On Lucas Nogueira's Buyout and the Draft-and-Stash Strategy

Peachtree Hoops has learned more about Lucas Nogueira's current buy-out, so we delve further into how this buy-out can be handled as well as the idea of draft-and-stash.

Lucas Nogueira's season has been over for about a month now and he is gearing up for the 2014-15 season, whether it is with the Hawks or in Europe. A recent article from Javier Maestro of encestando.es is reporting that Lucas' buyout for this season is €600,000, which is approximately $800,000 to $825,000 depending on the exchange rate for the day:

This summer the low to 600,000 euros clause and is much easier to pay, so it appears that the collegiate power forward was dismissed from the Spanish league. Hawks coach and general manager were seeing him live a few weeks ago in the last two league matches against Barcelona and Gipuzkoa Basket. If not, it manages deals march in Europe and is therefore very probable.

(Translated using Google Translate, original article here)

It is tempting to think that the Hawks can simply dictate to Lucas that he will stay in Europe, if they so choose, but this is not the literal option. For Lucas, the draft-and-stash is completely dependent upon the salary he is willing to take. We have already talked about the possibility of Lucas coming over as well as his contract options. As a bit of a refresher, one needs to recognize that the Hawks are required to offer Lucas a contract in order to retain their exclusive negotiating rights with him. Using some critical thinking, the Hawks' worst (or best, depending on your perspective) possible contract they can offer Lucas is one that is for 80% of his Rookie Scale:

  • 1st year: $1,175,120 guaranteed
  • 2nd year: $1,228,000 guaranteed
  • 3rd year: $1,280,880 team option
  • 4th year: $1,964,870 team option
  • 5th year qualifying offer: $2,760,643 (reserves the Right of First Refusal)
  • Total Compensation: $5,648,870 (does not include QO)

Lucas will have this contract offered to him this offseason, and if he so chooses to fund his own buyout with Estudiantes, he can play for the Hawks in the 2014-15 NBA Season. It is not my place to dictate Lucas' finances and whether or not this is a good idea for him, but the option is available. However, we do know that Lucas was willing to provide at least $475,000 in a buyout last year:

If Lucas really wants to come over and pay his own buy-out, then Danny Ferry may have his hands tied. I doubt Danny would be too upset by getting a #16 pick for 80% of the Rookie Scale, but the main point still stands. Danny Ferry cannot force Lucas to stay in Europe unless Danny is OK with losing the rights to Lucas.

Draft-and-Stash as a Strategy

The entire strategy for draft-and-stash in the First Round is dependent upon the player drafted being willing to stay overseas. All First Round Draft Picks maintain a Cap Hold unless the Team renounces the player, signs the player to a contract (which will replace the Cap Hold), or if both the Team and Player agree in writing that the Team will not sign the player until at least the following season. In fact, the Hawks did this last season with Lucas. However, the paperwork was filed late enough in the offseason so that the Hawks did not realize the extra Cap Space during the peak free agency period.

For draft-and-stash in the Second Round, this is a much simpler process. For one, Second Round Draft Picks are not bound to a special set of contract requirements (i.e. the Rookie Scale). Further, Second Round Draft Picks do not carry a Cap Hold. But to complicate things slightly, Teams do need to tender a required offer to their Second Round Draft Picks in order to retain their rights. This required tender does not need to have any guaranteed salary which allows the Team a great deal of leverage in being able to draft-and-stash.

Drafting International Players with Buy-Outs

In the event that the Hawks so choose to draft an international player with a buy-out clause, the Hawks are afforded an Excluded International Player Payment Amount of $600,000 that is not counted towards their Team Salary. This is for each player, so the Hawks can pay up to this amount for Lucas and also draft another international player and have another $600,000 available. While these amounts are excluded from Team Salary, they are real costs for the Hawks and so they must evaluate whether or not spending this much money is worth it to the team.

A common misconception is that this is the most that the Hawks can commit to a buy-out, but this is not correct. The Hawks can essentially offer a signing bonus that acts as a buy-out for each international player. This signing bonus is constrained by the rules governing contracts, so the signing bonus must be for less than 15% of Total Compensation. With 2nd round draft picks, this will essentially depend on the Cap Space or exceptions available to the team. This is slightly more complicated with First Round Draft Picks because they are constrained by the Rookie Scale.

You can check this article for the math, but long story short is that the Hawks can pay up to $1,775,120 towards the buy-out of Lucas' contract. For our fictional #15 Draft Pick, the Hawks can provide up to $1,836,880 towards their buy-out. While these are the amounts that the Hawks can pay up to, it should be noted that these buy-outs will eat away at the current contract for an international player. And if they are paid less, these international players may not want to accept a buy-out at this time.

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