The Expiring Contract Bubble

by LaughingJon on May 13, 2008 11:09 AM PDT Comment 7 comments

Many of you are far better than me at analyzing historical facts and statistics and hopefully somebody will either back up or refute what I’m laying out here.

My impression is we fans tend to overvalue expiring contracts. Teams do tend to look to shed deadweight long term contracts for shorter expiring contracts and the motivations seem to fall under to three main reasons:

1) Save on luxury tax expenses

2) Provide flexibility so you can keep your core group of young talent

3) Overpay for a slightly better than average veteran

I don’t see many top-flight all star players jumping teams for the money. Rashard Lewis is one of the few that spring to mind and it’s debatable how “top-flight” he is. When players do sign elsewhere I think what you see is a low ROI. As time goes on I think you’ll see GM’s cotton on to this shying away from spending their money this way.

Memphis blew up their team and took on expiring contracts (if memory serves) but it remains to be seen how they use it.

In short, I think the value of the expiring contract is declining and will continue to decline rapidly as teams wise up and learn to avoid those mistakes in the first place – or at least the good organizations will avoid them. The poorly run organizations will continue to make contract mistakes but then there will be fewer buyers among the well run orgs for those contract mistakes.

In some ways the situation reminds me of playing Monopoly with my younger brother and trying to convince him to swap red properties for green. The greens are worth more on the surface but you tend to land on the reds more often. Eventually he wised up.

Ultimately I think teams will strive for expiring contracts overwhelmingly so they can hold on to their developing young core more than any other reason. The downside to this is you need to have a developing young core worth holding on to.

As an example, Portland now holds Raef’s contract as the all important expiring contract. Many trades proposed on this site include an expiring contract as the big attraction as to why the other team would be willing to do the trade. This next year we’ll be inundated with trade ideas with Raef’s contract being the thing that makes it irresistible. My take is they’ll see just letting his contract play out as being the best value and the bulk of the cap space created next summer being used internally.

Am I missing something? What is the trend on the value of expiring contracts?

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Raef's contract is worth, what, $12 million this year?

You’re right, letting it go can do wonders for getting a team back under the salary cap. The problem some GMs have is that they can’t help but imagine what kind of a player they could bring in for that kind of money.

For example, Lamar Odom makes about $12 million. Richard Jefferson is close to that. If a team needed one of those guys and had Raef’s contract, they’d be very tempted to make that deal if the owner was willing to spend the money.

It can be a great deal for both sides if the team with the expiring contract is under the cap. If not, it can get very expensive very fast. That’s what happened when Paul Allen let Trader Bob sign anyone he wanted.

by MiledAnimal on May 13, 2008 11:22 AM PDT reply actions 0 recs

Trading the contract will not be the best route to go

Why? because for some reason a TON of players signed contracts that expire in 2009 and Raef is not even the highest one here is a list:

Marbury $20mill
Wally Szczerbiak $13,0
Raef $12.7
Radoslav Nesterovic, – $8.4
Malik Rose, $7.6
Juwan Howard $7,3
Eric Snow, – $7.3
Drew Gooden $7,1
Chris Wilcox $6,75
Tony Battie, $6.2
Jason Collins $6,2
Bobby Jackson $6
Donyell Marshall, $6
Damon Stoudamire $4,6
Anthony Parker $4.5
Damon Jones, $4.4
Jorge Garbajosa, $4.3
Zaza Pachulia $4

So there is a TON of expirings out there, devaluing our possible prospects of a good trade. Some people are expecting because Kwame’s $8mill expiring got Gasol that Raefs $12.7 will get us someone more than that but that is wishful thinking.

Rather I suspect, that we will either:

1. Let the salary expire and use the extra cap space to take back more salary than we give out.

or
2. Let the salary expire and sign a FA

i just see so much out there in expirings and a great deal will not come through.

by SpyderRyder on May 13, 2008 12:40 PM PDT reply actions 0 recs

Thanks for digging all that up.

