Paul George & Pacers Close to Deal — A Look at the Financial Implications


Paul George will soon become the Indiana Pacers first “Designated Player,” according to Adrian Wojnarowski and Marc Spears of Yahoo! Sports.

All-Star forward Paul George and the Indiana Pacers are finalizing a five-year, $90 million-plus maximum contract extension, league sources told Yahoo Sports.

A deal is expected to be signed this week, league sources told Yahoo.

Great news for the Pacers and their fans, as Paul George’s performance last season included a Most Improved Player award and culminated in an Eastern Conference Finals run that featured 19 points, 7 rebounds, and 5 assists a night from George. In simple terms, it means that Indiana will have their four best players from that run (including Roy Hibbert, David West, and George Hill) for at least the next two seasons.

But, any time a team makes a commitment this large, it has wide-ranging financial implications. Let’s take a look a the dollars involved, and what they may mean to the Pacers as this contract ages.

PG’s Paycheck

The report from Woj & Spears says “five-year, $90 million-plus maximum contract extension,” which is both clear and unclear at the same time. The only thing we can take with absolute certainty from this report is that the Pacers & George have agreed to make this contract subject to what is commonly called the “Rose Rule.”

The only thing we can take with absolute certainty from this report is that the Pacers & George have agreed to make this contract subject to what is commonly called the “Rose Rule.”

The “Rose Rule” was added in the new CBA and allows a player with four years of experience to be eligible for a max equal to 30% of the adjusted salary cap, instead of the normal 25%. To qualify, said player must have (a) won the Most Valuable Player award, (b) be voted by the fans to two or more All Star games as a starter, or (c) earn two All NBA awards (First, Second, or Third Team). This allows the team and the player to negotiate a contract with the starting salary of anywhere between 25 and 30% of the first year’s adjusted salary cap.

Paul George has put himself in position to qualify by being named Third Team All NBA last season. That is why PG’s contract is being reported as higher than the 5-year, $80-million John Wall extension. Wall’s contract shows the 25% max, while PG’s clearly indicates at least the opportunity of achieving as much as the 30%.

Wall’s contract will likely be closer to $84 million over the five years, which means George’s could exceed $100 million.

However, it’s important to note that the number for both contracts are likely under-reported. The 5-year $80mm number for Wall appears to be based on this year’s cap number, but that contract, like Paul’s, will actually be based on the cap figure for the 2014-15 season. (Well, actually, about 94% of the team’s salary cap figure for that season.) Based on early projections for the ’14-15 cap, Wall’s contract will likely be closer to $84 million over the five years, which means George’s could exceed $100 million.

Here’s a look at the range in which Paul George is likely to be paid over the next five years:

 

roserangeAt this moment in time, Paul George has not qualified for anything more than the 5-year, $84.1 million extension available to (potentially) every former 1st round pick entering his fourth year. In order to earn the accelerator, George will have to be named to one of the All NBA teams this year (a definite possibility, perhaps even a likelihood) or win the MVP (a very long shot). If he does not, then the contract highlighted in yellow will be what the Fresno State product will take home for the next five years.

But, if he does, the Yahoo! report indicates that his deal could be any one of the figures highlighted in blue. Occam’s razor – and the use of “maximum contract extension” in the report – leads me to believe that the deal is, in fact, for the 30% max that will actually end up being $100.9 million over the five years, with a $17.5 million 2014-15 cap hit. Also, the fact that the deal is (reportedly) going to be signed a full month before the deadline indicates it’s one that Paul and his agent couldn’t refuse. The 30% max is literally the best possible contract Paul George could receive, this year or next.

But, those of us who spend a great deal of time looking at the cap and contracts understand that “maximum” is less definitive than it implies. Often, you have to clarify “which max?” before moving on. It’s worth bearing this range in mind while there is some uncertainty as to the details.

This is especially true as we consider the cap implications for the Pacers.

How the Contract Fits

Regardless of where Paul George’s contract ends up, it is going to have a huge impact on the Pacers’ cap position. There are few, if any, bargains greater than a good player on a rookie contract, and George’s $2.6 million last season and $3.2 million this are about as cost effective as it gets in the NBA. So, let’s take a look at the payroll.

payroll(Source: Shamsports and @MarkDeeksNBA)

Looking at this information makes me believe that it is almost certain that this is the last season for Danny Granger in a Pacer uniform. 

