Pacers', Paul George's Best Interests Served by Getting a Deal Done Now

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Yesterday, I wrote about reports of an imminent Paul George extension, but we were reminded within hours that “imminent” is not the same as “signed.”

This should not come as a surprise, nor should it be cause for alarm. Pacer.com’s Scott Agness’ report included remarks from both Larry Bird and Paul George that indicate both are comfortable with how the talks are progressing. Separately, Conrad Brunner of 1070 the Fan relied on his years of experience with the Hoosier Legend to conclude a deal was close:

To gauge Bird’s sense of urgency on the matter, consider: he skipped playing in the franchise’s annual golf outing at Brickyard Crossing because of the need to keep pushing George’s deal toward a conclusion.

If Bird misses free golf, something major is up.

So, while the final details are hammered out, I’d like to clarify some of the CBA rules on the subject and how they can affect the proceedings.

Deadlines

There are two deadlines looming in this process.

The first is this Saturday, when training camp opens. This is a very soft deadline – a self-imposed informal goal, more than anything else. In effect, everyone involved would almost certainly love to have this issue put to bed by the time the team takes the practice court. This is the primary reason that this news is bubbling to the surface right now. However, while missing this deadline would be disappointing to those involved – as well as Pacer observers – it does no real damage.

The second – October 31st – is a hard deadline. It is the CBA-imposed deadline for all extensions to rookie scale contracts for players entering their fourth year. Missing this deadline has very real meaning. If the two sides do not get an extension done by Halloween, then they will not get one done, at all.

The earliest the Pacers and Paul George can sign a new contract after that will be July 1, 2014 – when George will have become a restricted free agent.

Missing Deadlines

Right now, missing the October 31st deadline seems unlikely, but it should still be considered a possibility to be understood. The good news for the Pacers and Paul George is that missing this deadline has no concrete effect on the contract that Indiana can offer.

The good news for the Pacers and Paul George is that missing this deadline has no concrete effect on the contract that Indiana can offer.
Nor does it diminish the advantages afforded the Pacers with George as their “own” free agent.

Both now and next summer, the Pacers remain the only team that can offer a contract that runs for five years (after this season) with 7.5% raises. However, it is now important to understand two related, but distinct, CBA concepts – the “Designated Player” and what is colloquially known as the “Rose Rule.”

The “Designated Player” rule exists solely in the context of an extension for a rookie scale contract. The CBA mandates that no contract run beyond five (5) years from the date of signing. In the case of any contract extension, the five-year period includes the final year of the existing contract. For example, when the Bucks signed Larry Sanders to a four-year, $44 million extension, they were agreeing to a five-year contract in the eyes of the CBA – one existing and four “new” years.

“Designating” a player is the lone exception to the five-year limitation. In effect, it allows a team to offer it’s rookie a six-year deal – one existing, five “new” – at the maximum contract available for players of that experience (25% of the adjusted cap).

A note on the “adjusted” cap - Maximum player contracts are expressed in terms of percentage of cap. Players with fewer than seven (7) years experience are eligible for up to 25% of the “cap.” With seven to nine years experience, players can earn up to 30% of the “cap,” and after 10 years, they can get 35%. However, the “cap” in this instance is not the same as the team’s salary cap.

The salary cap for the teams is established using 44.74% of BRI (less benefits). Maximum salaries use a different “cap” which is based on only 42.14% of BRI (less benefits). The use of different “caps” was first negotiated in the 2005 CBA and remained in the 2011 CBA.

The simplest way to thumbnail a max salary is multiply the team’s cap by the max percentage (25-30-35), then multiply the result by 94.2%.

Teams are only allowed one “designated player” on their roster at a time, but this allows teams to lock up their young star well before getting to free agency, without having to sacrifice a year at the end of the deal. Other players who have been designated include Russell Westbrook, Blake Griffin, James Harden, and, just this summer, John Wall.

The opportunity to “designate” Paul George goes away on October 31st. However, the Pacers will still be able to offer him what amounts to the same contract next summer.

The “Rose Rule” only affects the maximum percentage of “cap” a player leaving their fourth year is eligible to receive. As discussed yesterday, should Paul George earn another All NBA nod (which I consider to be at least 50/50), he would become eligible for as much as the 30% max – or an estimated five years and $101 million.

