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A closer look at Paul Millsap's free agency options

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A look into what we can expect to surround Paul Millsap's decision this upcoming Free Agency period.

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Paul Millsap had an incredible 2014--2015 season. He earned an All-Star Appearance, averaged 16.7 ppg, 7.8 rpg, 1.8 spg, 3.1 apg, and more importantly helped lead the Hawks to the Eastern Conference Finals. That is a mighty fine season that merits a substantial pay raise from his $9,500,000 salary this past season. That said, we shall take a look at the channels that Paul Millsap, or more accurately his agent, can pursue in receiving a raise as well as how this impacts the Atlanta Hawks.

As a bit of a primer for this article, I remind everyone that Paul has an interesting twist to his free agency status this off-season. Because Paul has played in Atlanta for two seasons, he has the status of an Early Bird Free Agent. From this, we know that Paul carries a cap hit of $12,350,000 this off-season. Further, the Early Bird Exception affords Atlanta the ability to offer Paul a contract with a starting salary of up to $16,625,000 (175% of his previous salary), that must be for at least 2 years (no option years in first two), can be up to 4 years in length, and can contain yearly raises of up to 7.5% of his starting salary. His hypothetical maximum contract using the Early Bird Exception would look as follows:

Season Salary
2015--2016 $16,625,000
2016--2017 $17,871,875
2017--2018 $19,118,750
2018--2019 $20,365,625
Total: $73,981,250

Any contract for Paul which starts above $16,625,000 would require a team to use cap space in acquiring Paul. This serves as a good starting point to address all of the options for Paul.

Retaining Paul Millsap in Atlanta

If Paul Millsap plans to re-sign in Atlanta, it will have to be through the Early Bird Exception or cap space. It turns out that the agreed upon starting salary for Paul will dictate a best course of action for the Atlanta Hawks to maximize their cap space. Paul has every incentive to be complicit with the Hawks maximizing their cap space as that would improve the team that he has, potentially, agreed to remain with. There are three different ranges for Paul's starting salary that would dictate how the Hawks will sign Paul and how this affects the rest of the Hawks off-season:

  1. Less than $12,350,000: While extremely unlikely, if Paul signs a deal at this range then the route the Hawks should take is to immediately sign Paul using their cap space in order to increase their cap space for the off-season. The reason for this is because of Paul's cap hold of $12,350,000. The cap hold remains on the Hawks' cap sheet until they either renounce Paul or Paul signs a new contract. If the starting salary is less than the cap hold, then it becomes clear that the result is an increase in available cap space to the Hawks.
  2. Between $12,350,000 and $16,6250,000: Under this scenario, both Atlanta and Paul are better of holding off on officially signing a contract with this starting salary until after Atlanta has used up the entirety of their cap space.
  3. Above $16,6250,000: If Paul commands a starting salary above this amount, the only way would be through cap space. So timing only matters in relation to the Hawks clearing the necessary cap space.

I am not in a position to give Paul financial advice or predict the future, but if he is willing to roll the dice he may be able to take a lower salary on a one-year deal with the chance of cashing in big on a full max deal in the 2016 off-season. In order for Paul to gain Full Bird Rights, he needs to have played with the Hawks for three consecutive years without being waived. A one-year contract for the 2015-2016 Season would give him Full Bird Rights. This scenario is addressed at the end because it is not likely in my opinion. However, here are a few other options that Paul has.

Paul Signs Elsewhere

For all other teams not named Atlanta, Paul will undoubtedly need to be signed via cap space. The largest exception available to sign free agents is the Non-Taxpayer Mid-Level Exception, which is valued at $5.464 million in the 2015--2016 Season. That will simply not be enough to sign Paul.

In the event that Paul signs via cap space, he is limited to a deal with a predicted starting salary up to $18.6million (we won't know for sure until the beginning of July), for 4 years, with yearly raises up to 4.5% of his starting salary:

Season Salary
2015--2016 $18,634,336
2016--2017 $19,472,881
2017--2018 $20,311,426
2018--2019 $21,149,971
Total: $79,568,614

Under this scenario, Paul could potentially earn $5.6 million more by pursuing a Max contract as opposed to what his Early Bird Rights would afford him. Is this potential benefit worth more to Paul than the continuity of playing in Atlanta? I am not sure, but at least we know what is at stake.

Sign-and-Trade of Paul

The current CBA is not friendly to sign-and-trade transactions. Whether this was an overreaction to the Lebron and Bosh sign-and-trade transactions of the 2010 off-season or not is out of the scope of this article. Rather, there is a possibility that Paul could pursue a sign-and-trade with a team over the cap that might benefit the Hawks.

For a sign-and-trade of Paul, the Hawks need to ensure that his contract is for at least 3 years and is limited to 4.5% raises. This does not rule out the possibility of using Early Bird Rights in a sign-and-trade of Paul, but it does mean that the maximum raises are limited for Paul. Further, the team receiving Paul would be hard-capped for the 2015--16 Season and would be unable to exceed the Apron1.