…this is the last season for Danny Granger in a Pacer uniform.
George’s contract leaves Indiana between $6.0 and $8.9 million below a luxury tax threshold with only 11 players under contract. The Pacers have repeatedly said they would not exceed the tax threshold, and it’s a warning that should be taken at face value.

A note on the Pacers and the tax threshold – Whenever this subject comes up, there are invariably people who argue that Herb Simon may be willing to “go over the tax for a little bit” to keep a contending team together. While you can never say “never,” I believe it is foolish to expect the Pacers not to make good on this warning.

Herb Simon has been making this caveat for years, and there’s no reason not to take him seriously. Indiana hasn’t paid the tax since 2006, and the threshold ($75.7 million) represents a large increase over recent payrolls – before considering any taxes.

The new CBA does allow that only 50% of tax proceeds goes to non-taxpayers. Some have used this to argue that the penalty for the lost tax distribution is not as harsh and that the Pacers will “get some back.” That is not entirely true. The other 50% is used for “league purposes,” which may or may not result in money being returned to Indiana.

Further, the higher tax rates and accelerators actually make a share of 50% of the tax proceeds greater than a 100% share under the old tax structure. Based on current 2013-14 payroll projections, a share of 50% of proceeds would be $3.2 million, while a 100% share under the old tax would only be $2.9 million. (If you adjusted the change in BRI split between the CBA, the 100% share would drop to $0.8 million.)

It should be assumed that Indiana will treat the tax threshold as a de facto hard cap, and exceeding it would be an extraordinary event.

Given those strictures, Indiana will only be able to re-sign one, but not both, of Lance Stephenson and Danny Granger. As it stands today, Lance Stephenson seems to be the overwhelming choice based on (a) youth and (b) affordability. Additionally, there are very few positive scenarios that I can come up with where Granger ends up being more affordable than Stephenson.

A note on extending Lance Stephenson – As a second round pick, Lance did not get a “rookie scale” contract. As such, he is not eligible for the special exceptions that accompany such a deal. He is eligible for an extension, but only starting at 7.5% above his 2013-14 salary, which is just over $0.9 million.

The most Indiana could offer Stephenson prior to next summer is a 4-year, $4.1 million contract. While I’m sure the Pacers would be pleased with that, they – along with Lance, his agent, and any random NBA follower – know that he will command much more money than that, if his career continues on its current path.

There are always options to create more space, but those also always involve unloading players. However, trading Danny Granger is not high on the list of these. It is important to keep in mind that Granger’s contract expires at year end. Any deal that sends the New Mexico vet out and returns a player whose contract does not expire impinges on next year’s available payroll. The deal should not be measured solely on the comparison of Danny’s departure vs. the new player(s)’ arrival. It must also consider the possible loss of Lance Stephenson, should the Pacers not be able to fit both under the tax threshold.

Among the 11 players under contract for 2014-15, there are two who definitely have partially unguaranteed contracts. The first is Orlando Johnson, but his contract is the minimum, so there is very little money to be saved there. The second is Luis Scola’s.

Scola is on the books for a little less than $4.9 million in ’14-15, but only $0.9 million is currently guaranteed. (Actually, it’s $1.5 million, but Houston will pay part of it.) It could exceed $1.9 million in guarantees owed by the Pacers, if the Argentinian power forward meets a couple of very attainable benchmarks. So, Indy could create between $3.0 and $4.0 million of additional space by releasing Scola next summer.

I don’t know about you, but I don’t like any of the readily imaginable scenarios in which Indiana decides waiving Scola next summer is a good thing for the Pacers.

The Pacers could also release players with guaranteed money and avail themselves of the “stretch provision.” This allows the remaining cap hit to be spread over twice the remaining years on the contract, plus one. The only reasonable contract for this is Ian Mahinmi, which could potentially generate an additional $2.4 million in breathing room. However, I find this extraordinarily unlikely, primarily because I believe that Mahinmi is a solid back up 5, making what solid backup 5′s make. I suspect the Pacers agree with me on this.

However, all of these concerns are what you call “first world” problems. 

However, all of these concerns are what you call “first world” problems.
Locking up Paul George is absolutely the right thing to do here. Should Paul get a second mention among the top 6 players at his position in the NBA, he will have largely proven his value on the floor. While the Pacers will face hard choices going forward, they have positioned themselves as well as could possibly be expected to play good basketball and contend at a high level for the foreseeable future.