The Pacers can offer George an extension today that would pay him a minimum of the 25% max (five years, $84 million), a maximum of the 30%, or anywhere in between. (This, of course, would be contingent on Paul qualifying for the Rose Rule this year.) Next summer, should George qualify, they could offer the exact same range of deals.

But, here’s the rub…next summer, any other team with cap space could also offer Paul George up to 30% as well.

But, here’s the rub…next summer, any other team with cap space could also offer Paul George up to 30% as well.
As a restricted free agent, George and his agent would be free to entertain advances from other teams, which would be almost certain to generate at least one max offer sheet. This max offer sheet could only be for four years with 4.5% raises (for a total of about $75 million), so it could “save” Indiana almost $26 million.

But, would that be “penny-wise and pound foolish?”

As Bird said, ““The number has got to be the number we both like. That’s what it’s all about.” Both sides very much want to get this deal done, but the Pacers have some very real money constraints to overcome. While these issues will exist to some degree throughout the length of Paul George’s contract, perhaps the most pressing exist in the first year of the deal.

As I noted in yesterday’s column, the Pacers will be limited by the luxury tax as they try to sign Lance Stephenson next year. The $2.9 million difference in starting salary between the 25% max and the 30% max materially alters the picture next summer. It reduces the currently available room to re-sign Stephenson (and fill out the roster) by one-third. That is why the Pacers are currently still negotiating. Here’s a reminder of the range of contracts between 25-30%:

roserange

Every percentage point costs or saves about $0.6 million. Indiana is trying not just to save money, but to preserve as much space and flexibility as possible to keep their core together. The Pacers are trying to contend long term on a budget, and this is the way things will always be.

But…Herb Simon and Larry Bird must pay attention to how they save. The difference between $101 million and $75 million looks attractive, until you understand the nature of that savings.

savings

Almost 90% of that $26 million savings comes in the final year of the contract, and it comes at the price of not having Paul George locked up for that year. While that mitigates the risk of George’s contract to the Pacers in some regards, it greatly enhances the risks of the Pacers being unable to retain George at the end of the contract. Also, you must consider the likelihood that the offer sheet would contain a player option for the fourth year. Paul George could become an unrestricted free agent a full two seasons sooner than the Pacers (and their fans) hope. 

Paul George could become an unrestricted free agent a full two seasons sooner than the Pacers (and their fans) hope.

But, worst of all, it offers exactly zero dollars of savings for next season. This sets up a nightmare scenario where the Pacers fail to (a) lock up Paul George for the full five years and (b) are unable to pay market price for Lance Stephenson – if he continues to emerge.

None of this even considers the stress that could potentially be put on the relationship between Paul George and the Pacers. Things are great right now, but if talks sour to the point that George is forced to seek an offer elsewhere, that cannot help but do damage. Paul George is an extraordinarily well-grounded young man, but no one is capable of being entirely unemotional about their paycheck. This cannot be taken lightly in an organization whose success is dependent on chemistry and culture working hand-in-glove with talent.

In effect, the Pacers have very little to win – and a whole lot to lose – by not getting this done before the season.

The Pacers are right to work as hard as they can to retain as much space and flexibility as they can. Bird will earn his money for next season by convincing Paul George to take something a little less than “it all” on this contract. He has a compelling case, but let’s be honest – it’s a somewhat unreasonable sacrifice to request of PG. Sure, it’s a lot of money, either way, but keep in mind, the Pacers would feel very little compunction about trading Paul, should it be in their best interest. Both sides attending their best interest (within reason) is sound responsibility, not selfishness.

However, it seems likely that everyone involved in the situation understands that keeping Paul George – and maintaining the outstanding relationship between the two parties – is of paramount importance. No one would be happy if achieving this goal limited or prevented the Pacers ability to keep Lance Stephenson – or any other player – but, it would still be a relatively easy decision.

With that in mind, it is in the best interest of both parties to get this deal done before Halloween. There will be plenty of hard choices to follow, but this is the one that is in front of them. Neither side can really deal with anything else until this is resolved.

They’re close, but the clock is ticking. It would be foolish of the Pacers – and Paul George – to let this linger into next summer.

 

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Tags: Salary Central

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