RFA/Arenas Provision (’16 Clarkson)

The following is perhaps over presumptuous in assuming Clarkson will demand the kind of contract figures explained. Frankly, analyzing Clarkson’s game in absolute fashion at this point, especially defensively, is near impossible given the environment he was placed in last season. What he has shown is an excellent burst in the pick and roll offensively, particularly the ability to accelerate quickly and get to the rim with plus scoring instincts. He projects at worst to be a secondary ball-handler and a very capable pick and roll player, but he has suspect vision and an inconsistent three-point shot, both of which could plague him as a primary lead guard. On LA he wont be the primary distributor, but in terms of market evaluation, these factors will certainly be priced into his value and fit on other teams. Needless to say, we will likely know a lot more about Clarkson after this upcoming season, and that analysis will the be built into his impending free agency. For now, an optimistic stance is taken to permit a more comprehensive undertaking of Clarkson’s upcoming free agency options, which will now be explored.

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I. Sign an Offer Sheet with Another Team

Governing Rules: Restricted Free Agency, Arenas Provision

Clarkson, being an expected restricted free agent 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 Clarkson can receive 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 Clarkson could earn without the imposed Arenas Provision, or 4.5% raises over an estimated $20,915,000 (the max contract for veteran of 2 years service). 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; 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 Clarkson is not a player coming off the 4th year of his rookie scale contract, the maximum qualifying offer does not apply here.

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

The Lakers will have the power to match any contract Clarkson is offered with either:

1.Cap space,

2.The non-taxpayer midlevel exception (the Lakers aren’t projected to have hard cap concerns); or

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

LA’s team salary impact will be the actual salary in each year of the contract, not the average salary of all years of the contract taken together if a third year salary leap is employed (as diagrammed in the chart).

LA would certainly match a two year, $11,509,260 commitment from another team, so any team seeking Clarkson’s services will have to impose that potentially punitive 3rd year leap to provide disincentive for LA to match. To further that point, the potential third year salary leap to $22,797,350 in ‘18/19 would be Clarkson’s cap hit in that year for LA (not for the signing team), a significant number. This could impact LA’s pursuit of other free agents if they are still under the estimated $100,000,000 cap that season. If they are over, it becomes merely a fiscal, luxury tax issue, but still somewhat restrictive.

Again, assuming Clarkson 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 a 24 year-old guard under a spiking cap.

LA’s Leveraging Points:

1.Right of First Refusal Diminishing Potential Suitors

2.Potentially Solely a 2018/19 Luxury Tax Issue

Clarkson’s Leveraging Points:

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

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

Edge: LA. Teams rarely pursue other teams’ restricted free agents, and in conjunction, the Arenas Provision is seldom employed. If a team offers Clarkson a deal of this caliber it is essentially betting on LA not signing marquee free agents over the next 2 summers, rendering it a cap inflexibility issue in ‘18/19 when free agents like Harden and Cousins could be available and thus not merely a monetary issue. The Rockets signed Asik and Lin utilizing the Arenas Provision targeting the luxury tax averseness of Chicago and New York respectively. That same tactic wont work against the organization with the deepest pockets in the league. If a team signs Clarkson it is targeting LA’s cap space in ‘18/19 and betting LA will not secure multiple of the following:

2016 Free Agents

Kevin Durant

Al Horford

Mike Conley

Ryan Anderson

Nicolas Batum

Hassan Whiteside

Joakim Noah

2017 Free Agents

Stephen Curry

Russell Westbrook

Blake Griffin

Derrick Rose

Serge Ibaka

Jrue Holiday

Tyreke Evans

It is conceivable that after the dust has settled in what will assuredly be a hyper-inefficient 2016 free agency market a team that struck out will decide to extend such an offer to Clarkson, but the odds remain sizably against that. No team is going to tie up their cap space for 72 hours from the off if they think LA will assuredly match. By the time teams come around to offering a contract it will be late in free agency and Clarkson could have already agreed to re-sign in LA. The Lakers, by the very nature of CBA design, hold the cards here.

