How an Al Horford max contract would look like for the Atlanta Hawks

As the trade deadline has come and gone, we can now devote some time to looking at the next 5 months that will shed light on the Atlanta Hawks current 5-year plan. The main focal point is the mutual decision between Al Horford and the Atlanta Hawks. Does Al want to remain in Atlanta? He has said he does. Do the Atlanta Hawks want to retain Al? Bud and Wes Wilcox have said as much. If those are to be accepted as their true intentions, then all that is left to be determined is at what price?

Let's dig in.

The Cap Sheet

Now that Atlanta has swapped Shelvin Mack and Justin Holiday for Kirk Hinrich, the Team Salary heading into this off-season has slightly changed from before. The number of guaranteed contracts for 2016-17 is reduced from 10 to 9 and the Total Salaries have declined from $61,574,253 to $58,125,223 and could drop to as low as $52,901,557 if Atlanta decides to waive Mike Scott, Mike Muscala, and Lamar Patterson. As a bit of an assumption, I have Atlanta slotted to select at No. 22 in the 2016 NBA Draft although this is subject to change and Cap Space numbers would need to be slightly adjusted.

Player	2015--2016	2016--2017	2017--2018	Total
Paul Millsap	$18,671,659	$20,072,033	$21,472,407PO	$60,216,099
Al Horford	$12,000,000	$18,000,000	---	$12,000,000
Tiago Splitter	$8,800,000	$8,550,000	$12,825,000	$17,350,000
Jeff Teague	$8,000,000	$8,000,000	$12,000,000	$16,000,000
Kyle Korver	$5,746,479	$5,239,437	$9,954,931	$10,985,916
Thabo Sefolosha	$4,000,000	$3,850,000	$7,315,000	$7,850,000
Mike Scott	$3,333,333	$3,333,334NG	$6,333,335	$6,666,667
Kirk Hinrich	$2,996,008	$5,692,416	---	$2,996,008
Kent Bazemore	$2,000,000	$2,600,000	---	$2,000,000
Dennis Schröder	$1,763,400	$2,708,582	$6,771,455	$4,471,982
Tim Hardaway Jr.	$1,304,520	$2,281,605	$5,704,013	$3,586,125
Walter Tavares	$1,000,000	$1,000,000	$1,014,746NG	$3,014,746
Mike Muscala	$947,276	$1,015,696TO, NG	$1,014,746	$1,962,972
Lamar Patterson	$525,093	$874,636NG	$1,014,746	$1,399,729
Terran Peteway	$75,000	---	---	$75,000
2016 NBA Draft (#22)	---	$1,199,900	$1,253,800	$2,453,700
Total (only guaranteed)	$71,162,768	$52,901,557	$1,253,800	$125,318,125
Total	$71,162,768	$58,125,223	$23,740,953	$153,028,944
Total + FA cap holds	$71,162,768	$84,417,639	$86,674,179	---
Exceptions	$947,276	$8,778,276	$8,066,000	---
Notes: Red denotes cap hold; PO-Player Option; TO-Team Option; NG-Nonguaranteed. Although Terran is not on the roster, he had $75,000 guaranteed on his contract for 2015--16. Exceptions that carry cap holds are in the last row. The Holiday trade exception expires 2/18/2017. The 2016+ exceptions are Non-Taxpayer MLE and Bi-Annual Exception.

(Contract data from BasketballInsiders.com)

The above salaries are a certainty and the cap holds are mostly certain as well¹. What is uncertain is the Salary Cap for next season, which would determine the amount of cap space that Atlanta has to work with as well as Al's maximum salary. The official estimates per the NBA is a Salary Cap of $89 million and Luxury Tax of $108 million, which would imply Al's maximum salary to start at $25.01 million. I have detailed Salary Cap projections, which can reasonably start around $86 million and Zach Lowe reports that there are some NBA teams that are operating under the assumption of a $92 million Salary Cap. As the Salary Cap is partially determined by Basketball Related Income (BRI), I find the latter value to be bullish and should be seen as an upper limit to the upcoming Salary Cap.

But under a realistic scenario that Atlanta renounces their rights to Kirk Hinrich but do keep everyone else (leaving $78,725,223), then Atlanta could have between $7.3 million and $13.3 million in cap space. With the running assumption of an $89 million Salary Cap, this would imply $10.3 million so let's run with that.

