Good article about the possible repercussions of resigning Lin.
http://www.forbes.com/sites/allenstjohn/2012/07/04/houston-rockets-make-play-for-jeremy-lin-with-50-million-poison-pill-free-agent-contract/
What seemed like a fait accompli–that free agent point guard Jeremy Lin would return to the New York Knicks–is now anything but, in the wake of a “poison pill” contract offer by the Houston Rockets. Lin was in Houston to visit with his former team on Wednesday, which was, according to a report in the New York Post, prepared to offer him a four-year deal of around $30 million.
The first two years of the contract would pay Lin a modest $5.o million and $5.2 million, respectively. But Rockets GM Daryl Morey, who has an MBA from MIT’s Sloan business school, structured Lin’s deal so that the guard’s salary in the third and fourth years of the deal could reach as much as $10 million annually, which could cost the Knicks as much as $35 million in luxury tax payments.
Since Lin is a restricted free agent, Knicks have the option to match the Rockets’ offer, but given the long-term salaries already committed to players like Carmelo Anthony, Amare Stoudemire, and Tyson Chandler, re-signing Lin would complicate their salary cap situation immensely.
If Lin signs Houston’s deal, or a similar contract from another team, New York faces the difficult decision of either losing one of its most promising and popular players, or severely restricting the team’s ability to add talent over the duration of the four-year deal. Further complicating matters is the fact that while Lin has played at an All-Star level–see below–he has played only 35 games total, so the small sample makes it unclear just how good he really is.
More importantly, the back-loaded contract seems destined to force the Knicks to pay the league’s highly punitive luxury tax. The Knicks GM Glen Grunwald has repeatedly said that he will match any offer for Lin, but owner James Dolan will make a final decision about a deal with this kind of bottom-line implications. Grunwald likely could have secured Lin with an offer of $23 million for four years, but the GM decided to let Lin test the market.
Under the terms of the NBA’s new Collective Bargaining Agreement, teams that exceed the cap next season pay the same straight “dollar for dollar” tax rate. But starting in 2013-14, after the Lin deal takes effect, the luxury tax incorporates a significant escalator effect, as explained in Larry Coons’ excellent CBA FAQ.
Under a “best case” scenario, the Knicks would manage to stay $5 million under the salary cap, and the Lin deal would put them $5 million over the cap. In that case, the Knicks would pay the league an additional $8.75 million annually in luxury tax, above and beyond Lin’s salary. Over two years that’s a total of $17.5 million.
If the total $10 million dollar value of the contract is over the luxury tax threshold, and the Knicks have to pay at the higher “repeater” rate, the Lin deal could cost them as much as $17.5 million annually or a total of $35 million in luxury tax. That’s in addition to the $20 million or so in salary they’d pay Lin during those seasons.
The Rockets are under the salary cap and likely to remain so, while any other suitors for Lin would be able to shed enough salary over the next two years to avoid the luxury tax. The Knicks, who have around $60 million committed to just those three stars–Anthony, Stoudemire, and Chandler–during the third and fourth years of Lin’s contracts, seem to have have little hope of avoiding a major luxury tax hit if they match Houston’s offer for Lin. Houston had signed Lin, who had been a little used reserve with the Warriors, earlier this year, but waived him which allowed the Knicks to pick him up.
Note that Lin hasn’t signed Houston’s offer sheet yet, which means that another team–the Mavericks, Raptors or Lakers come to mind–could make Lin an offer with an even more poisonous poison pill, upping the last two years of the contract to as much as $15 million annually.
The Lin offer adds to the Knicks already significant backcourt troubles. Earlier this week, the Toronto Raptors signed guard Landry Fields to a similarly back-loaded three-year $19 million offer sheet. The Knicks had planned to use Fields as part of a sign-and-trade deal to acquire free agent point guard Steve Nash to mentor Lin, but the signing makes a deal for Nash more difficult, and the Knicks have said they won’t match Fields’ offer, allowing him to head to Toronto. Dallas had been a major suitor for Deron Williams who re-signed with the Nets, and both Nash and Lin have become attractive back-up plans for owner Mark Cuban.
EDIT: An earlier version of the story talked about the possibility of Steve Nash becoming a Knick. After the story was first published, Nash agreed to a three-year deal with the Lakers as part of a sign-and-trade. The Suns will receive four draft picks and $3 million in cash, while Nash signs a $27 million contract to play with Kobe Bryant and Andrew Bynum on a team that’s suddenly a title contender again. Lin’s potential offer sheet had little impact on New York’s inability to pull off a deal with Phoenix. The Nash deal makes is far less likely that Lakers would pursue Lin.
7/4/2012 10:48 PM
