A Look at Lucas Nogueira's Options

Estudiantes has announced that Lucas Nogueira will return to practice after recovering from severe tendinitis over the past two months. Here's a bit of perspective on Lucas' options as he aims to finish this season in Spain. Right now, we know that he signed an agreement with the Hawks to release his caphold from our Team Salary calculation¹. This was reported by Mark Deeks:

So Atlanta cannot sign Lucas for this 2013-14 season. There is a little caveat² that allows the Hawks to sign Lucas starting on February 1 through June 30 to a contract for next year (2014-15). This is the starting point for negotiations between Lucas, ATL, and Estudiantes. I am sure all of these parties know about this and it is highly likely that they have already started negotiations in some form. Potentially, this could be Danny playing hard ball and not contacting Estudiantes as some sort of a power move on his part.

If the Hawks want to retain their draft rights to Lucas, they will need to give him a contract offer this offseason that is called a required tender. This required tender must conform to the described Rookie Scale Contracts for First Round Picks. There is a little leeway in this contract. For 2014-15, the 16th pick in the draft is subject to the rookie scale as follows:

• 1st year: $1,468,900 guaranteed
• 2nd year: $1,535,000 guaranteed
• 3rd year: $1,601,100 team option
• 4th year: $2,456,088 team option (defined as 53.4% raise over 3rd year)
• 5th year qualifying offer: $3,450,804 (defined as 40.5% raise over 4th year)
• Total Compensation: $7,061,088 (does not include QO)

I mentioned some leeway, this leeway is that the contract can be signed for between 80% and 120% of the Rookie Scale. This would leave us with what Lucas can expect as his Required Tender (i.e. the worst possible contract he can be offered, in red) as well as the upperbound for which Lucas can negotiate for (i.e. the best possible contract, in green).

• 1st year: $1,175,120 / $1,762,680 guaranteed
• 2nd year: $1,228,000 / $1,842,000 guaranteed
• 3rd year: $1,280,880 / $1,921,320 team option
• 4th year: $1,964,870 / $2,947,305 team option
• 5th year qualifying offer: $2,760,643 / $4,140,964 (reserves the Right of First Refusal)
• Total Compensation: $5,648,870 / $8,473,305 (does not include QO)

I listed above what his "best contract" was per the Rookie Scale, but since he is an International Player he can actually gain some more leverage with respect to his contract. The Hawks will be afforded an International Player Payment of $600,000 in the 2014-15 Season that they can chip in towards Lucas' buy-out that will not count against the Cap or Lucas' contact¹. This essentially raises Lucas' compensation by $600,000 since he must negotiate a buy-out with Estudiantes in order to sign with an NBA team.

What is the most that the Hawks can chip in to a buy-out with Estudiantes if Lucas is to come over next year? Well, there is first the $600,000 from the International Player Amount but also the Hawks can give Lucas a "signing bonus" that acts as a buy-out. The signing bonus is paid upfront and would then be transferred to Estudiantes. This signing bonus needs to conform to three things:

1. Must not be greater than 15% of Total Compensation (defined as money that could be earned in a contract, so option years count)
2. Must not leave Lucas with a salary less than his minimum salary (i.e. 80% of Rookie Scale)
3. Is spread evenly across his guaranteed years (first and second) of his contract for Cap purposes

This implies that the first year of his contract, Lucas can be paid $1,175,120 in base salary his first year (his minimum salary), his signing bonus can be for $1,175,120 (split evenly implies $587,560 of caphit in the first/second season, also $1,175,120 is < $1,270,996 = 0.15*$8,473,305), which allows for a Caphit in Lucas' first year of his contract to be for $1,762,680 (his maximum salary). Continuing with the best possible contract, Lucas' base salary in the second year would be ($1,842,000 - $587,560 =) $1,254,440. Then his third and fourth seasons would be for the outlined best possible contract above. In whole, the Hawks can chip in ($600,000 + $1,175,120 =) $1,775,120 towards the buy-out of Lucas' contract. That leads to a Total Compensation of $8,473,305. However, this does not imply that Estudiantes can only be paid this amount for a buy-out as this is just from the Hawks perspective. Estudiantes could demand a higher buy-out than this amount which would imply that Lucas needs to cover the rest of the buy-out with his own funds. This could be from savings, he could take out a loan, his agent could take out a loan, whatever. Estudiantes also has leverage in this scenario where they can extract money from Lucas. So Lucas has to worry about the bargaining power of both the Hawks and Estudiantes.