II. Accept Qualifying Offer in 2016/17

Governing Rules: Restricted Free Agency, Starters Criteria

The second route Clarkson could take is accepting his qualifying offer for the 2016/17 season. However, this recourse is not without it’s 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 Clarkson though, for even if he accepts his qualifying offer, he 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, LA will still hold Clarkson’s right of first refusal even if he accepts his qualifying offer.

Working in Clarkson’s favor is a likely pay escalator on his qualifying offer via starters criteria. To qualify Clarkson 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). Both should be easily reachable (at least they better be), especially if LA employs a Russell/Clarkson starting backcourt as planned, but he only needs to satisfy one or the other. Doing so would increase Clarkson’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.

It could be argued that Clarkson could potentially throw a wrench in LA’ s plans by taking this route, for one dynamic advantage is he’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, Clarkson’s cap hold in that year would still be a very manageable $5,177,506 (190% x $2,725,003), and LA would still hold his right of first refusal. The same environment that existed in the first avenue described above would exist again here, but LA will instead hold Clarkson’s full Qualifying Rights and could offer both enhanced raises and an extra year. This avenue is prohibitively unlikely.

LA’s Leveraging Points

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

2.Manageable $5,177,506 Free Agent Amount Cap Hold in ‘17/18

Clarkson’s Leveraging Points

1.Enhanced QO Makes 1 Year Contract More Palatable

2.No Arenas Provision Restrictions in ‘17

Edge: LA.

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

Governing Rules: Restricted Free Agency, Early Qualifying Rights

The last and most realistic route is LA utilizing either cap space or Early Qualifying free agent rights to re-sign Clarkson next summer.

Early Qualifying Rights permit LA to re-sign Clarkson 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 in July 2016, 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. Thus, assuming the above starting figure, LA could keep Clarkson’s lesser expected $2,725,003 QO cap hold on the books, utilize their remaining cap space to sign other free agents (Whiteside, Batum etc) and then re-sign Clarkson to a 4 year estimated $25,936,714 contract using his early qualifying rights starting at that $5,828,475 figure. Doing so affords LA an extra $3,103,472 in cap room flexibility as long as Clarkson does not sign an offer sheet with another team.

LA could also simply re-sign Clarkson 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) and LA is highly unlikely to bid against themselves.  LA could be put in a position where they have to match a maximum contract for Clarkson, but it’s again unlikely a team will tie up cap space knowing LA will certainly match any offer.

LA’s Leveraging Points (in addition to above points):

1.Immediate Salary Escalation

Clarkson’s Leveraging Points (in addition to above points):

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

Edge: LA

IV. Contract Projection

Taking the above into account, the likeliest option A route here is LA attempting to re-sign Clarkson utilizing Early Qualifying Rights, keeping Clarkson’s $2,725,003 QO cap hold on the books and utilizing their remaining cap room to sign free agents before re-signing Clarkson going over the cap. LA could potentially have $57.8M in cap room if Bass exercises his player option and the Lakers renounce all cap holds other than Clarkson (Slightly less if their pick falls inside the top 3 and is not conveyed to Philadelphia, which is very much in play).

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That is enough to sign two max players and another impact contributor before going over the cap to re-sign Clarkson. Utilizing cap room to re-sign Clarkson is also very much in play, especially if LA strikes out in free agency (or trades of the Hibbert variety). But LA’s preferred route is likely the early qualifying route.  Much the same way that LA used the CBA to get Hibbert to waive most of his trade kicker, LA could utilize the rules again to get Clarkson at discount by pigeon-holing themselves.

Clarkson has little leverage here as most restricted free agents do, but he has even less because the qualifying offer route does not have unrestricted free agency at the end of the tunnel. Clarkson 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 LA to make other moves/not signing an offer sheet with another team, but it is hard to see him 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.

This permits LA to have Clarkson at a very manageable salary over three seasons as they pursue free agent targets with a plethora of cap space. It also affords Clarkson a respectable salary for a player that in all likelihood will still have largely unknown or untapped attributes in a year. If Clarkson develops into an above average wing starter this contract is a coup for LA, yet still permits Clarkson to enter unrestricted free agency at 27. A rare potential win-win.

 

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