An interesting 3-team trade took place on the eve of the draft, sending George Hill to the Jazz, Jeff Teague to the Pacers, and the #12 pick to the Hawks. What makes the trade so particularly intriguing to me is the contract status of the players involved. In an article that I wrote last August, I identified Teague and Hill as two players likely to have their contracts renegotiated and extended under a seldom-utilized provision of the CBA. In relevant part, here’s what I wrote back then:
Particularly in the current environment of escalating annual salaries, standard veteran extensions [with 7.5% maximum raises] likely will be limited to players approaching the downside of their career, looking to stay in their current preferred location and to guard against injury concerns that could drive down the market for their services.
For younger veterans, this cap environment lends itself much more strongly to renegotiations, which should increase in frequency over the next couple years. Renegotiations pertain to increases in the final year or years of existing contracts. Like an extension, a renegotiation also is permitted only 3+ years after signing, and as a further limitation, a team can renegotiate a contract only to the extent of its available cap space [See CBA Article VII, Section 7(c): Renegotiations (pp. 164-66); Larry Coon FAQ #61]. With the cap expected to jump $15M+ in each of the next two summers, teams will have more cap space than players to spend it on, allowing them to renegotiate existing contracts as a means of securing extensions on terms that veteran players will have more incentive to accept.
For example, consider the Atlanta Hawks. Next summer, after accounting for cap holds, the Hawks should have $6M-$12M in cap space [based on cap projections at the time] that they could use to renegotiate and extend the contracts of any one or more of Jeff Teague, Kyle Korver, and Tiago Splitter. While Jeff Teague in particular would never agree to a standard extension based off of his 2016-17 salary ($8M) and maximum 7.5% raises, perhaps if his 2016-17 earnings increased by several million dollars a long-term extension could be reached. The Pacers should have even more cap space available next summer, and in the same manner, they could renegotiate George Hill’s $8M 2016-17 salary upward and agree upon an extension using that higher base figure.
As noted in the article, only a limited subset of contracts can be renegotiated. Article VII, Section 7 of the CBA deals with extensions and renegotiations, and it stipulates that in all cases the parties cannot renegotiate or extend a contract until at least 3 years have passed since the contract signing.
Therefore, only about 5% of all player contracts are currently eligible. Based on my review, here are all of the players entering their final contract year (excluding options) who by rule could have their contract renegotiated and extended:
Tony Allen
Jose Calderon
Steph Curry
Tyreke Evans
Taj Gibson
Blake Griffin
George Hill
Jrue Holiday
Serge Ibaka
Andre Iguodala
Ersan Ilyasova
Jarrett Jack
Kyle Korver
Carl Landry
Chris Paul
JJ Redick
Derrick Rose
Tiago Splitter
Jeff Teague
Russell Westbrook
Hill and Teague stood out last August both by virtue of being substantially underpaid relative to market value and because their teams figured to have cap space available, unlike the Thunder and Warriors, among others. Following the upward revision of the projected cap to $94M and the recent trade, Hill and Teague look like even stronger renegotiate-and-extend candidates today.
George Hill
The Jazz acquired George Hill to fill the one glaring hole on their roster: starting point guard. They now have their starting lineup set in stone (Hill, Rodney Hood, Gordon Hayward, Derrick Favors, and Rudy Gobert), plus a few primary bench players (Dante Exum, Alec Burks, and Trey Lyles) and other potential rotation, deep bench, or soon-to-be traded/waived players adding up to a full roster. Even with all that, their team payroll comes in a shade under $70 million, or approximately $25 million below the cap.
I expect the Jazz to look for a combo forward in free agency to come off the bench and play regular rotation minutes; beyond that there’s really nothing they need. Allocate $10 million for such a player and they still have $15 million available, likely plus either $3.4M if they give away Trey Burke or $2.4M if they decline to keep Shelvin Mack and his non-guaranteed contract.
By using a chunk of that available cap space to renegotiate Hill’s 2016-17 salary and extend him, the Jazz can retain Hill at a discount in future years when cap space is much more precious to them. With Gobert and Hayward set to become free agents next summer, followed by Favors, Hood, and Exum in 2018, the Jazz should seek out every last bit of future savings they can get.