The amount of salary that the Hawks could receive in a sign-and trade is a bit confusing. If the Hawks have enough cap space to absorb any contract in a sign-and-trade transaction for Paul, then they need not worry as no strange rules apply. However, if the Hawks receive salary in return and sign Paul via Early Bird Rights, then Paul's starting salary could complicate the transaction. Any starting salary for Paul that is above $11,400,000 changes the amount of salary that the Hawks can receive. Typically, the Hawks would be able to receive 150% of outgoing salary plus $100,000 if they remain below the Luxury Tax (it is 125% + $100,000 if the trade leaves them above the Luxury Tax). However, if Paul receives a raise of over 20% and is signed with Bird or Early Bird Rights then only 50% his Salary counts as outgoing for the Hawks while 100% of his Salary counts for the team receiving him. This is what was previously known as being a Base Year Compensation (BYC) player.

The BYC status of Paul could throw a wrench into potential sign-and-trades since Paul would undoubtedly sign for more than $11,400,000 in this scenario. However, because Paul's cap hold is for $12,350,000, it likely will not matter unless the Hawks are trading away Paul as well as other assets. This is because Paul's cap hold is necessary to sign Paul to a contract with Early Bird Rights. Signing Paul to his max from Early Bird Rights would be for $16,625,000 and half of this is $8,312,500. This amount fits within the cap hold and thus if a sign-and-trade occurs, the Hawks would be able to absorb salary up to $12,350,000 in cap space, which his max fits under. The Hawks would need to send away Paul with more than $4,037,500 in salary for this to potentially become an issue.

Atlanta and Paul Get Creative

Suppose Paul and his agent try to hold out for a big payday in 2016--17. If he decides on this route, the Hawks can get creative. They can renounce his Early Bird Rights but hold onto his Non-Bird Rights.

If Paul is a Non-Bird Free Agent as opposed to an Early Bird Free Agent, then his cap hold is reduced to $11,400,000 (120% of his previous salary). This would free up $950,000 in cap space while still allowing the Hawks to sign Paul using Non-Bird Rights. These rights would allow the Hawks to sign Paul to a deal starting at up to $11,400,000 with 4.5% raises and can be for 1 to 4 years. Presumably, Paul would sign to a 2 year deal starting at $11,400,000 with the second year as a Player Option of $11,913,000. Technically, the NBA would view this as a 1-year contract with the option to extend the contract for another year belonging to the player. Because Paul would have Bird Rights after a one-year contract, he is afforded the ability to veto any trade. So this type of contract could be attractive to Paul.

While the Early Bird Rights would allow Paul to have a larger contract, signing with the Early Bird Exception means that the contract must be for at least 2 seasons. So no player option can be given until the 3rd year.

The benefit to this situation would be that Paul could go onto the market again in the 2016--17 offseason. At that time, the Salary Cap will rise by a predicted $85 million and Paul will gain another year of experience. With 10+ years of experience, Paul is entitled to a larger maximum salary. The current prediction for a max contract in 2016--17 for Paul is $27,770,204. I am not here to say that Paul will command a salary that high, but that is what his maximum would be. To give you a hypothetical for what Paul may be giving up, I've attached my prediction for what Paul could earn under this gamble:

Season Early Bird Max 1- Year then Bird Max Difference
2015--2016 $16,625,000 $12,350,000 -$4,275,000
2016--2017 $17,871,875 $27,770,204 $9,898,329
2017--2018 $19,118,750 $29,852,970 $10,734,220
2018--2019 $20,365,625 $31,935,735 $11,570,110
2019--2020 --- $34,018,500 ---
2020--2021 --- $36,101,266 ---
Total: $73,981,250 $172,028,675 $27,927,659

While this is a creative option, it is not very practical. The savings to the Hawks for this offseason is minimal and the risk for Paul is great. Still, for how improbable of a scenario this is it is still possible and does confer some benefits to both sides. I doubt either side is looking into this strategy and even if Paul goes this route, I could not see Paul being offered his full Bird Max in the following season. But you never know, and it's helpful to see these values.

Remarks

In terms of predicting what will happen to Paul, the best course of action is to consider what you believe his starting salary will be at. Once you determine this, it becomes a process of deciding whether or not you think the Hawks would be willing to offer said amount, and then consider the best route through timing.

While it is possible to sign-and-trade Paul, the options here are limited. One case that makes sense for a sign-and-trade is if there is a team over the cap who wants Paul and is willing to offer the Hawks desirable contracts. Undoubtedly, a sign-and-trade would involve signing Paul with his Early Bird Rights (at $16,625,000). This would further imply that the team acquiring Paul would need to send away at least $11,016,667 in salary in order to acquire Paul. Would the Hawks be willing to take back this much? Or find a third team to take this amount on? It is possible, but then you must consider what team that is over the cap would have ~$11m in good contracts they are willing to surrender for Paul Millsap. This becomes a difficult exercise in finding such team and contracts.

It seems highly likely that Paul will command a max contract from someone. So it becomes a question of whether or not the Hawks think he is worth at least $16,625,000? If so, then they will pursue resigning Paul whether it is through Early Bird (with a potential discount form Paul) or if they need to use their cap space. It will be interesting to see how this unfolds.


1. The Apron is defined as $4 million more than the Luxury Tax for a given year.