The Portland Trail Blazers and Meyers Leonard failed to negotiate a contract extension by Monday's NBA deadline. Assuming the Blazers extend a qualifying offer (QO) to their starting center, Leonard will become a restricted free agent (RFA) next summer.
Leonard's pending free agency clarifies the Blazers' salary cap situation for the summer of 2016. As a RFA and the No. 11 overall pick in the 2012 NBA draft, Leonard will carry a cap hold of about $7.7 million. With Leonard's cap status established, the Blazers can now calculate that they will enter the offseason with nearly $8 million in cap space.
Blazers GM Neil Olshey can add significant additional cap space by renouncing the rights to several players not in the team's long-term plans, such as Gerald Henderson, Chris Kaman, and Tim Frazier. Removing those players will bump the Blazers' cap space to about $24.5 million.
If Olshey wishes, Portland has the money to be a serious player in the 2016 free agent game. Next season's maximum salary tiers are expected to top out at approximately $21 million, $25.3 million, and $29.5 million, depending on a player's length of service in the league. Portland will certainly be able to offer a maximum salary to a player with six or fewer seasons of experience. They will also be able to clear the $25.3 million needed to sign a 7-9 season veteran to a maximum contract by dropping a minimum salary player.
Note that these calculations are all approximate and assume the Blazers pick No. 5 in the 2016 draft. The exact salary cap and maximum salary tiers will not be known until the NBA "closes the books" on 2015-16 in July. For now, these numbers are close enough to tell us that Portland can reasonably expect to be able to offer a maximum salary.
While $25 million is a large amount of cap space, and the ability to offer maximum contracts is a clear benefit, the Blazers actually passed on an opportunity to raise their cap space to $35 million. Entering into the 2015 free agency period Portland had two 2012 lottery picks eligible for extensions: Damian Lillard and Meyers Leonard. Both players had two options: 1) Negotiate an extension or 2) wait for the Blazers to make a qualifying offer (QO) next summer and enter into restricted free agency. With option one, the players' cap hits become the value of the contract extension. With option two, the players' cap hits are the value of the QO until a new contract is signed - very roughly 125% of the salary for the previous season.
Olshey went with option two for Lillard, signing the All-Star point guard to a maximum extension in July. The extension raised Lillard's 2016 cap hit from a QO of about $10.6 million to a maximum salary of $21 million. In other words, the Blazers could have had an additional $10 million in cap space if they had waited to negotiate Lillard's extension until next summer.
To further illustrate the point, here is a table comparing the hypothetical cap space available for all iterations of Leonard and Lillard signing extensions or receiving QOs. For now, this assumes that Leonard's market value was about $14 million.
The scenario that actually happened, Lillard extending and Leonard not extending ("DL extends, ML QO" on the table) is only the third best option for cap space flexibility.
At this point, the argument comes up that the Blazers had no choice but to give their franchise player the maximum extension that he both deserved and demanded. However, Lillard could have signed an identical contract next summer; there was no financial benefit to extending his contract in 2015 instead of 2016. The only risk to Lillard would have been that his stock could somehow plummet dramatically this season.
But in reality, barring a Shaun Livingston-esque near leg amputation, virtually nothing could actually tank his value to that degree. He has a performance track record and durability track record that would have guaranteed a maximum extension even if he suffered a season-ending injury in November.
On the other hand, waiting to extend Lillard's contract would have improved the Blazers' flexibility, potentially accelerating the rebuild and thus benefiting Lillard and the team. Other notable maximum contract candidates such as Kawhi Leonard and Andre Drummond have made similar agreements with their teams. The benefits to these handshake agreements have been tangible; Kawhi Leonard's delayed signing played a key role in the San Antonio Spurs' acquisition of former Blazer LaMarcus Aldridge.
So why did the Blazers and Lillard agree to an extension in 2015? One possible explanation is that the team feared Lillard would bypass restricted free agency by signing the QO and then enter unrestricted free agency in 2017. Greg Monroe made that decision in order to leave the Detroit Pistons.
But Lillard wanting out of Portland and forcing Olshey's hand by signing a QO seems highly unlikely. Lillard has embraced his role as leader of the team, is heavily invested in the franchise, and has made it clear in words and actions that he intends to be a long-time Trail Blazer. Given Lillard's investment in the franchise, it seems like Olshey would have been able to persuade him to wait a year to ink his max deal, if necessary.
A more likely possibility is that extending Lillard in 2015 was a PR move. Aldridge's departure left many Blazers fans feeling jilted and the front office may have decided that an aggressive move was needed to appease ticket buyers. They may have feared that any hesitation to sign Lillard ASAP would lead to open revolt from fans and negatively impact the bottom line. Without knowing more about the actual contract negotiation or being able to verify this interpretation I am hesitant to editorialize further. But it is interesting to consider the more general question of whether appeasing fans' concerns is worth sacrificing cap space.