So what does their optimal renegotiate-and-extend transaction look like? Well, under an even more obscure CBA provision, a player’s annual salary can decrease by 40% in his first extension year following a renegotiation. Here’s the provision, with the key language in bold type:
CBA Article VII, Section 7(d)(2): A Player Contract that is extended pursuant to Section 7(a) above may be renegotiated simultaneously, but only if and to the extent permitted by the rules set forth in Section 7(c) above. Notwithstanding anything to the contrary in this Agreement, if a Player Contract is extended pursuant to Section 7(a) above and renegotiated simultaneously, then the amount of the player’s Salary, excluding Incentive Compensation, in the first Salary Cap Year covered by the extended term may decrease by no more than forty percent (40%) of the player’s Regular Salary (as renegotiated) in the last Salary Cap Year covered by the original term. In the event that the last Salary Cap Year covered by the original term provides for Incentive Compensation, the amount of Likely Bonuses and Unlikely Bonuses in the first Salary Cap Year covered by the extended term may decrease by up to forty percent (40%) of the player’s Likely Bonuses and Unlikely Bonuses, respectively (as renegotiated), in the last Salary Cap Year covered by the original term.
Typically a contract with 1 year remaining can be extended for up to 3 additional seasons, with 7.5% maximum annual increases or decreases. Following a trade, however, the rules are more strict. Under Article VII, Section 8(f), for a period of 6 months following a trade, the maximum length of an extension is 1 year shorter than usual, i.e. only up to 2 additional seasons, with annual increases or decreases limited to 4.5% [based on Section 8(f)’s incorporation of the Section 8(e)(2) standard for an extend-and-trade (“no such Extension . . . may cover more than three (3) Seasons from the date the Extension is signed.”)].
Putting all of the relevant provisions together, here’s a chart showing contract values for maximally front-loaded, renegotiated and extended contracts following a trade.
| Renegotiation Year Salary | Extension Year 1 Minimum | Extension Year 2 Minimum | Total 3-Year Contract Value |
| $ 15,000,000 | $ 9,000,000 | $ 8,595,000 | $ 32,595,000 |
| $ 16,000,000 | $ 9,600,000 | $ 9,168,000 | $ 34,768,000 |
| $ 17,000,000 | $ 10,200,000 | $ 9,741,000 | $ 36,941,000 |
| $ 18,000,000 | $ 10,800,000 | $ 10,314,000 | $ 39,114,000 |
| $ 19,000,000 | $ 11,400,000 | $ 10,887,000 | $ 41,287,000 |
| $ 20,000,000 | $ 12,000,000 | $ 11,460,000 | $ 43,460,000 |
| $ 21,000,000 | $ 12,600,000 | $ 12,033,000 | $ 45,633,000 |
| $ 22,000,000 | $ 13,200,000 | $ 12,606,000 | $ 47,806,000 |
| $ 23,000,000 | $ 13,800,000 | $ 13,179,000 | $ 49,979,000 |
| $ 24,000,000 | $ 14,400,000 | $ 13,752,000 | $ 52,152,000 |
| $ 25,000,000 | $ 15,000,000 | $ 14,325,000 | $ 54,325,000 |
Let’s assume that George Hill and his agent project that he could sign a 2-year, $32 million contract next summer, doubling his current annual salary. [This is in line with my inflation estimates. I should have a post on the subject ready later this week]. Including his current $8 million salary, Hill would then expect to earn $40 million over the next 3 years.
At worst, Hill should be indifferent between that outcome and renegotiating his 2016-17 contract to $18 million with maximum decreases on a 2-year extension thereafter. The latter results in approximately $39 million over 3 years (already conveniently bolded above), with the bulk of it paid sooner than under the former option. Hill benefits from receiving the money more quickly and gaining the certainty of payment, while the Jazz would benefit from saving roughly $11 million compared to market value over years 2 and 3, when the money really matters to them for cap purposes.
This is the type of deal that I hope to see this summer, a clear win-win for the team and the player.
