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Thursday, May 08, 2014

The False Allure Of Multi-Year Contracts

[Originally posted on Hoopsworld, 15th October 2013.]

Unguaranteed or partially guaranteed final seasons are quite the trend nowadays in the NBA, and they have these days almost completely superceded team options. In fact, excluding rookie scale contracts, there are only eight team options in the entire league, belonging to Chauncey Billups, Darius Morris, Timofey Mozgov, Marreese Speights, Carrick Felix, Chandler Parsons, Jae Crowder and Rodney Williams.

All other contracts referred to in the press as ‘team options’ are, in fact, unguaranteed salaries.
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 percent of the scale amount). Nothing else has to be guaranteed. It is self evident why so many contracts are nonetheless fully guaranteed – players want that, and teams want players to want them. Yet the unguaranteed contract fad has its basis in logic.

Essentially, 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) Non-rookie scale 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 on or before 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 it is often the latter, while bigger contracts are usually the former. Common dates include July 15th (two weeks after free agency starts, giving teams times to analyze the situation), August 1st (ditto, but including summer league) 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 Austin Daye’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 additional 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 contract of Sam Dalembert, which called for a guaranteed $7 million in the first season, and a partially guaranteed $6,698,565 in the second. By making the final season unguaranteed, even though it had a July 8th guarantee date that made it akin to a team option, the Mavericks 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 is 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 are 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.

For the most part, unguaranteed seasons are more beneficial for a team than an option season would be, particularly because of points (1) and (3) above. The downside to doing it that way, however, is that players have to be waived for the savings to take effect. In the process of being waived, the team loses their ability to use Bird rights to re-sign them – 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.

Also pertinent is the fact that being waived in this matter introduces the risk of being claimed via the waivers procedure. This, then, brings us to the case of the Houston Rockets.

Houston indulges in this practice of unguaranteeds more than most. Of the 17 players on their roster, nine have at least one unguaranteed portion of their deal – even James Harden’s maximum salary contract requires conditions to be met before its final season is fully guaranteed. The contracts they have given out this summer to B.J. Young, Jordan Henriquez, Robert Covington, Isaiah Canaan, Ronnie Brewer, Reggie Williams and Omri Casspi all have unguaranteed portions in them.

The Rockets do this so that they can both waive the players for savings, and trade them in a package deal if necessary. Adding unguaranteed salaries is a move that benefits the team more than the players, who stand to gain little from having their future held over them in this way.

Consider, then, the case of Omri Casspi, possibly the best player of that group. Casspi’s once bright NBA future has been stymied somewhat by a string of mediocre seasons, and he signed with the Rockets this summer for only the minimum salary. The first season of this deal is fully guaranteed, whilst the second is fully unguaranteed if waived on or before August 5th.

Presumably, either the second unguaranteed season was accepted by the player and his representatives as a concession for the first season being fully guaranteed, or because Houston refused to offer anything else. This is presumed to be the case as the second unguaranteed season does not appear to be beneficial to him in any way.

If Casspi plays well next season, enough to justify a payday higher than the minimum, he cannot now get it as he is tied down to the minimum. The only way he is not tied down is if Houston waives him, and if they do so, they are doing so for one of two reasons. They either do not think he is worth even that much, or they want to re-sign him to a bigger, longer deal. The latter of these is unlikely anyway, and made doubly so by the threat of a waiver claim by another team – had Casspi had a declinable team option instead, this risk would not exist. There is a scenario in which Casspi could play well, be waived, clear waivers and re-sign with Houston for a bigger deal, yet the far more likely outcome is that he earns the minimum salary, be it with Houston or someone else.

Evidently, the second season appears to be of little benefit to Casspi. Houston is not entirely adverse to giving out one-year minimum salary deals – with Casspi, Brewer and Williams are all NBA veterans in this position, Brooks and Camby both received only one season, thereby dictating their own futures after this year. Meanwhile, Casspi waits to be told his, and even if he has a career season, he will reap only the minimum as a reward.

Players and agents should strive to find as much guaranteed salary as possible and as little unguaranteed salary as possible. In Casspi’s case, we find only a weird compromise.

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