Instant Ducats

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Published: June 16, 2018

I know it’s the season for copying research about late draft picks, free agency, or trade scenarios from others and passing them off as your own, giving takes on takes, and trying to twist rumor into news, smoke into fire, clicks into money, but I am going to do something a little different: I am going to deal with actual analysis about the Pelicans’ off-season.

Jordan Crawford Sign-and-Trade

As we move into the off-season, the Pelicans have some tough choices to make, and flexibility is a key commodity for them. One source of flexibility is Jordan Crawford.

When he was signed late in the season, the focus of discussion was on his on-court contributions, but his contract situation actually gives the Pelicans some salary flexibility because they have his Early Bird Rights. Though it may not be obvious, this is because he was with the team the past two seasons, did not change teams via free agency or waiver claims, and finished this season under contract with New Orleans.

Early Bird Rights come with an exception that can be used sign Crawford to a three-year deal up to about $8m, and he can be included in a sign-and-trade. Other deals are possible, but these are the deals of interest in this article. Early Bird Rights are key here, since they allow a three-year deal while Non-Bird Rights and the Minimum Exception do not, topping out at two-year deals. Sign-and-trade deals must be for contracts that are at least three years in length for the contracts being signed-and-traded. This also allows the team to preserve its exceptions that can be used on free agents not tied to New Orleans.

There is a complication that, in all likelihood, if he is signed for much above his minimum using his Early Bird Rights, then his salary counts fully for the receiving team but only half for the Pelicans (due to a rule called Base Year Compensation, or the amount the is prior salary, if that is greater). This is not an insurmountable obstacle in terms of salary matching, but it is something to keep an eye on in an already complex process. I won’t bore you with (too many) details here. I will let the follow-on work “inspired” by this work those out adding value along the way. Base Year Compensation would not be an issue if the Pelicans became a room team. It’s also not so much of an issue when the receiving team ends up under the cap, however, since such trades are less restricted (at least from one side). It’s also only an issue with sign-and-trades, not typical trades.

Back to the man of the hour . . . Instant Grits becomes Instant Ducats, a “tuneable” contract to send out, help bring salary back to the Pelicans. The Pelicans need bodies and can send out a pick to help draw value, but it’s hard to replace salary sent out in a trade, particularly when you do not quite have the reputation of a competitor that inspires quality players to take discounts. Picks have no salary value in trades, so pairing them with players can help align the various literal and figurative balance sheets, including the salary matching and the value matching. Crawford can help bridge that gap. Using non-guaranteed salary in later years can help make an above-minimum contract for Crawford palatable without drawing circumvention attention since the length restrictions are not in place to counter this sort of maneuver. The first year salary can be set to make a deal juuust work, give Crawford a little more for his trouble, help a team make minimum salary, whatever.

Using tools like good players on fair deals, draft picks, and a willingness to spend, the Pelicans have some mechanisms to make some moves if the opportunities arise. That is the challenge, as always. Bear in mind that sometimes the real cost savings for a trade partner is in later seasons, and that money is not factored into the CBA-legality of trades, which is the focus on this article. The ability to do something and the willingness to do it are quite different.

Scenarios

The following is technical. If you aren’t interested, just know that Crawford can be added to deals, skip to the Cousins section.

First, some background. Crawford has 6 years of experience, putting him in line for a minimum salary of about $1.8m after making about $1.7m (annual salary, of which he received a pro-rated amount). Base Year Compensation kicks in a little over $2m. So, if Crawford’s contract is between his minimum and, say, $2m, that full value will count in trade (though, if it’s the minimum, the receiving team can ignore his salary in the transaction). After that, we get into funny business.