That list is something I wasn’t aware of but does seem to show a glut of expiring contracts. I think we’ll do a little of both of the options you give. I see the FA’s being disappointed in the next few years as the market corrects for the past’s over spending, but that’s only intuition on my part. But who knows, maybe as these contracts expire GM’s will make the same mistakes.

by LaughingJon on May 13, 2008 2:02 PM PDT up reply actions 0 recs

I have a lot of free time and an unlimited internet connection at my work.

I just with it will stop raining before I get off as I want to ride my bicycle home dry.

by SpyderRyder on May 13, 2008 2:35 PM PDT up reply actions 0 recs

I feel ya

I remember with Jamaal Magloire’s contract. People at O-Live were upset that he wasn’t traded. I asked why no one saw the value in his pay coming off the books. One guy saw the value, everyone else saw it as a trade commodity. I guess it’s both, and I’ve never met a fan who didn’t like trade talk. I think I’m on topic here, but I don’t have a point.

"Reality is for people who can't handle Blazers Edge." - MiledAnimal

by tominhawaii on May 13, 2008 2:56 PM PDT reply actions 0 recs

Expiring contracts will always have trade value.

There will always be teams looking to get out from under the mistakes of the past, or simply to tear down and rebuild as quickly as possible. This includes both poorly run teams and more successful teams. The fact is that sometimes your window closes and it’s time to make some changes.

And I have to respectfully disagree with Spyder’s comment above. Raef’s contract is extremely valuable to us because of our ability to pair it with a wealth of young talent in a trade. As he pointed out, clearly there are other big expiring contracts out there. But how many of those teams can pair those contracts with good young (and cheap) players as well? For instance, if another teams sees that its window is closing or its formula just isn’t working and needs to make some changes, are they going to go for pure cap relief, or are they going to want some young players along with that cap relief? I think the latter.

Take Houston for example. What if they get off to a terrible start next year and tire of McGrady’s history of not taking a team to the next level? Are they going to just swap him for Marbury? I doubt it. I think they’d take a long, hard look at a deal including Raef, Outlaw, Jack, maybe Rudy, and some picks first.

That’s just one example out of many where a team might decide it’s time to move in a new direction. Another example might be Denver. If they start slowly again next year and see that they can’t compete with Utah and Portland, well, they’re not going to keep paying luxury tax for a team that isn’t winning, so they might look to unload Carmelo or AI. It’s not like they have a really bad team—they just might feel some pressure to change some things if next year doesn’t go well again …

The other place where Raef’s contract has value is in a sign and trade. Sometimes teams might have some trouble coming up with a package to match salaries. For instance, Philly might not want to sign Iggy long term now that they see they might have a gem in Thaddeous Young at the same position, so they might look into a sign and trade for Iggy with a new contract starting at around 11million/per. They’re going to expect something more than an expiring contract and a draft pick back, right? So they might look to a team like us because they know not only can they maintain their cap space by acquiring an expiring contract, but they can get some young talent in return for Iggy as well.

Personally I’m guessing the offseason will be slow for trades, but you better believe that come deadline time next season that some killer deals will present themselves.

by bfan on May 13, 2008 11:30 PM PDT reply actions 0 recs

Nice!! Do you take requests???

I would be very interested to see you post on this, maybee your top 3 wants, then your top 3 most likely predictions, how and whys, for Raif’s expirering contract. I don’t know if you really think denver or houston is likely or even what we would want. My knowledge on how a trade like this might work is bearly conversational, so I would really enjoy, if you have the time and inclination. Thanks.

"Could we make a deal right now to make us a 50-win team? No question," Pritchard said. "Will that get us a championship? That’s what we always have to evaluate."

As the great Vonnegut said, more or less... "You are what you pretend to be, so you must be very careful what you pretend to be."

by timbo on Apr 29, 2008 7:33 AM PDT

by ptwnblzr on May 15, 2008 1:59 PM PDT up reply actions 0 recs