For Melo, free agency full of risks
The Carmelo Anthony trade watch drags on, causing "Melo fatigue" to set in with most of Western civilization. The only solace comes from the hope that this will all be over by next Thursday.
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If Anthony isn't traded before the Feb. 24 trade deadline and doesn't sign his $65 million extension, he could play the rest of the season in Denver, and we could see a whole new round of Melo Drama when the Nuggets' season ends.
One way that Melo can influence the outcome is to continue his threats not to sign the extension. If Denver believes he is willing to play out the season without signing the extension, invokes the early termination option in his contract and become a free agent in the offseason, they may feel as if they have to move him now. Ordinarily this is how unhappy players get their way. A "trade me or lose me" threat usually leaves the team with little choice but to cede to the player's demands.
But these aren't ordinary times. The looming termination of the league's collective bargaining agreement changes the playing field dramatically. If Anthony becomes a free agent, he will do so under the terms of the next agreement. This is a situation he should avoid, as the new agreement will likely tilt strongly in favor of the owners.
Anthony is savvy enough to recognize this, telling the Denver Post recently he would be "screwed" if he didn't sign the extension and instead became a free agent.
Indeed, becoming a free agent this offseason carries many risks. Anthony's reluctance makes sense when you consider the following factors:
1. Franchise tags
ESPN.com's Chad Ford has reported that there is a growing sentiment among owners to add "franchise player" tags, similar to those used in the NFL, to the next agreement. Franchise tags are a form of restricted free agency, allowing a team to potentially prevent a player from leaving on his own. They are tailor-made for situations like Anthony's, in which a player is considered too valuable to the franchise to risk losing.
But they are by no means a certainty in the next agreement. Not all owners are in favor of the concept, and if they do decide to negotiate for it they can expect stiff resistance from the players. If franchise tags make it into the next agreement, however, Anthony could find himself unable to leave the Nuggets on his own initiative. One of the strongest potential threats, "Trade me now or I walk this summer," would be nullified.
2. The salary cap
Armchair GMs are eyeballing the Knicks' cap situation, looking to make sure the team will have enough cap room to sign Anthony as a free agent. They also hope to acquire Anthony without losing Wilson Chandler, who will be a restricted free agent this summer. The problem with these projections is that they are meaningless -- they use rules that no longer will be in effect when Anthony and Chandler are free agents.
Nobody knows how the final agreement between the owners and players will look. The labor dispute boils down to player salaries, and the principal mechanism controlling salaries is the salary cap. Perhaps the new cap will be based on a different percentage of gross revenues (from the current 51 percent), or maybe the new formula switches from using gross revenues to net revenues. Whatever the final agreement, we can be pretty confident that the new cap will be more restrictive than the one currently in place.
According to NBA commissioner David Stern, player salaries were over $750 million too high last season, which translates to at least 32 percent. If the salary cap is lowered by that amount, the cap would decrease next season from its current $58 million to about $44 million. The Knicks are already committed to $44.2 million next season (including Ronny Turiaf's player option), and that's before factoring in Chandler or their first-round draft pick. While this may be a worst-case scenario, the cap almost certainly will go down in the new agreement -- the only question is how much. The lower it goes, the less money will be available to offer Anthony.
The bottom line is that we don't know where the cap will end up. Neither does Anthony. He apparently has his heart set on joining the Knicks, and he is aware that while he may be free to join them this summer, they may not have the cap room to make the kind of offer he wants.
3. A hard cap
The NBA utilizes a soft salary cap, which means teams cannot exceed the cap unless they are using one of several salary-cap exceptions. Take away those exceptions, and a hard cap -- one which there is no mechanism to exceed -- remains. The owners' original proposal included a hard cap, and they apparently haven't wavered on that stance. The two sides have yet to get down to serious horse trading, so we don't know yet whether a hard cap will survive into the final agreement.
But any hardening of the cap will have an impact on Anthony's marketability as a free agent; he could find himself an unrestricted free agent, but with no team to meet his price.
If he does manage to sign with the Knicks, his signing could have negative consequences for the team. A true hard cap would eliminate Bird rights -- which allow a team to exceed the cap to sign its own players -- perhaps forcing New York to choose between Anthony and Chandler. It might even lead them to say goodbye to Landry Fields next summer. It almost certainly would make it much more difficult for Knicks management to finish honing the team into a contender, since exceptions like the midlevel would be gone.
A hard cap -- or even a harder cap -- could mean Anthony would be joining a Knicks team that is stuck in mediocrity, with little or no ability to add the players who would make the team a title contender.
Under the current system, a team can re-sign its own free agent for the purpose of trading him to a new team. This is how much of the significant free-agent movement currently gets done -- for example, it's how LeBron James and Chris Bosh got to Miami this summer, and it's how Amare Stoudemire got to New York.