Now with the worst possible contract, the Hawks are unlikely to offer any kind of signing bonus that could be used towards a buy-out for Lucas since that money would be paid upfront and money today is worth more than the equivalent money tomorrow. In this case, Lucas is responsible for his buy-out of the Estudiantes contract (last year it was reported to be $1 million). What does this mean? Well, Lucas needs to have some money saved up in order to guarantee he will play for the Hawks. By not playing for 10 weeks, Lucas is lost wages and his likelihood of being able to afford a buy-out of his Estudiantes deal goes down. It also became less likely that the Hawks will chip in more in a rookie contract because a player who is injured/out-of-shape is not as valuable of a player.

Whew. That is a lot of info. Suffice to say, unless you are really really interested in the Hawks and their cap management, the only thing Hawks fans should worry about is Lucas being healthy. For Lucas' well-being he also needs to be concerned about his health as that is also tied to his bargaining power between both the Hawks and Estudiantes. As was reported last offseason, we already saw that Lucas is stuck in-between the two parties:

The Hawks could have chipped in a lot more than the reported $525,000. Hell, the Hawks' International Player Payment amount could have been for $575,000 and they clearly did not do that. This is not looking good for Lucas' checkbook, but at least he is getting back to playing basketball and making money.

^{1. A Team that holds draft rights to a First Round Pick may elect to have the player’s applicable Rookie Scale Amount excluded from its Team Salary at any time prior to the first day of any Regular Season by providing the NBA with a written statement that the Team will not sign the player during that Salary Cap Year accompanied by a written statement from the First Round Pick renouncing his right to accept any outstanding Required Tender made to him by the Team. After making such an election, (i) the Team shall be prohibited from signing the player during that Salary Cap Year, except in accordance with Section 5(e)(4)(ii) below, (ii) the Team shall continue to possess such rights with respect to the player that the Team possessed pursuant to Article X immediately prior to such election, and (iii) the player’s applicable Rookie Scale Amount shall be included again in his Team’s Team Salary at the applicable Rookie Scale Amount on the following July 1. When a First Round Pick provides a Team with a written statement renouncing his right to accept that year’s outstanding Required Tender, the Player shall no longer be permitted to accept it. (Article VII Section 4.e.3)↩}

^{2. From February 1 through June 30 of any Salary Cap Year, a First Round Pick may enter into a Rookie Scale Contract commencing with the following Season, provided that as of or at any point following the first day of the then-current Regular Season (or the preceding Regular Season in the case of a Contract signed from the day following the last day of the Regular Season through June 30) the player was a party to a player contract with a professional basketball team not in the NBA covering such Regular Season. (Article VII Section 5.e.4.ii)↩}

^{3. This International Player Payment Amount is for each player, so the Hawks could use this with a hypothetical 2014 Draft Pick to sign in the 2014-15 offseason and Lucas. Each player is afforded the $600,000, not an amount of $600,000 that the Hawks would need to split between players.↩}

More from Peachtree Hoops

Follow @peachtreehoops Follow @SBNationNBA

• The Hawks' Franchise Mount Rushmore
• The Hawks' All-Star Break Plans
• Lucas Nogueira Returning to Estudiantes Next Week
• Hawks fail to end losing skid in Toronto
• Draft Profile 2014: Mock Draft Target Clint Capela