Atlanta Hawks Salary Cap: What Dennis Schroder and Tim Hardaway Jr. extensions would look like

Dennis Shroder and Tim Hardaway Jr. are both eligible for contract extensions this off-season. They will be eligible on July 6th, which marks the end of the July moratorium, until October 31st. If no deal is reached by November of 2016, then neither Dennis or Tim can sign an extension. They will then become free agents at the end of the season, most likely as restricted free agents if the Hawks choose to tender them a qualifying offer. Their respective qualifying offers are $3,824,518 and $3,335,707 unless either of them meets "starter criteria." If either starts 41 games or plays over 2,000 minutes in the 2016--17 regular season, then their qualifying offer increases to $4,588,840.

If either of them agree to an extension before November 2016, then their cap hit for the 2016--17 season is unaffected. Both are pegged to make $2,708,582 and $2,281,605 respectively and only a trade out of Atlanta would affect the Atlanta cap sheet. However, their hypothetical extension will kick in at the turn of the 2017 off-season to whatever the starting value of said extension ends up being.

Let's dive a little deeper into a potential extension for either player.

How Much Can They Make?

Whatever their maximum starting salary is. It's either approximately 25% of the Salary Cap in 2017--18 or 30% if either of them wins MVP.

It's a bit odd to discuss the 2017--18 Salary Cap before July 2017, when that particular value will be known. As of right now, the NBA is projecting a $107 million Salary Cap for the 2017--18 Season but this comes with the implication that almost all NBA teams will not exceed the salary floor. But you can ballpark this value to be around $25 million.

If either signs an extension, it can be for as little as one additional season or four seasons...unless either player is a "designated player" in which case the extension could be for five additional seasons but must be at their respective maximum salary. Only one of them may be a "designated player" and this does come with an added constraint on the franchise that they cannot give away another "designated player" extension until the current one expires.

Trade Stumbling Blocks

Extensions can be a tricky concept to understand. This is where the phrase "poison pill" comes from but that's not the only complicated issue. As a bit of semantics, an "extension" that I discuss here will reference the additional years added onto an existing contract and not the contract's length itself. By example, Dennis has a 4 year contract (2013--14 Season through the 2016--17) but could have a 5 year extension to make the contract a 9 year contract (2013--14 Season through the 2021--2022).

Tradeable Extension

Any extension which is for 2 seasons or fewer and does not contain raises/declines larger than 4.5% is a tradeable extension. This could be through an agreement of said player and team to immediately trade the player to a second team or a unilateral decision by the team.

In the previous CBA, it was the case that a player could leverage where they wanted to be traded through negotiating a potential extension in conjunction with a trade. This is what happened with Carmelo Anthony and the New York Knicks in February of 2011. But now, the current CBA has limited this avenue of player movement.

Non-Tradeable Extension

If an extension falls out of the scope of a tradeable extension, then a team must wait 6 months before it can be traded. This means any extension which is 3 seasons or greater cannot be traded. It also means that if the trade contains raises (or declines) in excess of 4.5% of the 1st year salary in the extension, then it cannot be traded.

If we do a little bit of back-calculation here, the 2017 NBA Trade Deadline should be either February 16th or 23rd (it depends on when the Regular Season starts) which would imply an extension related deadline to be in mid-August. But even with this deadline for trading a contract, there is one twist in how one would calculate the value of the contract for salary matching purposes.

Poison Pilled

If the Hawks sign Dennis or Tim to and extension and then wish to trade either of them during the 2016--17 Season, then the contract is "poison pilled." What this means is that the salary used for matching purposes of the receiving team is different from the literal salary for that season. As we all know at this moment, Dennis and Tim have set salaries around $3 million each in 2016--17 and for any trade involving these two, Atlanta will use this paltry amount for calculating how much salary they can receive in a trade. But the team trading for Dennis or Tim would use a different amount if either of them signs an extension. The amount would be the annual average across their future compensation, which includes their 2016--17 Salary and each additional year of an extension. Let's do 2 examples to illustrate.

1. Suppose Tim signs a one year extension at $10 million. This would give Tim a payout of $2,281,605 this season and then $10,000,000 the following for an annual average of $6,140,802.50. Any team receiving Tim would use this value in a trade while Atlanta would use $2,281,605. Atlanta would be bound by the 150% trade rule if they only traded Tim away, which would leave them with being able to take back $3,522,407.50 in Salary. This creates a bit of a problem if the team that Atlanta trades Tim to ends up over the cap after accounting for his roughly $6 million incoming salary.
   
   
2. Now suppose Dennis signs an extension as the "designated player" for Atlanta, thus giving him a maximum salary for the 2017--18 Season along with a 5 year extension and 7.5% raises. This is a bit complicated because the Maximum Salary will not be known until July of 2017, but the NBA would use the maximum salary applicable to the 2016 Salary Cap as a placeholder. For this article it's tricky since this value is not known, but let's peg it to be $20 million for easier algebra. If this is the case, then Dennis will have payouts of $2,708,582 this Season with $20,000,000 then $21,500,000 then $23,000,000 then $24,500,000 and finally $26,000,000 for an average annual salary at $19,618,097 ($117,708,582 total). Now there is a much bigger problem which arises as trading away Dennis would only allow Atlanta to take back $4,162,873 in salary while the receiving team needs to account for receiving over $19 million!
   
   Good luck trying to find a scenario that fits mathematically, let alone one that makes basketball sense.

Closing

So those are the mechanics of an extension, the Hawks can negotiate whatever extension they would like to with Dennis and Tim which would leave their cap space in 2016 untouched. But this will affect their cap space in 2017 at the parameters of said extension. Further complicating things is the uncertainty involved with what a new Collective Bargaining Agreement might look like in 2017 and beyond.

Atlanta's current regime has shown a desire to maintain financial flexibility, which certainly involves not signing long-term contracts. If we take this as true, then there does not appear to be much of a chance to see an extension for either Schroder or Hardaway. But at least we've gone over why that is.