The Max Conundrum

I dislike what appears to be the established connotation of a Max contract because it implies a certain value. This is not the case and do not get me started on whenever someone mentions a supermax contract. Max is a player and team dependent term. The player dependence determines their maximum starting salary based upon their years of experience as well as a few other frivolous circumstances². Roughly speaking, a player with 0 to 6 years of service can have a starting salary of approximately 25% of the Salary Cap. For players with 7 to 9 years of service, the starting salary is about 30% of the Salary Cap. And for players with more than 10 years of service, it is 35%. By example, the starting Max for Dwight (35%), Al (30%), and Kent (25%) are all different.

The team dependence of a Max contract is based upon how long a free agent played with their previous team and the continuity of their contracts throughout that time³. After a player earns Early Bird Rights from playing 2 years with a team, they are entitled to receive 7.5% raises (instead of 4.5%) from their previous team and only their previous team. After 3 years which generally establishes Bird Rights, the player also earns the right to receive a 5-year contract (instead of 4) from their previous team. So in addition to the above starting salary differences, the Max that Atlanta can offer Dwight is a 4-year contract with 4.5% raises; Kent a 4-year contract with 7.5% raises; and Al a 5-year contract with 7.5% raises.

So there is no one Max. A Max for Al is different from Dwight. And to Al, a Max from Atlanta is different from a Max from Phoenix. It is important to re-establish what the definition of a Max is every now and then because sometimes it can get lost in the discussion of contracts.

Al's Decision

With the above Max established, we can now put some parameters around what Al's decision will entail. I will assume a Salary Cap of $89 million and starting maximum salary of $25 million for Al:

• Atlanta can offer up to almost $145 million over 5 years ($25m to $26.875m to $28.75m to $30.625m to $32.5m with the 7.5% raises).
• All other teams can offer up to almost $107 million over 4 years ($25m to $26.125m to $27.25m to $28.375m with the 4.5% raises).
• If Al agrees to a sign-and-trade, then he is bound to the $107 million over 4 years⁴.

This effectively describes Al's Max given a few options. But this assumes that Al is only looking for the most years and money at the 2016 off-season. He may also be considering factors such as earning the extra 5% in his maximum salary by accruing 10 years of service after the 2016-17 season, projecting how the Salary Cap may further increase his earning potential, anticipating a change in the Collective Bargaining Agreement, marketing opportunities based upon team, local taxes, and non-pecuniary lifestyle amenities. Frankly, I do not know enough about Al to accurately speculate on these issues. I will note that the issues may cause Al to be willing to accept a contract with fewer years or an option year like what Paul Millsap recently did.

From Atlanta's perspective, they know what they are competing against as well as the maximum amount they can pay Al plus their overall budget. If they are confident in Al being solely money driven, then offering $1 above their competitors, which will surely have someone offering Al a 4 year $107 million max, is the optimal decision. Anything above this would be leaving profit on the table. But this is unlikely to be how Al will make a decision and Atlanta knows this. But this toy example sets a good foundation in understanding that Atlanta is entering into a negotiation decision if their goal is to keep Al in Atlanta⁵. And although Atlanta is allowed to spend up to $145 million over 5 years, you do not lead with this in negotiations even if this is your willingness to pay.

Atlanta's Salary Cap Options

Al Re-Signs

Suppose both want to return, although for this scenario it does not matter what the contract's details are so long as the starting salary is above Al's cap hold. If this is the case, then Al will be signed later in the off-season after Atlanta has used up all of their cap space, which would appear to be $10.3 million given an $89 million Salary Cap at the moment.

The obvious concern over this scenario is what will happen to Kent? Does he want to remain in Atlanta? If so, any starting salary above $6.5 million⁶ will require cap space to be used on Kent much like last off-season's potential re-signings of DeMarre and Paul. But Atlanta does not only have $10.3 million to offer Kent because that figure accounts for his cap hold of $2.6 million. Atlanta would be able to offer a starting salary of up to $12.9 million to Kent and have the added ability to include 7.5% raises. If you think Kent would command a higher salary, then one may consider that Atlanta can add on $3,333,334 in cap space by waiving Mike Scott. Atlanta can also start to fiddle with their Draft Pick ($1,199,900), Mike Muscala ($1,015,696) and Lamar Patterson ($874,636) but removing any of them will incur a roster charge of $543,471 as Atlanta would drop below 12 roster holds. Would waiving Mike Muscala to free up $472,225 in cap space really be worth it?