Jeff Teague
The situation with the Pacers and Teague is almost eerily similar. The Pacers also have a solid starting five under contract (Teague, Monta Ellis, Paul George, Thaddeus Young, and Myles Turner), plus a few primary bench players (Rodney Stuckey, CJ Miles, and Lavoy Allen) and other potential rotation, deep bench, or soon-to-be traded/waived players adding up to a nearly full roster. Their team payroll comes in a shade over $70 million, or approximately $22-$23 million below the cap.
The Pacers also have Bird rights on last year’s starting Center, Ian Mahinmi, whose cap hold is $7.6 million. Figuring that they’ll either re-sign Mahinmi [the Turner-Mahinmi frontcourt pairing is definitely workable; Turner played about 40% of his regular season minutes alongside Turner, and those lineups battled opponents to a draw] or spend an amount similar to his cap hold on another bench player, the Pacers also should have around $15 million left over.
Teague projects to earn more as a free agent next summer than George Hill, mostly because he’s two years younger but also because teams tend to pay a bit more for his skillset. Teague is a high-usage, penetrating distributor who scores with above-average efficiency, and teams like the Pacers will pay a premium for a guy like that, banking on a long, active wing defender [Paul George], a rim protector [Myles Turner and/or Ian Mahinmi], and a good scheme to make up for his shaky defense.
Teague, like Hill, was set to make $8 million this year, though with his 10% trade kicker that jumps up to $8.8 million [The Hawks are responsible for paying that $800,000 bonus]. Assuming Teague believes he could sign for $20 million a year for 2 years after the upcoming season, that’s $48.8 million over the next 3 years. Looking at that same chart, the Pacers could renegotiate Teague’s 2016-17 salary to $22 million to approximately meet Teague’s asking price, as shown below.
| Renegotiation Year Salary | Extension Year 1 Minimum | Extension Year 2 Minimum | Total 3-Year Contract Value |
| $ 15,000,000 | $ 9,000,000 | $ 8,595,000 | $ 32,595,000 |
| $ 16,000,000 | $ 9,600,000 | $ 9,168,000 | $ 34,768,000 |
| $ 17,000,000 | $ 10,200,000 | $ 9,741,000 | $ 36,941,000 |
| $ 18,000,000 | $ 10,800,000 | $ 10,314,000 | $ 39,114,000 |
| $ 19,000,000 | $ 11,400,000 | $ 10,887,000 | $ 41,287,000 |
| $ 20,000,000 | $ 12,000,000 | $ 11,460,000 | $ 43,460,000 |
| $ 21,000,000 | $ 12,600,000 | $ 12,033,000 | $ 45,633,000 |
| $ 22,000,000 | $ 13,200,000 | $ 12,606,000 | $ 47,806,000 |
| $ 23,000,000 | $ 13,800,000 | $ 13,179,000 | $ 49,979,000 |
| $ 24,000,000 | $ 14,400,000 | $ 13,752,000 | $ 52,152,000 |
| $ 25,000,000 | $ 15,000,000 | $ 14,325,000 | $ 54,325,000 |
Unlike the Jazz, however, the Pacers are not facing a cap crunch in subsequent years. All the other starters still will be under contract in 2017-18, and only Paul George should be in position to demand the max or even a near-max deal thereafter. So if Teague won’t go for that or if the Pacers want to spend a bit more in free agency this year, they could always agree to a smoother descending payout structure without any harsh consequences for the team.
Something like $19M/$14.8M/$14.2M would afford Teague his $48M over 3 years, on more useful terms for both parties than awarding $8 million this year and $20 million annually in each subsequent year. Of course, if the Pacers want to spend a bit more in free agency this summer, they could always do so and then pivot to offering Teague more conventional ascending or constant payouts.
As for the Hawks, I also really like the deal for them. They had to choose between Teague and Dennis Schroder as their point guard of the future, and by choosing now rather than in a year when expiring contracts forced their hand, they ended up with the #12 pick. And I approve of their draft selection.
Great review of all the pertinent issues involving the George Hill trade.
Like you, I think the Jazz should extend Hill’s contract before the October deadline. In the years to come, that contract will be viewed as a bargain. If he plays well, I anticipate he’ll be the starting point-guard for most, if not all, of the 2016-17 season — making Dante Exum the backup. However, whether it’s this season or next, I expect Dante to regain his starting position.
It’s going to be a great thing to see the Jazz finally have a solid pair of point-guards!