So what does Lillard's status have to do with Leonard's contract extension? It illuminates that saving money for next season's free agent class is not a good rationalization for failing to extend Leonard. The team could easily have saved more money by delaying Lillard's inevitable maximum extension until 2016 while extending Leonard at slightly above market value.
Further, if Olshey did have to choose between extending Leonard OR Lillard, but not both, to clear enough cap space for a maximum contract, then choosing to extend Leonard would have minimized risk for the franchise. As mentioned above, Lillard was getting a maximum contract no matter what. The year in which he signed it was functionally immaterial. Conversely, waiting to extend Leonard until next season has increased the team's risk of losing Leonard. Other teams now have the option to drive up his price, a scenario that seems likely given the number of teams that will have cap space to burn. Front offices are reportedly already salivating over the possibility.
Blazers fans are familiar with this tactic - Portland has used it in the past to acquire Wesley Matthews, and force Oklahoma City and Utah to match onerous contracts for Paul Millsap and Enes Kanter, respectively. Owner Paul Allen's deep pockets make Portland less susceptible to RFA tricks like trade kickers and signing bonuses, but significantly overpaying any player during a rebuild can hinder progress.
The Blazers may have been able to avoid a bidding war over Leonard and maintain maximum cap space by taking a risk and extending him at a slightly inflated rate of about $14 million or $15 million per season. If Leonard insisted on a chance to "bet on himself" the contract could have been guaranteed for two years with a player option in the third year. This scenario would have guaranteed Leonard $40+ million, protecting him against injury or failed development in the short term, while still giving him the option to cash in on a large contract within two years. With a three-year contract, he also would have had the option to sign a second tier max contract a year or two sooner should he blossom into an All-Star.
The proposed offer of $14 million would have been in line with the market value established by Draymond Green's five-year $82 million signing. Leonard is not an NBA Defensive Player of the Year-caliber talent starting for a championship contender like Green is, but he clearly has potential to become a game changing anomaly. Offering roughly $2 million less than what Green is paid in order to entice Leonard to sign immediately would have been worth the overpayment.
Assuming the Blazers did extend Leonard at that payscale, a worst case scenario is Leonard totally bombing this season. Presumably he would fetch about $11 million annually on the open market under the assumption that a shooting big man is always going to draw eight figures. This contract would be in line with the extensions signed by John Henson and Terrence Ross.
Compared to the current situation, that worst case scenario would cost the Blazers literally no cap space in 2016, and then the team would be on the hook for $3 million more in 2017 and 2018 than Leonard is actually worth. As a nuclear option, Leonard could even be amnestied after the new CBA is signed.
Instead, by allowing Leonard to enter into RFA the team risks losing him entirely, and could wind up paying him as much as $18 million per season starting next year. Personally, I think slightly overpaying now to prevent a costly bidding war that could result in massive overpayment would have been worth the gamble that he "only" develops into an $11 million a year player and costs the team an extra $3ish million for two seasons.
In the end, a rebuilding franchise like Portland needs to hang on to any blue chip prospects it has, while also minimizing salary whenever possible. The Blazers had a chance this Summer to clear cap space and guarantee that Leonard stays in a Portland uniform for several more years. The front office could have minimized the financial risks associated with Leonard's pending development by signing him to an overpriced extension while also waiting until next year to extend Lillard. This scenario would still have allowed them to pursue a maximum contract free agent. Instead the team decided to extend Lillard now and risk a bidding war over Leonard.
What about Moe Harkless?
The Blazers also opted not to extend Moe Harkless' contract on Monday. Harkless was acquired for a top-55 protected draft pick, virtually nothing in the NBA world. While he has shown improved play this season, offering an extension now would probably be jumping the gun.
Harkless' cap hit is the same $7.7 million as Leonard's. That figure basically matches the contract that Jeremy Lamb signed on Monday. Assuming that Harkless does have a breakout season and definitively proves himself to be a reliable role player or fringe starter then the cap hold is a good thing for Portland. On the other hand, if he bombs again this year the Blazers have the option to pass on the QO and his cap hold becomes nothing.
As of now the most likely scenario is that he proves himself a competent player but his long-term usefulness remains an open question. Olshey can then offer a contract similar to Lamb's and similar to Harkless' current cap hold. Either way, as a player acquired for virtually nothing who is unlikely to get a large contract offer from an opposing team based on one season of work, not extending Harkless was the smart decision.