Sunday, November 2, 2014

Value of a 2nd Contract

Halloween in the NBA is annually one of the biggest days of the season, as it's the deadline for guys entering their fourth season to get an extension on their rookie deals. After playing under the rookie wage scale, it's their first shot at real NBA money, the type of long-term contract than can set up a player and his family for generations. For teams, it's the chance to secure a young player as a part of their core through the prime of his career.

A total of eight guys from the 2011 draft ended up getting extensions - Kyrie Irving, Kemba Walker, Klay Thompson, Alec Burks, Markieff and Marcus Morris, Nik Vucevic and Kenneth Faried - along with a guy from 2010 (Ricky Rubio) who spent an extra year in Europe before coming over. The flood of TV money expected to come into the league makes judging these things a little more difficult, but we can still safely assume that some got underpaid and some got overpaid.

That, however, is based off judging these contracts in a vacuum, which you cannot do. Every player is different and every team is different and there are a number of idiosyncratic reasons why the two parties came to the agreement that they did. When judging these extensions from the POV of the teams, the most important thing to remember is the opportunity cost. Namely, what else would some of these teams do with their money?

A good example of that is Nik Vucevic in Orlando, who agreed to a 4-year $53 million deal. Even with the premium for skilled size, many observers around the league called it an overpay. There are certainly some issues in his game - he's not a great rim protector, he doesn't stretch the floor and he hasn't proven he can be a primary option in the post. Nevertheless, he's a proven NBA center and it's not like those guys are lining up to sign with the Magic.

In their first two seasons post Dwight, the Magic have drawn plaudits for accumulating young talent while sitting at the very bottom of a bad conference. They are likely to be bad this season and next season - if they don't want to be bad for the next 5, they can't afford to jettison any of their good players. The holes in Vucevic's game could be exposed in a seven-game playoff series, but they will cross that bridge when they come to it.

It's the same situation in Utah, who received a decidedly mixed reaction to the four-year $43 million deal they gave to Alec Burks. Salt Lake City might be the most unappealing free agent market in the NBA - if the Jazz are going to bring in any good players, it is probably going to have to come through the draft or trades, which means accumulating young assets like Burks that other teams could presumably be interested in, down the road.

Too much of the coverage of these extensions assumes that every team in the NBA is in Miami or Los Angeles, markets where it actually makes sense to clear out as much cap space as possible. The vast majority of NBA teams are in markets where NBA players don't particularly want to live. Look what happened to Oklahoma City with Pau Gasol - they are a 60+ win team and they had no chance to sign him because he wanted to live in Chicago.

Even if you are a premier free agent destination, the ability to dive into unrestricted free agency may be more curse than blessing. In the NBA's current economic climate, guys don't become UFA's until their 8th or 9th seasons in the league, when the majority are well in to the decline stage of their careers. The average NBA career is only 4.5 seasons long - basketball is a young man's game and many guys drop off fast in their 30's.

A good rule of thumb in free agency is you only want the best of the best. If you can do what Miami did in 2010 and swoop up LeBron, D Wade and Bosh, then go for it. The greatest players are declining from such a peak that they can adjust their games in their 30's and still be very effective. Where you start to worry is when you get to the second and third-tier free agents in their late 20's - if they fall off, there's no floor to catch them.

You can see that happening in Golden State, where they are already starting to worry about paying the back end of David Lee and Andre Iguodala's contracts. Those guys were really good NBA players in their primes, but they are already beginning to show their age and keeping them may mean the Warriors have to say goodbye to young players like Draymond Green and Harry Barnes. The third contract rarely pays off for NBA teams.

The size of Klay Thompson's extension has been the biggest topic of discussion surrounding the Warriors ever since the Kevin Love trade fell through, but it was a little bit of a red herring. It may or may not have been an "overpay", though his 43-point explosion on Saturday is an encouraging sign, but either way, Golden State was getting a really good two-way SG through the prime of his career. If Klay stays healthy, he is going to help the team.

That's the nice thing about locking up guys on their 2nd NBA contracts - you are paying for their age 24-29 seasons. Those are the best years of a player's career, as their mental game catches up with their physical game, which doesn't really start to slip until around 30. A contract that looks like an overpay when it's signed, like DeMar DeRozan or Taj Gibson, can quickly become an underpay, as those guys come into their own in the NBA.

What really kills a salary cap isn't a player in his prime making more money than his market value, it's a declining player dealing with injuries who can no longer be the player he's being paid to be. See: Amare Stoudemire. That was Amare's 3rd contract and the Suns were like no way we're paying him for his early 30's. People see established NBA vets as safe plays in free agency, but they are really some of the riskiest, due to the increased risk of injury as they age.

Restricted free agency is really an extension of a process that goes all the way back to draft night - an economic system that allows NBA teams to keep the vast majority of the league's talent base out of free agency until they are almost into their 2nd decade in the league. As a rule, teams in smaller markets don't want to have to depend on free agency to acquire players. They want to be able to draft, develop and pay their own guys and develop an internal culture.

The worst thing you can do is develop the rep of a franchise that doesn't take care of its own. Younger guys are always watching the guys ahead of them and if they think they are not going to get a fair shake come contract time, they are going to start playing for their own stats with one eye on impressing every other team in the league. It's all well and good to ask them to sacrifice for the good of the team, but that's a two-way street.

When you look at the nine guys who agreed to extensions, my guess is the vast majority of them are going to be worth the money. Even if you end up wanting to trade them, a starting-caliber player in his mid to late 20's whose locked up for several years is always capable of being moved. As far as guys like Kawhi Leonard and Reggie Jackson who didn't get signed, their teams better hope they keep them b/c they will impossible to replace.

There's a premium on starting-caliber players in this league and there's not many ways to acquire those types of players. If you have to go out on the market to get them, not only are you running the risk of paying for someone else's problem, but you have to compete with multiple teams who are pursuing them. The easiest way to not overpay is to only negotiate with one party. Long story short, it's in the best interest of most NBA teams to pay their young players.

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