With Paul George, and Roy Hibbert, David West, and George Hill before him, the Pacers have committed to players that the fans and the city can fall in love with, again. It’s hard to imagine many better paths the organization could have taken toward erasing the bitterness of the JailPacer era.

 

 

 

 

Tags: Salary Central

  • heisenburg

    George has a great chance at another all-nba team but he’s no lock. I’m expecting monster seasons for both Love and Anthony Davis (assuming AD is playing the 4).

    • Taposh ‘Tap’ Rudra

      But what position will Paul George be playing at this year? is something to consider…
      Will he be the shooting guard if Granger starts again?

      • heisenburg

        Cant see him playing SG unless it’s in very small spurts.

        • poot

          I can’t wait to quote you on this over and over. I am very confident George will spend greater than 75% of the season playing SG.

          and your assessment of Anthony Davis is hilarious. As good as he was last year, he failed to live up to the massive amount of hype surrounding him. Those are the same people expecting an AllNBA appearance from him this year… temper your expectations. That kid is good, but at the moment he currently appears to be no game changer, let alone #1 pick worthy. Lillard is much better and he has no hope at making all NBA.

          Unless he defies his character and massively regresses, PG is a lock for AllNBA… the question is 1st team or 2nd team?

          • heisenburg

            Anthony Davis’ per 36 stats last year: 17pts 10rpg…He was freaking 19 years old. Of course Lillard might seem better now he’s 4 years older. And PG for 1st team All-NBA? That’s absurd and I’m a big time PG fan.

          • poot

            Other players with per 36 stats of 17pts 10rpg last year:
            Henry Sims
            Andray Blatche
            Chris Kaman
            Marreese Speights
            Rasheed Wallace (seriously)
            Mike Scott
            John Henson
            Carlos Boozer
            Enes Kanter
            JaVale McGee
            + 9 more players

            and asides from Kaman, Boozer & Sheed, those guys were all 25 or younger last year.

            I get that your argument is Davis was only 19, but that is counter to your argument that he is in prime position to be AllNBA next year. He’s a good player, should have a long NBA career, should make a few AllStar teams, maybe even AllNBA some day. But next season??? And stealing a spot from Paul George? Come on man…
            I’d like to see it, it would be good for the NBA and NOLA, but so far the only way Anthony Davis has a chance a being a monster next season is by growing out that unibrow some more.

  • poot

    NBA Future Power Rankings… a joke!

    Indiana is #7, but that is burying the lead…. Miami is #1!!!
    Can you believe it? Best team over the next 3 years? And they select the team most likely to collapse after this season?
    There is absolutely no conceivable way (outside of massive paycuts) that the Heat can keep their big 3 AND improve players 4-15. They are way over the cap, they have nothing as far as draft goes. Basically ESPN gives them high votes because of Riley and the Beach. Really? These things didnt seem to matter AT ALL between mid-2006 and mid-2010.
    It’s stupifying. If they keep the same team, they are just getting 3 years old, 3 years worse. They’ll lose their oldies, Allen, Haslem, Battier will all retire. Oh but Greg Oden and Michael Beasley and Norris Cole are young! Has ESPN no shame??? Well maybe they just bring back Lebron and Bosh. Or maybe just Lebron and Wade. Then they can fill in that remaining cap space with…. oh wait they will still be over the cap even if they only bring back 2 of the big 3?
    Well maybe they can trade or S&T Bosh or Wade for a package of young players and draft picks. What team wouldn’t want to mortgage their future and beef up Lebron’s team just for the rights of adding Wade or Bosh??
    Oh since they’ve been signed all teams REFUSE to trade with Miami? Nah, that’s a coincidence…