In many cases, a sign-and-trade is viewed as a win-win-win for the three parties. The player gets a larger contract, since he's signed using Bird rights. His previous team gets something in return for losing its prized free agent (rather than nothing). And, most importantly, a sign-and-trade provides an opportunity for capped-out teams to acquire free agents they otherwise couldn't afford. The player's new team just needs to send the assets necessary to complete the trade, which is often much easier than signing the player outright.
Sign-and-trade arrangements have facilitated a lot of high-profile free-agent movement, but those days could be coming to an end. Such a deal is one of the mechanisms that leads to inflated salaries. It's like a consumer using a credit line to make purchases he couldn't otherwise afford -- eventually it all adds up to trouble.
Even if the sign-and-trade rule does survive into the next agreement, there's no guarantee it will help Anthony. The sides could find themselves in the same standoff that currently prevails, with the Nuggets uninterested in the package of players being dangled by the Knicks. If there's no way for Anthony to join the Knicks at his preferred salary without the help of Nuggets GM Masai Ujiri, and Ujiri isn't inclined to help facilitate his exit, then Anthony once again finds himself without a clear path to joining the Knicks.
So we come back to a midseason trade being preferable to waiting for free agency, from Anthony's point of view. And if the Nuggets can't stomach the idea of Anthony walking away, this is also what they should push for, since teams typically get better returns in a midseason trade than they get from a sign-and-trade when the player is a free agent. It's conceivable that the Nuggets could get a better deal right now from a team like Houston that would be viewing him as a rental than they would in a sign-and-trade after the season.
5. Maximum salaries
If Anthony signs his extension (whether to remain a Nugget or to join another team in an extend-and-trade transaction), then he locks in his $18.5 million salary for 2011-12, and adds three additional seasons at $20.3 million, $22.1 million and $23.9 million, for a total of $84.8 million over four seasons. These salaries would be set (for the time being), since Anthony would be signing his extension under the purview of the current collective bargaining agreement. (See Section 6 below for a discussion of a potential rollback of player salaries.)
But if Anthony becomes a free agent this summer, his next contract will be under the terms of the new agreement. If the new agreement reduces maximum salaries, reduces raises, limits the number of years, or reduces the salary that can be guaranteed, his contract will be forced to conform to the new rules.
Under the current rules, if Anthony becomes a free agent this summer he can sign (assuming his team has enough cap room, or can work out a sign-and-trade with the Nuggets) for a hair over $18 million in 2011-12, and up to $80.6 million (signing directly) or $82.4 million (sign-and-trade) over the same four years. But the theme here remains the same -- we won't be operating under the same rules this summer.
Maximum salaries are likely to fall under attack as a means of reducing the players' share of the pie. One reason is practical, and strategic -- most players don't earn anywhere near maximum salary, so a proposal that gets everyone back to work without significantly hurting the lower and middle classes is more likely to be approved under the current "one player, one vote" system. If maximum salaries take a significant hit in the next agreement, Anthony could find himself with considerably less earning power -- even if his team of choice ends up with a lot of cap room.
Some suggest that some of Anthony's lost earning power could be recouped with a signing bonus. But the ability to structure contracts in this way is limited, and this also assumes that signing bonuses will survive unscathed in the next agreement. Besides, it's also possible to add signing bonuses to extensions, so we're back to a free-agent contract not providing any advantage over an extension.
Now to be fair, an extended Anthony would still be subject to the new maximum-salary rules in 2012, when his extension takes effect. But the fact remains that there will be more gotchas with a new contract than there will be with an extension of his existing contract.
And speaking of gotchas with extending his existing contract
6. Salary rollbacks
If salary rollbacks are implemented, changes made in the new collective bargaining agreement would apply to more than just new contracts. Some changes would also retroactively apply to existing contracts -- those signed under the current agreement. If this happens, no contract is safe. One line of reasoning suggests that since Anthony would lose money either way, he might as well become a free agent so he can at least go where he wants.
The flaw in this line of reasoning is failing to appreciate the risk in each alternative. We can be pretty sure the new agreement will add significant limitations to new contracts. And while owners will be pushing for rollbacks, they have to be considered much less of a certainty.
"It's part of our proposal," NBA deputy commissioner Adam Silver confirmed to CBSSports.com -- a proposal players union chief Billy Hunter previously dismissed as "a nonstarter." So there exists the possibility that salaries won't be rolled back at all, or through negotiation, that they are rolled back a relatively small amount.
The upshot is that Anthony faces a more certain loss of earning power as a free agent than by signing an extension, even when you factor in the possibility of rollbacks to existing contracts. And that's before factoring in other possible limits to raises, years and guarantees in new contracts.
Just about any way you slice it, Anthony is much better off financially extending his current contract than becoming a free agent this summer in search of a new one. He knows that this year isn't like any other year, and he's not the one with all the leverage. The threat to leave as a free agent -- a potent threat in other years -- just doesn't have the same teeth this year.
Anthony is better off taking the extension, whether it's to remain a Nugget or to be traded to another team. He needs to work with Ujiri to achieve the best possible outcome.