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Wednesday, July 03, 2013

There IS a difference between "team option" and "unguaranteed", and it DOES matter


Several years ago, I wrote a piece called Creative Financing in the NBA, that sought to address and highlight a few quirky salaries and salaries mechanisms handed about that season.

In that piece, I also spent a long time addressing the difference between team options and unguaranteed salaries. Often times, unguaranteed salaries are reported in the mainstream press as being team options, even though the two mechanisms are different. And often times, this is fine, because the differences don't really matter. Not to the casual fan, at least. Nevertheless, differences do exist. Some of the initial post is quoted below that explains these differences:

Unguaranteed or partially guaranteed final seasons are becoming quite the trend in the NBA, and they are quickly replacing team options. In fact, there are only 11 team options in the entire league [...]

There are very few instances in which contracts must be guaranteed. In fact, there are only two; the first year of a signed-and-traded contract, and the first two years of a rookie scale contract (which must be guaranteed for a minimum of 80% of the scale amount). Nothing else has to be guaranteed, but it is self-evident that almost all are. Would you accept an unguaranteed contract as a player? Not without incentive to do so, no. It is self evident why so many contracts are fully guaranteed. Yet the unguaranteed contract fad has its basis in logic.

In a lot of cases, unguaranteed contracts function much like team options do. However, there are some significant advantages to doing it in this way, which is why it happens. The differences:

1) Team options have to be decided upon by the final day of the previous season. Seasons change over on July 1st, and thus team options must be decided upon by June 30th. This is not the case with unguaranteed contracts, which either have guarantee dates that can be negotiated to different dates, or which have no guarantee date at all. A lot of unguaranteed contracts have some guaranteed money, becoming fully guaranteed upon a certain date, or no guaranteed money at all becoming slowly guaranteed upon several dates; for players earning the minimum salary is often the latter, which bigger contracts are usually the former. Common dates include July 15th (two weeks after free agency starts, giving teams times to analyse the situation), August 1st (same sort of thing) and August 15th (for the very tardy); however, in practice, anything goes. In this way, these contracts serve as delayed team options.

Sometimes, such as in the case of Ian Mahinmi's second season, the contract is fully unguaranteed if not waived on or before June 30th, thereafter becoming fully guaranteed. Contracts with guarantee dates such as those are basically exactly the same as team options; however, the reason they are not done with team options is because of the reasons below.

2) Salaries for option years in contracts cannot be for a lesser salary than the salary of the previous season. But no such stipulation applies to unguaranteed years. One such example of this is with the recently expired contracts of Steve Blake and Travis Outlaw. Blake's contract paid $4.25 million in its first two seasons, dropping to $4 million in the final one; Outlaw's contract was $4 million for two seasons and then $3.6 mil for the third. By making the final seasons for the duo unguaranteed, even though they had June 30th guarantee dates that made them basically team options, the Blazers were able to use the lower salary trick.

3) Players can be traded from the minute a team's season ends, up until the start of the moratorium (so for lottery teams, that's mid April until the end of June.) This is how draft night trades are allowed to happen. However, players can only be traded if they're not going to be free agents that summer, or if they have no options that would allow them to become so. If they have an option, player or team, then that option must be exercised concurrent with the trade, and thus the player will not be a free agent. Teams can bypass this by making the final year an unguaranteed season, rather than an option year. This is how Erick Dampier was traded. It is also how Ryan Gomes was traded before free agency started.

Lords Of The Unguaranteed this offseason were Chicago. The contracts they gave to all three of C.J. Watson, Ronnie Brewer and Kyle Korver all have unguaranteed third seasons. Watson's and Brewer's are evidential of the aforementioned delayed-team-option thing, fully unguaranteed contracts that become fully guaranteed if not waived on or before July 10th. Korver's is different; he has $500,000 in guaranteed compensation, yet has no contract guarantee date (save for the league-wide guarantee date of January 10th), and will thus be an incredibly useful trade chip that summer because of reason 3 above. It is largely for this reason that unguaranteed contracts are so en vogue right now. [...]

The downside to doing it this way is that players have to be waived for the savings to take effect, which means they get renounced in the process. In contrast, if a team declines a player's team option, they would still have Bird rights on that player in order to re-sign them, and they could also still extend a qualifying offer (if applicable). By being waived as an unguaranteed contracts instead, those benefits are lost. But that minor inconvenience is more than offset by the benefits to such a team-friendly mechanism, which is why its usage is becoming increasingly prevalent in the NBA.

Houston's unguaranteed deals to Carlos Delfino and Aaron Brooks followed the Mahinmi example above. They became guaranteed if not waived on or before June 30th, which is the same date upon which regular team options must also be decided, thereby rendering them effectively the same. Yet as explained above, by taking the unguaranteed route rather than using a team option, Houston were able to explore trades with the two after the draft. This is one example of where the difference does matter, even though it doesn't look as though it does.

The lack of the distinction between the two in the general media (and thus the public conscience) is so emphatic that it will be a hard trend to buck. Yet this discussion here is prompted by one current and relevant example of why it needs a good firm bucking. In reporting that the Raptors "still have to decide" whether to pick up Kyle Lowry's option or not - which isn't exactly news, but anyway - Doug Smith accidentally touches upon this problem and sets off a pattern of thought that just isn't helpful, based as it is on a faulty premise.

Lowry's contract this season calls for a $6.21 million salary this season, of which only $1 million is guaranteed if he is waived before July 15th. This, then, is not a team option. But referring to it as an option gives rise to speculation that is may be "declined" in order to instead tie Lowry down to a longer deal. (I know such speculation to have arisen because I've seen friends of mine give it.) This, as we've seen above, is not possible precisely because it is not an option - to obtain the savings on the contract means waiving Lowry, which means losing Lowry. It is true that if it had been a team option, the Raptors could have declined it in order to try and tie him up for the long term, but it is also true that if it was an option, it would have been decided by now. Lowry, then, doesn't have an option to decline - instead, Lowry has a contract largely unguaranteed for lack of skill if waived before a certain date.

The difference isn't mere pedantry or semantics - it actually matters. Let us please refer to the distinction whenever it arrives.

5 comments:

  1. Any chance you could post a link to the entire original article you quoted from??

    ReplyDelete
  2. "to obtain the savings on the contract means waiving Lowry, which means losing Lowry"

    Does it really mean that the Raptors will certainly lose Lowry? It, from what I understand, simply means that he will be subject to waivers/ free agency. Neither of which necessitates that they will lose him. I only mention this because I am unsure if I am not understanding this process correctly.

    ReplyDelete
  3. Well, firstly, he'd likely be claimed off waivers. Even if he's not, what would Toronto use to re-sign him? The MLE?

    ReplyDelete
  4. Well yes, he likely would be claimed off waivers, but there is also a chance he would not. My question was more pertaining to the certitude of them losing him. I was not concerned with the money or the likelihood of his departure. I was focused on the mechanical process and all the possibilities that arise from it, no matter how far fetched they may seem. However unlikely, it is at least a possibility that the Raptors can waive Lowry to sign him to a longer deal

    ReplyDelete

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