    These writers are buffoons. Yes whichever team has Lebron will be a favorite for a few more years. But assuming Miami will keep Lebron is really going out on a limb. Assuming they can keep Lebron AND add talent? Now you’re playing around in dream land. It’s not even a question of paying luxury tax (like the Pacers with DG next year) it’s that there is not a way to make it work under the cap. Can Riley blow it all up this year? Well no, unless he somehow convinces Joel Anthony and Haslem to leave a combined $8.5M on the table, because you know teams will be giving them better offers than that…
    So you start with $10.6M committed to Haslem, Anthony and Cole.
    That leaves about $48M in cap space for the other 12 guys. Lebron/Bosh/Wade are each due MAX salaries starting over $20M. If Miami doesnt pay them that, somebody will. So they idea that they will all sacrifice over $4M/yr each, just to get under the cap is absurd. The idea that they will all sacrifice over $7M/yr each so they can sign ONE more quality free agent is hilarious.
    SO what’s the other option? Signing only Lebron/Wade or Lebron/Bosh? OK that leaves about $8M in cap space, and leaves you with a team of Anthony/Haslem/Bosh/Lebron/Cole. The BEST option they could hope for is Wade returning for $8M/yr. Otherwise, they’d be lucky to get a guy as good as Lance to be their 6th player.

    SO the Heat are screwed, they have no future beyond this year.
    If they dont win the title, expect a complete demol of that team
    If they do win the title…. it will be interesting. But there is no way they come back with a competitive team. That is why I am so excited for this year. End of the Heat era.

    As for Pacesr at 7… whatever. Their best player is 23 but that means nothing? Their other best players are just entering their prime… but that means nothing? and they are all locked in for the next 3 years. Hmmmm…. yeah this team’s ceiling over the next 3 years is the 7th best team. Nice one ESPN.

    • poot

      LOL Greg Oden’s NBARank just jumped 90 spots from last year despite playing 0 minutes in nearly 4 full years. just because he is on the HEAT. what do you think his rank would have been if he signed with the Mavs or Cavs or Kings? soooo many Heat homers on the rankings. It’s hilarious. I bet they will keep Wade in the top 10

      • poot

        to add on to the ongoing joke, Chris “i’m not a pedophile, i was just tricked into obtaining all that kiddy porn” Andersen was ranked something like #297 last season.
        This season he will be at least 60 spots higher, i am guessing (based on my knowledge of the minds of ESPN staff) that he will be at least 100 spots higher. just because he made all of his open layups in the playoffs. pathetic.

        and Wade arguing with Durant about who is better… Wade saying “i beat you in the finals” really? someone thinks a little highly of themselves. i know Wade will be way overrated this year, but I actually am looking forward to it. it will be that much sweeter when he drops 100+ spots next year.

  • Derek Cooper

    Mr Donahue__got a question for you. Was wondering how you think pauls defense would stackup to Derrick McKey’s from the 90′s pacers_ also how effective defensively McKey in his prime might be vs. LeBron? I was a kid back in the mckey days so I just remember his D being really impressive at the time but don’t really know how it was statistically +where it ranked compared to his peers_ wonder if it was as good as it looked to me as a kid.

    • Tim Donahue

      What a great question. Derrick McKey is one of my favorite players. I always considered him to be one of the guys who shaped that winning culture from the 90s.

      Unfortunately, defensive statistics are lacking today, and even moreso back in “Heavy D’s” time, but he was an outstanding defender. He made All Defense twice and was crucial to the cultural changes that Larry Brown wanted to implement.

      Personally, I believe PG to be approaching McKey’s level, and could pass him. However, they are different kinds of players. Both have length and intelligence as their core strengths, but Paul George is quicker and more athletic, while Derrick was probably stronger.

      Both are outstanding at “guarding down,” or dealing with smaller players – shooting guards or point guards. George is more reliant his length and leaping ability, while Derrick McKey had just obscenely quick hands. I have lasting memories of point guards trying to break down McKey, only to end up with their mouths hanging open in shock after Derrick had almost casually flicked the ball away from them.

      It would be fun to watch a mid-90s vintage McKey guard LeBron. LeBron would get his points – because he’s that good – but I think Derrick McKey would have had as much or more success as anyone around today.

      Don’t know if you’ve read it, but if you get a chance, try to find a copy of BOOM BABY! the Sudden, Surprising Rise of the Indiana Pacers. by Conrad Brunner. Great stuff about that team.

      Thanks for reading, and thanks for making me think about Derrick.