Let’s work through three basic trade scenarios to give a sense of the issue: $5m outgoing, $10m outgoing, and $20m outgoing. What we are interested in is how much the addition of Crawford to a deal adds in value back to the Pelicans, how much cost-savings the Pelicans can then offer to the other team in the first year, since I think that is a possible assets this offseason. The scenarios below presume New Orleans ends up over the cap, under the tax line after the trade. If they end up over the tax line after the trade, the scenario is actually simpler. I’ll address that as a special case. There are other cases, such as Jordan’s additional moving a team from one scenario to another and every other outgoing salary possibility. I’m just giving the sense of his value and the complexity . . . and the possible value of those couple of signings Dell made.

  • If Crawford makes between the minimum and about $2m, his salary counts normally, as Base Year Compensation does not take effect until there is a raise of over 20% (which would be allowed using Non-Bird Rights).
    • $5m in other salary outgoing: Crawford can help bring back an additional ~$3m back, so ~$1m net savings to the receiving team.
    • $10m in other salary outgoing: Crawford can help bring back additional value equal to his own salary with no net savings compared to leaving him off (still $5m), but it may enable a deal that would otherwise not be possible.
    • $20m in other salary outgoing: Crawford can help bring back additional ~$2.5m back, offer an additional savings of $0.5m.
    • As you can see, this is the most likely case if a sign-and-trade of Crawford were to happen. The main effect is to increase total salary coming back.
  • Because Base Year Compensation reduces the effect of salary by half and our game is to have Crawford make a positive effect on trades, there is if is contract is between about $2m and about $4m, his effect is just at of a minimum contract for the Pelicans. These contracts can affect the receiving team’s legal outgoing salary, but I skip over this to a more interesting case, and leave the effects of these in-between contracts to be interpolated. So, at $4m, the effect is the same as with $2m. We’re starting to get into some scenarios that likely involve picks being included or the like. View this in that light. We’ll look at Crawford at $5m to get away from the boundary case.
    • $5m in other salary outgoing: This seems unlikely, but the Pelicans can actually go from taking back a little under $9m to taking back around $12.5m in this case. Notice, this increase is actually less than his salary, which differs from the case above. This is the effect of Base Year Compensation. Also, the potential savings for the receiving team is reduced from close to $4m to under $3m.
    • $10m in other salary outgoing: Crawford can help bring back additional $2.5m, but the receiving team’s savings is reduced from $5m to $2.5m.
    • $20m in other salary outgoing: Crawford can help bring back additional ~$3m back, offer an additional savings $2m to $3m.
    • As noted, the effect of Base Year Compensation not only makes the deal harder to get right in terms of the accounting, it reduces flexibility and likely starts to require other assets be involved. The trade-off for the increased return is all this complexity and a reduced cost-savings for the receiving team. Some may balk at the idea of paying Crawford a guaranteed $5m. This is about a $3m premium. A second-rounder, cash, or both could make that up. This is a viable option, but it would have to be compared to paying Crawford, say, $2m, and send out fewer assets.
  • The maximum contract Crawford could be given is ~$8m. We’ll check that just to deal with the extreme case, give a sense for the trending. In all cases, the amount of increased returning salary over the $5m-contract case is about $1.5m and the cost-savings is reduced to about $1m. $8m for Jordan Crawford is really about a $6m premium at least. The value of included assets, like picks, need to offset this; a second is not going to do it. However, if you are looking to take back big salary and keep your roster as intact as possible, here is an option.
  • If the Pelicans end up over the tax, the most helpful scenarios are off the table, as the inflation factor in the salary matching is limited to 125%. For instance, in the $10m case, the can normally bring that $12.6m (125% $0.1m) if the end up over the tax due the trade, givings a savings of $2.6m potentially to the other team. Adding Crawford at $5m changes this to $15m incoming for the other team and $15.725m outgoing. Next to no savings. It’s still an increase and a knob to turn, but it’s a significant complication. With Crawford making just $2m in this scenario, the situation is simpler, but the amount of salary back is reduced.

All that said, this one tool that Pelicans have to try to improve the team while not having to over-sacrifice in terms of value and their (currently thin) depth in order to complete a must-do trade higher up the line.