As another potential option for clearing cap space, the Hawks could utilize the stretch provision on a player such as Tiago Splitter if they feel that he is not worth a salary of $8,550,000. Stretching Tiago's contract would not absolve the Hawks from paying Tiago, but it would adjust their payment schedule and cap hits. If the Hawks waive Tiago before August 31st, then they could stretch the remaining payments over the next 3 years in equal installments. This would result in a cap hit of $2,850,000 for the 2016-17 season thus freeing up $5,700,000 in additional cap space (assuming the Hawks do not incur an incomplete roster charge after waiving Tiago). There would also be a cap hit of $2,850,000 in the 2017-18 and 2018-19 season, which could potentially hinder the Hawks willingness to utilize the stretch provision.

Al Signs Elsewhere

If Al decides to leave Atlanta, then all is not lost as this will free up $18 million in cap space due to Al's cap hold, which I'm assuming totals their cap space to $28.3 million and enough for any Max contract. Atlanta would be able to use this cap space in order to sign other free agents or acquire other contracts through trades or waiver claims. Cap space also affords unique opportunities for a team such as the ability to take on a player contract and then aggregate that contract with another player via a trade.

One unique cap opportunity I have detailed before is renegotiating and/or extending current contracts. While this past off-season an Al Horford extension did not make sense, under this scenario that changes. Al's potential extension this past off-season was limited because Atlanta did not have cap space. Without cap space, Al was limited in the starting salary in his extension to be $12,900,000 (7.5% of his current salary). It made no financial sense for Al to do this. But when a team has cap space, they can renegotiate the salary of certain contracts⁷ and Jeff, Kyle, and Tiago are these contracts. If Atlanta is intent on keeping Jeff in the future, then anticipate them engaging in a renegotiation-and-extension.

Of note, the fact that Atlanta holds options to go and sign legitimate NBA talent if Al Horford signs elsewhere is a legitimate enough threat that Atlanta can use in negotiations with Al. The ability for Atlanta to "walk away" in a negotiation setting is an important one that enhances their standing. This ability is something that Atlanta did not hold in negotiations with Joe Johnson in 2010 and partially explains why Joe signed for all of his Max with Atlanta even though no other team in the NBA had the ability to come close to the approximately $125 million over 6 years.

Al Leaves Atlanta, But Via Sign-And-Trade

This is an unlikely scenario to occur because it needs to make sense for Al, Atlanta, and the team that Al wants to sign with. So taking these step by step, Al would need to some sort of non-money factor (or potential marketing opportunities) to drive him to search out a destination which cannot sign him via cap space. The team which wants to acquire Al would need to be sending out $19.92 million in salaries in order to receive a $25 million Al Horford contract. This amount could change if the team only needs to send out a certain amount of salaries in order to receive Al Horford with cap space. But then for Atlanta, they would need some sort of an asset in return for Al. It is possible, but finding a scenario where this works is a tall task.

If for some reason Atlanta believes that operating over the cap for the entirety of the 2016-17 Season is an attractive option, then negotiating a sign-and-trade might be an appealing scenario. As it turns out, Kirk Hinrich's cap hold actually helps in this regard as the Hawks can technically begin the 2016 off-season over the cap after accounting for the Non-Taxpayer Mid-Level Exception ($5.628 million), Bi-Annual Exception ($2.203 million), and their $947,276 trade exception. Atlanta would be entering the off-season with $93,195,915 in Team Salary and over any projection of the Salary Cap. If Atlanta did not make the trade, then the team would be entering the off-season with $90,005,253 in Total Salaries and potentially under the Salary Cap if Atlanta is assuming a $92 million cap. Is Atlanta one of those teams that are operating under the $92 million assumption? If the trade was made with this in mind, then it seems likely.