      • Derek Cooper

        Thanks really enjoyed your answer. I had to look up +comprare their builds__McKey is listed at 6’9” or 6’10” and 240 lbs and played mostly sf with some pf. I know he had really long arms but I couldn’t find his wingspan. Bet with his lateral speed+ size+skills he woulve been great vs. Stretch pfs of today_ I think his prime was before that trend gained such popularity. I know he’d toss in a 3 occaisionally himself+ had a nice little hook.___I’m sure the stretch 4 deal is here to stay since its so effective but does it seem like some more teams are starting to counter back the other way ? Pacers memphis detroit bulls…__anyhow back to comparing paul+ McKey_ I read some articles lately that still list paul at 6’7” and of course have read up to 6’10” because of a growth spurt__which I suppose could mean that his 6’11” wingspan listed on draft express may’ve increased as well. And the number I found for pauls weight was 216 lbs unless he’s added some lately…so yep a good bit smaller than McKey..

      • Derek Cooper

        Something else I was wondering about…I know d.west consistantly put up good offensive numbers last year…but also I can’t hardly remember either hibbert or mihinmi hitting midrange jumper off west pounding in on smaller 4′s + passing out of a double team. Sometimes seems like west got tired + settled for junpers (which I know he’s decent at but doesn’t force a double team or draw fouls…) ok so here’s the question _given that west and scola can probably put up some good offensive numers reguardless_but_ can the pacers offence be as good as it needs to be if hibbert + mihinmi aren’t a threat to consistantly hit a midrange jumper? _like off of west or scola pounding it inside?

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  • Travis

    Is what it is, gonna really miss Danny. Guy’s been a great soldier. Only one way to properly end his time here, him standing next to Herb Simon hoisting the O’Brien trophy at BLF.

    • poot

      agree 100%

      so what do we make of DG’s future with Indy?
      we’re estimating between $6-$9 mil of cap space next summer and priority to resign Lance.
      what do we think Lance’s salary will start at? I’m guessing between $3-$5 mil. he’s an interesting unique young player with question marks on his character but at least he comes from the good Pacer culture. I would guess on the open market that puts him in range with guys who got paid this summer like JR Smith (~$3M) or Tony Allen (~$5M) …IMO He is not worth Tony Allen or JR money, but he is younger and has more potential. So even pushing $5M seems justifiable.

      IF Lance resigns in that range, between $1-$6 mil remains before capping out to spend on DG.

      so now the question is what is DG worth? What could he fetch on the open market?
      As others have stated, speculation at this moment is a mere stab in the dark. It all depends on what he comes back as.
      If he is between 80-100% of his former self, i.e. starting caliber for the Pacers, he should command a large payday, beyond $6M and what the Pacers could potentially afford.
      If he is between 50-80%, i.e. bench player for the Pacers but still contributing/role playing, $3M may be a good number for him. You would be looking at guys who were once AllStar caliber but have become a shell of themselves due to injury and age. From this summer, I am looking at guys like Mike Miller, Kenyon Martin, MWP, Devin Harris, Mo Williams, AK47, Dunleavy and JO’Neal. These guys got paid basically between $1M and $3M. Putting DG on the upper end makes it still possible to resign Lance for $3-$5M and DG for $3M.
      Finally if he is < 50%, he will re-sign with the Pacers out of loyalty (and the wisdom that no one else would offer anything worth abandoning his team/ title contender.) After this contract ends, DG will have made $53M with the Pacers. I think a career "ending" injury will make him content with that and returning home on the cheap.

      .

      TO SUMMARIZE:

      If DG returns in at least starting caliber form, this is his last season as a Pacer. Lance gets paid, and I doubt any additional players are added as they will already be over the cap (but not in luxury tax)

      If DG returns as a serviceable player, he should be back with the Pacers. Even on the high end of a PG contract, $6M could be spread between Lance ($4M) and DG ($2M) which is in line with what players most similar to them got paid this summer. On the low end of the PG contract, there is additional wiggle room, perhaps push Lance to $6M and DG to $3M.

      If DG stinks, he stays with the Pacers, but mostly as a Scalabrine type contributor.

      I hope DG returns 100% for the sake of this season. But in the long term, it would be best for him to show some signs of decline. That way he could be brought back as contributor/leadership type player, and both he and Lance could be retained long term. Unless Lance BLOWS UP this year, he shouldn't command more than a mid-level type deal. Hard to see him getting more than Tony Allen no matter how good he does this season.

      So I see Lance getting $4M and DG returning at maybe 80% and getting $2M.

