would receive under the maximum QO via a max “designated player” extension, which of course mitigates the risk of potentially injury. Furthermore, the max-level extension route also can earn a max level player increased money by way of the 5th year max criteria, where a qualifying player can earn a salary up to the 7-9 years of service slightly less than 30% of the cap max increased salary tier instead of the typical 0-6 year max level slightly less than 25% of the cap max salary tier. This was the case with Paul George, and will undoubtedly be the case with Anthony Davis.

Conversely, players coming off their 4th year rookie contracts who are not extended usually are either not maximum salary players or the team wants to save some money (via decreased raises) by matching another team’s maximum offer sheet. The first circumstance is straight-forward. The second scenario was undergone by Utah last summer in matching Charlotte’s maximum offer sheet for Gordon Hayward, awarding them Hayward at a reduced cost. Overall, rarely does a scenario arise where a maximum qualifying offer is either applicable or sensible to utilize. That might change this June.

What is the Value of a Maximum Qualifying Offer?

The real value of a maximum qualifying offer (if it is applicable and sensible) is to increase the minimum required guaranteed years a prospective team can sign a prior team’s restricted free agent in an offer sheet from 2 to 3 years, not including option years. That doesn’t sound significant, and up to this point it hasn’t really been, but factoring in the cap spike in 2016, where current projections have the cap at an estimated $90,000,000 (and over $100,000,000 in 2017, albeit a likely strike could impact this), this could prove tremendously valuable.

A maximum qualifying offer oddly also does not substitute in as a cap hold. The cap hold for a restricted free agent is the greater of his free agent amount hold (determined by years of service without signing a new contract or clearing waivers) and a regular qualifying offer (determined by a plethora of tables and benchmarks outlined in the CBA).   The CBA in Article VII Section 4 establishes this cap hold with the defined term “Qualifying Offer” which is defined in the definitions section with a cross-reference to Article XI Section 1(c)i. This section only encompasses a regular qualifying offer, as the definition and components of a maximum qualifying offer are set forth in distinguishing fashion in Section 4 (a)2 of the same article. To make a long story short, the CBA omits a maximum qualifying offer from a restricted free agent cap hold, thus a team can offer it without impinging on potential cap space (this will be important for San Antonio as discussed below). Neat.

Overall, locking in a max level player for additional year (minimum) under a decreased salary creates significant monetary value. It avoids the now dreaded Chandler Parsons 2 guaranteed years + 1 option year offer sheet (where the trade value of the player is reduced in each year: year 1 because any trade requires the player’s consent and year 2 a de-facto expiring contract if the player exercises his option at the end of the year). It should be noted that Chandler was not eligible to receive a max qualifying offer, as he was not a first round pick coming off the 4th season of his rookie scale contract (he was a 2nd round pick coming off his third season), nor would Houston have offered it and significantly cut into its cap flexibility. But the point remains, as will be explored in the following section, for very specific cases, a maximum qualifying offer could be tremendously valuable.

Maximum Qualifying Offer Application: Kawhi Leonard, & Jimmy Butler

Prior to analyzing each player, a maximum qualifying offer (akin to re-signing for the maximum amount w/ 7.5% raises with a player’s prior team) would take the following form with an estimated $67,400,000 cap in 2015:

Yr 1: $15,870,787

Yr 2: $17,061,096

Yr 3: $18,251,405.05

Yr 4: $19,441,714.075

Yr 5: $20,632,023.1

Total: $91,257,025 Fully Guaranteed

Kawhi Leonard

The Spurs’ delay on offering Leonard a new contract is certainly intentional, as the reasoning behind not extending Kawhi by October 31st of this past year was to free up additional cap room to pursue free agents in the event that both Duncan and Ginobili retire (or take sizable paycuts). Kawhi’s free agent amount cap hold is currently $7,235,147.50 (250% of his 4th year rookie scale salary). Because offering Kawhi a maximum qualifying has no cap space implications, it is entirely logical for the Spurs to do so.

Should Duncan and Ginobili retire (or far less likely, take aforementioned sizable paycuts), the Spurs’ ability to pursue targets like Marc Gasol will be dependent on precise cap order of operations. If Kawhi, for example, signs a max offer sheet with another team, that estimated $15,870,787 immediately counts towards San Antonio’s cap (once they receive the contract), impinging on the Spurs cap room by roughly $8.6 million. Thus, offering Kawhi a max QO serves as a sword and a shield. It is an aggressive tactic to attempt to secure an extra guaranteed year for Kawhi in any offer (unless he accepts his regular qualifying offer), and serves as a slight deterrent for other teams to offer a max offer sheet immediately knowing that the Parsons’ contract structure wont be an impediment for San Antonio matching any contract (this probably wont matter because teams know San Antonio will match regardless, which is why I say slight).

Overall, there is no downside to the Spurs offering a max QO. Kawhi might not accept it, and even if he does that’s an enormous win for San Antonio locking him up under a reduced cap and salary for 5 years. If he does not, it affords the Spurs with more negotiating leverage to seek an extra guaranteed year, as every other team would also be required to submit an offer sheet of three guaranteed years minimum (not including an option year).

Jimmy Butler

Butler receiving the maximum qualifying offer makes as much sense as Kawhi. The Bulls, differing from San Antonio, will operate over the cap this offseason, rendering any precise cap operations immaterial (Chicago will likely be taxpayers in 2015/16 regardless if they retain Dunleavy and Brooks, assuming of course that Butler is retained at the max salary).  Chicago does not have the means to replace Butler with large salary commitments to Rose and Noah, thus they will surely match any offer Butler receives, should the process get that far.  Similar to Kawhi however, offering Butler a max QO prior to July 1st creates value for Chicago.

If Butler accepts the max QO, locking him in through age 30 and the duration of his prime, that’s a win for Chicago at a reduced salary, but that remains unlikely. What seems far more likely is Butler does not accept it, but the impact is still twofold. First, the aforementioned additional requirements of a minimum of three guaranteed years in any offer sheet given by another team apply if another team indeed gives Butler an offer sheet, which creates value for Chicago of an additional year when Butler is 28 under a reduced cap. Second, even if Butler does not sign an offer sheet with another team, the Bulls can use that reality in negotiations, offering the same allowable three year guaranteed contract plus a fourth year team option, but with enhanced 7.5% raises as a carrot. Doing so locks Butler in at a reduced salary in the 2017 season, where the Bulls have a free cap sheet other than McDermott’s team option.

Thus, a submitting a maximum qualifying offer to Butler has to be strongly considered by San Antonio or Chicago. The max QO route is a near surefire way to get an extra guaranteed year at a reduced salary for a max level player in his prime for all three organizations, without any real downside. There are of course alternative avenues for Butler and Leonard especially, including accepting the regular QO and becoming unrestricted free agents in 2016 to gain access to increased maximums more quickly (a topic I’ll touch on in the near future). But for now, the max QO is a seldom used aspect of the CBA that San Antonio and Chicago could utilize to each team’s respective benefit.