Complicating this sign-and-trade route is that Al could be a Base-Year Compensation player if the Hawks are operating over the cap because he will have received a raise of greater than 20% and the team would be using their Bird Exception on Al. If Al is signing for $25 million, then Atlanta would view his out-going salary as $12.5 million and could only receive up to $17.5 million in return. Atlanta would have the option to aggregate Al's salary with other players in a trade in order to take back more salary, but this becomes a messy situation.

In the 2014 off-season, Atlanta completed a seemingly odd sign-and-trade transaction with Oklahoma City where Atlanta received Thabo Sefolosha. This occurred because Oklahoma City was over the cap at the time and held Bird Rights on Thabo. Oklahoma City wanted to create a trade exception and paid Atlanta $550,000 for this right along with the draft rights to Georgios Printezis. Because Atlanta needed to send something in return, it was the draft rights to a generic overseas player with hardly any chance of playing in the NBA (Sofoklis Schortsanitis). This transaction made sense for OKC because they were over the cap and eventually used the trade exception to acquire Dion Waters. Atlanta will not be over the cap if Al leaves, thus making a trade exception worthless to them.

Closing

As a bit of speculation on my part, I think that Al and Atlanta would prefer to say together. I imagine Al and the front office of the Hawks will be arguing over potential incentives in the contract, guarantees, and possibly an option over the 5th year. There will also be concerns over how much that 5th year in the contract should be valued at since no other team in the NBA would have the ability to offer a 5th year. Depending on how negotiations go and what this leads to for a contract value, this may be out of the range that Atlanta has for future costs.

I can understand the sentiment that Atlanta's decision to give a max contract to Al Horford mimics their decision in 2010 to max out Joe Johnson. The contracts would start around the players age of 30 and end in their mid-thirties. They would be, technically, maximum salaried contracts. And this is about where it ends from Atlanta's perspective.

The similarities end just about there. And I am not referring to the differing age curves of Al Horford, a frontcourt player, versus Joe Johnson, a wing player. Or the different playing styles of the Hawks from 2010 to 2016.

No, I'm only referring to how Atlanta's Salary Cap standing has substantial differences from the Joe Johnson era until now. This is due to the current contracts at hand, the Hawks options at the time of agreeing to a max contract, the potential extensions and future contracts that are at play, and the climate of future anticipated revenues. There are more differences than similarities as it refers to these contract situations.

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^{1.  Per Bobby Marks, and previously reported elsewhere, Al Horford has incentives of around $2 million this season if he makes an All-NBA Team and/or All-Defensive Team. If Al reaches an incentive, then his salary for this season will increase as will his cap hold by 150% of the bonus. For example and guessing at the bonuses, if Al makes 3rd team All-NBA and this triggers a $1 million bonus, then Al's salary will have been $13 million and his cap hold becomes $19.5 million.↩}

^{2. These would be the restricted free agents subject to the Gilbert Arenas Provision and 1st round draft picks (but not 2nd round draft picks or undrafted players).↩}

^{3.  There are a few subtle exceptions to this, which are detailed in Larry Coon's CBA FAQ.↩}

^{4.  While it may appear that there is no benefit to Al or Atlanta to engage in a sign-and-trade if Al cannot receive a 5 year contract and 7.5% raises, this is not necessarily the case. It may be beneficial to both parties to engage in a sign-and-trade if the team that Al wants to sign does not have enough cap space to do so and that team is willing to offer Atlanta something in return. If Atlanta values that something, then this would be preferable to losing Al for nothing. But since the new CBA in 2011, the incentive to engage in a sign-and-trade is diminished precisely because the free agent would not be able to utilize their full Bird Rights.↩}

^{5.  If Al were running for mayor of Atlanta, he should consider the slogan: "You can't spell AtLanta without AL!"↩}

^{6.  The actual amount is 104.5% of the calculated Average Player Salary from the 2015-16 NBA Season. This will not be known until after the July Moratorium, but a safe bet is around $6 million to $6.5 million. So although I say $6.5 million, this is not meant to be an exact figure.↩}

^{7.  Contracts available to be renegotiated and/or extended need to be for at least 4 seasons and can be renegotiated/extended after the 3rd anniversary of signing. The only ones available for the Hawks are Jeff, Kyle, and Tiago after which there are no current contracts on the books which can ever be eligible for a renegotiation/extension. Well, except for rookie scale contracts, but those operate differently.↩}