      • Realist

        “So I see Lance getting $4M and DG returning at maybe 80% and getting $2M”

        Pretty optimistic on both fronts, I think. But I would love it if this was true. I have faith that Danny isn’t after money, and will value this group (see the Detroit game when he made a shot last season) more than a bit more coin elsewhere.

        • poot

          What do you think? Will Lance be in line for a payday above $3M? above $5M? Maybe somebody would pay him, but I don’t know if he’s really the gamechanger that big a salary is intended for… you see guys like Monta and Mayo and the likes not getting the big paydays they thought they had coming.

          Also, Pelton’s SCHOENE projections have Lance “treading water this season despite being an age when he should remain on the upswing.” If he’s as good as he was last year, which would be a very nice sixth man. Very nice sixth men, such as Jamal Crawford, JR Smith, etc, get paid around $3-5M. Even “Elite/should be starting on a contender” guys, like Ginobili, only push $7M.

          Even if he shows the marked improvement expected of a 22 yr old, I can’t see any responsible GM offering Lance over $5M. I think $3M is a fair number, $4M might be a good safe bet to try to secure him early.

          But crazier things have happened.The Pistons gave Ben Gordon like $13M. Always have the possibility that someone crazy will sign him for more, but I think GMs are starting to get better at assessing value. Especially in a market flush with guys “similar” to Lance.
          Some of next year’s Free Agent SGs:
          Kobe
          DWade*
          Hayward*
          K Thompson*
          Beal*
          Shumpert*
          Jamal Crawford*
          Waiters*
          Jeremy Lamb*
          T Ross*
          Burks*
          Turner*
          MarShon Brooks*
          Meeks
          Rivers*
          Seflosha
          N Young*
          Morrow*
          Gordon

          I get that Lance could get overpaid, but given all the options teams will have next summer, it seems unlikely anyone will go all out for him. I think $4M is a good estimate… what about you?

          • Realist

            I take it back actually, re Lance, I think you’re right.

            $2 mill for Granger seems like a steal though. It obviously hinges on his performance this year. I guess I just expect him to get a much healthier offer from somewhere.

            Didn’t Minny give Brandon Roy $10m / 2 years?

          • poot

            yeah, i guess with DG i am trying to wrap my head around ways he could remain a Pacer. if he’s back near full strength, there is no way. but like you said with Roy, even if he’s not, some team may take the chance that he’ll come back to form as a member of their squad.
            at least i think it won’t be like Oden, teams are willing to take a chance on the cheap and he jumps on the frontrunner’s bandwagon. if all Danny gets are lowball offers, I can’t see him picking anyone over the Pacers. but that’s a big if.

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  • lil-bang

    Tim,
    Doesn’t the NBA pay for part of veteran players contracts?
    If so would Danny apply for it?
    Also, what could the Pacers offer Danny to stay next year? I realize this will probably only happen if Stephenson doesn’t pan out or asks for more money than the Pacers can afford.
    Final thought, if Stephenson has an actual breakout year to where the Pacers obviousley can’t afford him the next couple years. Could they trade him away and get…say money back for him?

  • poot

    Lebron:
    “asking me about my upcoming free agency is OFF LIMITS. don’t ask me because I won’t talk about it. i am special and deserve special treatment. waaaaaaaaaaaaaa”

    man i hate lebron. i am amazed by his ability and his game, he is incredible, currently the best, perhaps one of the all time best. but his personality is so atrocious. it is obvious he was coddled his entire life. it’s made for a disgusting adult. can’t root for a player who carries himself the way lebron does. as much as i want to enjoy him and respect him, he just ruins it every time he opens his mouth. hate that fool.

    i mean seriously, take a page out of PG’s book. just say you love it and you want to stay. enough of this “i am so important how dare you ask me anything other than ‘what’s it like to be the best?’ that is all i will talk about. now bow to me.”

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  • John

    Mr Donahue, a question on Lance Stephenson’s future. Where did you get the italicised note regarding his next contract possibilities? Rules regarding second round draft picks are tricky to find. He just played a 4-year contract that wasn’t a rookie scale contract so I can understand the circumstances may differ for him.

    It seems unfair that the max contract the Pacers can offer him next is a paltry $4.1m over FOUR years. As his value is higher, he would be stolen away in the same light as Gilbert Arenas from the GSW. There must be a loophole around this.

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