DeMarcus Cousins

You’ll also see some revised Cousins sign-and-trade scenarios now that this is out because Base Year Compensation will affect Cousins if he gets a contract that pays him much over $22m, and his outgoing salary will only count about $18m (his current salary) since his max deal is less than twice his current salary. This presents complications when trading with most teams on top of any other complications. So, you guys have fun with that.

For example, your favorite $25m contract sent by another team would allow them to bring back $30m in salary, but $18m in effective outgoing salary from the Pelicans’ perspective, such as in a Base Year Compensation deal, does not allow $25m to New Orleans. If the Pelicans send out $2m more to allow $25m to return, then the $25m going out from the other team does not allow $32m coming back to them. There are clearly ways to make it work, but it comes more complex and creates a double-thread-the-needle problems on the cap-side to boot.

Moreover, this is even more complicated if, as I think, Cousins ends up with some incentive-laden contract. Using rough numbers, he agrees to a three-year contract for $30m, with max raises, player option in the third season, with incentives. Let’s say the incentives are $3m in unlikely incentives and $5m in likely incentives. Such a contract would be worth $22m in trades (including sign-and-trade) and still in some sense be worth the maximum salary, and maybe even ACTUALLY be worth it, depending on those incentives. “Likely” is not based on actual difficulty-to-meet but rather on an assessment that is usually “Would this have been met using last season’s actual performance?” So, Cousins may be set to play in 50 games next season, but it would be considered unlikely for him to to do so since he only played 48 games last season. That third year could be an option year if it is not a sign-and-trade deal, and this kind of contract, with the proper incentives, that could go a long way to mitigating risk all around.

Tuning in the base compensation and incentive values is the trick, of course. I tend to think $25m base salary is a sweet spot for a few reasons, but I see some solid rationale for $22m in base salary, as using one scenario to set the salary in another scenario is not uncommon. I anticipate some interest in such a contract and base compensation in this neighborhood.

I’d make his Base Salary basically in that $22m – $25m range (and I’d go on the higher end for a few reasons), then split the and likely and unlikely incentives with triggers for “are you playing?” and “are you playing well and consistently?” respectively. I’d want triggers on games played at like 41 and 65 games, then some stuff about performance and minutes, minutes per game. You could pop in something for All-NBA or whatever. I wouldn’t make it hard for him to claim his max salary if he’s playing well. Not All-NBA well. Just well. You want to keep him happy and you want to keep sending the message that New Orleans is a good place for players to be. That does not need to be “special” to be the thing to do. In fact, if you are the only ones not doing it, that’s the real reason to do it: not to stand out.

Since the teams with cap room and looking for a max player may not be in the mix for a maximum free agent offer to DeMarcus, the effect of the sign-and-trade market on the negotiations should not be ignored, nor should the effect of Base Year Compensation on that deal.

I know there is a good deal of chatter out there, largely coming from the Pelicans, about how DeMarcus is not necessary or even not wanted. This is a good bit of damage control if they ever got a good deal for him or lost him to free agency. The best case is to sign him, keep him on the roster until his value is clear, see if he fits or not at that time, then look to move him if that’s the best way to improve the team. Why sell low, especially if your “chemistry” is sooooo special with the Playoff roster. You potentially delay the improvement, but any change is a risk to the “chemistry.” So, it’s all just spin, and writers who HAVE to leak what they are told (since their use is simply as a sock-puppet and that is the basis of their real utility) or they are so excited about some tidbit of “inside” info, it skews their analysis, keeping them from realizing that if someone is telling you something that benefits them, then there may be a reason other than “sharing truth” to say it, true or not.

Standing pat is a risk, just as messing with chemistry is. However, standing pat is not an option. Change is. Get over it, deal with it, manage it. You don’t get a guy like Boogie in, injury or no, and just write him off without trying. Special guys get special treatment, and Boogie is special. The sooner people just acknowledge that, the better off their analysis will be.

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