Rookie contracts help small market teams

Over the last few weeks, several young NBA stars, including Kenneth Faried, Ricky Rubio and Klay Thompson, were all signed to large contract extensions with their current teams. Oct. 31 is the deadline to re-sign fourth-year players before they hit restricted free agency next summer. Under the current rules, players drafted in the first round sign four-year contracts where the team that drafts them has the option to resign the player for the third and fourth season, which teams almost always do since rookie contracts are relatively inexpensive compared to veterans. Teams are able to sign their rookies to long-term extensions after a rookie’s third year with the team between July 1 and Oct. 31.

If a rookie performs well in his first few seasons then it is highly likely that his current team will sign him to a long-term extension. When a player is signed for the fourth and final year of their rookie deal they can choose to either sign a long-term extension with their current team, accept an offer from a different team or take a one-year qualifying offer with their current team. Now here is where it gets complicated: If a player signs a qualifying offer with their current team, they enter the next summer as an unrestricted free agent.

If a team decides not to exercise the qualifying offer and simply lets the contract expire after the player’s fourth year in the league, then he will enter the next summer as a restricted free agent. The difference between a restricted and an unrestricted free agent is that when a player who is restricted receives an offer from another team, their current team has the option to match that offer and if they do the player must re-sign with their current team. An unrestricted free agent can sign a contract with any team and has no obligation to remain with their current team.

Players generally choose to re-sign as soon as possible with their current team because it provides them with financial security if they suffer an injury or start to perform poorly on the court. Teams can sign early extensions with their players for up to four years, and they also have the option to sign one of their players for five years if they label him as the designated player.

Knowledge of NBA contract regulations helps to understand some of the moves that teams made (or did not make) over the last few weeks. The most notable contract extension recently came just before the Halloween deadline when the Golden State Warriors signed guard Thompson to a four-year $69 million deal. With the rise of data analytics and advanced metrics in the NBA, coaches have noticed that three-point scoring is the most efficient means of offense. Unfortunately, many of the league’s best three-point shooters are not great two-way players, so their teams suffer on defense when they are on the court.

Over his first three years in the league, Thompson has demonstrated his ability to be both a prolific three-point shooter as well as a solid defender. He and fellow star guard and three-point shooter Stephen Curry combine to form the Warriors’ “splash brothers.” While both players are known for their offensive abilities, Thompson is able to make up for Curry’s defensive weaknesses. The Warriors made the right move by resigning Thompson since if he had chose to sign a one-year qualifying offer and become a free-agent two years from now, another team could have offered him a five-year max contract and Thompson would have had no incentive to remain with the Warriors.

The Minnesota Timberwolves recently signed twenty-four-year-old point guard Rubio to a four-year $55 million extension. Signing Rubio to this deal was virtually a must for Minnesota since they are unlikely to sign any other big-name free agents in the coming seasons. The issue for small-market teams is that it is extremely difficult for them to attract star free agents who would rather play in Los Angeles, New York or in a Florida or Texas city since those states have no income tax. For the teams in small, less attractive markets, the draft is the only viable option to acquire star players.

Three years ago when it was time for Minnesota to offer Kevin Love a contract extension, the team refused to offer him a five-year max contract and to label him as their designated player since they were waiting to use that option on Rubio. A disappointed Kevin Love ultimately agreed to four-year extension where Love had the right to exercise a player option if he was not satisfied with the direction of the Timberwolves. This past May, Love made it clear to Minnesota that he did not plan on picking up his player option after the 2014-2015 season and that he would then enter free agency. That decision on Love’s part led to Minnesota deciding to trade him to the Cleveland Cavaliers this past August for the 2013 first overall draft pick Anthony Bennett and this past year’s first pick Andrew Wiggins.

Minnesota chose to play it smart with contract extensions this time around, and managed to sign Rubio to a four-year sub maximum contract. This move will give the Timberwolves more financial flexibility over the next few seasons, and it also gives them the option to label Andrew Wiggins as the team’s designated player and sign him to a five-year max contract extension if his performance lives up to the hype surrounding him before the draft. After losing Kevin Love, Minnesota is banking on the trio of Anthony Bennett, Rubio and Wiggins turning into the NBA’s next big three.

It will be interesting to see what happens next summer to the young stars who did not end up signing extensions before the deadline including the Bulls’ Jimmy Butler, the Thunder’s Reggie Jackson and the 2014 finals MVP Kawhi Leonard.

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