Rookie Extensions: Harrison Barnes and Festus Ezeli

As most readers likely know by now, teams have until November 2[1. This date is normally October 31, but since the date falls on a Saturday the CBA mandates that the date extend to the first business day thereafter.] to reach extensions with first-rounders entering their fourth seasons.  If not, the players become restricted free agents next summer.  This year’s negotiations have bandied about some eye-popping numbers, with the salary cap set to explode to an estimated $89 million in the summer of 2016 when the extensions would kick in.

Nevertheless, it would seem both teams and players have less reason to extend than ever before.  On the players’ side, they know that over half the league will be able to create cap space up to the applicable $21 million maximum salary for players with zero to six years of experience.  Thus, the fear of reaching restricted free agency only to find a dearth of offers is muted.  What’s more, if the player suffers an injury or performance downturn there will still be so much money out there that he might obtain a solid contract with life-changing money even so.

On the team side, most plan to use cap space to sign free agents.  The best way to maximize space is by keeping a free agent’s cap hold—in nearly all of these cases a lower amount than their projected salary the following year—on the books before re-signing the player instead of extending them now, which would eat into summer 2016 space.  This is the mechanism the Spurs used with Kawhi Leonard a year ago, giving them about $9 million in extra cap space to sign LaMarcus Aldridge before extending Leonard for his max.  It was recently reported that the Pistons had tabled extension talks with Andre Drummond with a similar plan in mind. Keeping his $8.2 million cap hold on the books opens up another $12.8 million in space compared to signing him to a max extension of $21 million now.  The Wizards with Bradley Beal are likely to pursue the same strategy as they chase Kevin Durant.

With such a high opportunity cost for both player and team, the middle ground for a rookie extension is in many cases fleeting or even nonexistent.  For a team with 2016 free agency ambitions, the player must take a steep discount over his projected market value next summer for the long-term savings of the length of his contract to be worth foregoing the 2016 flexibility.  And with all the free agent dollars out there this summer, players have little incentive to take a discount at all.

Harrison Barnes and Festus Ezeli

The normal procedure in discussing rookie extensions is to assess the player’s value.  For a player who is not an obvious max candidate, one tries to determine how good he is, and thus what he might get on the open market as an unrestricted free agent.  Then you may price in a possible discount for the fact the player is a restricted free agent (which could chill any offers a la Eric Bledsoe and Tristan Thompson the past two years), and a certain discount for the team taking on injury or performance risk over the next year by extending a season before his contract is up.

In the case of Harrison Barnes, Festus Ezeli, and the Golden State Warriors, it may be more instructive to assess the Warriors’ opportunity cost first.

While the Warriors have been talked about as a possible free agent destination in the summer of 2016, obtaining space that summer would require some severe gyrations.  Even if they do not extend Ezeli and Barnes, the Warriors project as well over the cap when including their cap holds and the salaries of Jason Thompson and Shaun Livingston.

Golden State could totally strip down by waiving Livingston ($3 million of his $5.7 million in 2016-17 guaranteed) and Jason Thompson ($2.65 million of his $7 million guaranteed), then stretching the guaranteed amount of their salaries over three years. That still puts them about right at the projected $89 million cap.  To get any space, they would then have to renounce Barnes and Ezeli and pull their qualifying offers, meaning they could no longer exceed the cap to re-sign them or match any restricted free agent offer sheets.

That could get them to $15.9 million in space, enough to lure a solid starter in that market, perhaps along the lines of Nicolas Batum, Chandler Parsons, Luol Deng, or Eric Gordon.  That would leave them with only Stephen Curry, Klay Thompson, Andre Iguodala, Draymond Green, and Andrew Bogut[2. Bogut’s official league projection is for a $12.7 million cap number for 2016-17.  However, that is based on the fact that his contract has a 15 percent bonus for making the All-Defensive Second Team, which he achieved a year ago.  The general rule is that incentives are included as a part of team salary if they were earned the previous year, at which point they are considered “likely.” So, the incentive earned by Bogut last year is by default included in the Warriors’ team salary.  If, as I believe likely, he does not earn All-Defensive team honors in 2015-16, his cap number will default back to his base salary for 2016-17, which will be $11.1 million.] under contract along with their 2016 first-rounder and Kevon Looney.  The Warriors would desperately need a backup big, wing, and point guard with the departures of Barnes, Ezeli and Livingston, along with lesser lights Marreese Speights and Leandro Barbosa, whom they could potentially re-sign with Bird (Speights) or Early Bird (Barbosa) rights if they stayed over the cap.  Replacing all that production with $15.9 million, the Room Exception of $2.9 million, and minimum contracts would not be possible.

What if the Warriors really want to go hunting?  They could try to move Iguodala or Bogut, both of whom will have only a year remaining on their deals at $11.1 million apiece.  That gets Golden State over $25 million in cap room, enough to pay the 7-9 years experience max of $25.1 million to Kevin Durant or Al Horford.  They could also try for Dwight Howard—though his 10-plus year max would be $29.3 million, perhaps he could be persuaded to take less to start for a long-term deal.

But dumping all those players would be a massive risk, and it is unlikely that the Warriors could be sure of getting their big target before making those moves.  Even if they did get one of those three free agent stars, they would have an exceedingly thin team.

So 2016 free agency is almost certainly out. But the Warriors project to have significant cap room in 2017, buoyed by the relatively small cap hold of Stephen Curry and the expiring contracts of Andre Iguodala and Andrew Bogut. Curry will be eligible for a maximum contract starting at around $30 million per season, but because his previous contract was such a bargain, $12.1 million for the 2016-17 season, his cap hold for the summer of 2017 is a mere $18.2 million.  That buys the Warriors essentially about 12 million in extra cap room, as they can wait to re-sign Curry until after they have already spent up to the cap.

Including Curry’s cap hold, Klay Thompson, Draymond Green, Kevon Looney, their 2016 first-round draft pick, and five empty roster slot charges[3. A cap placeholder at the rookie minimum salary is assessed for each empty roster slot unfilled by a player or cap hold, up to 12.  In this case. I am assuming Ezeli and Barnes will be under contract (for an unknown amount), along with Thompson, Green, Curry’s cap hold, Looney, and the 2016 first-rounder, leaving five empty slots and their concomitant roster charges.] for the rookie minimum of $562,493, Golden State would have about $50.3 million in cap room under a projected $108 million cap.  (With a potential new CBA in place, it is quite possible the cap ends up in the $95-$100 million range that year.)

So every dollar paid to Ezeli and Barnes cuts into that space—2017 free agency is the true opportunity cost of these extensions for the Warriors.  A maximum contract for a free agent with 7-9 years of experience, a category all of the big game unrestricted free agents that year will fall into, will be about $30 million per year.  Potential Warriors free agent targets could include Gordon Hayward, Danilo Gallinari, Kevin Durant[4. With an additional year’s experience, Durant will qualify for the 10-plus years of experience max of around $35 million in 2017-18.] (if he takes a one-year deal to stay in Oklahoma City this summer), Serge Ibaka, Blake Griffin, Paul Millsap, Greg Monroe, and Nikola Mirotic (RFA).   Unfortunately for Golden State, many of the good free agents that year are point guards.  But to get to $30 million in space, Golden State would need Barnes and Ezeli under contract for a combined $20 million per year in 2017-18. That’s not going to happen.

On the other hand, if the Warriors sign both of them, an easy path to max cap room is difficult to discern.  Bogut and Iguodala come off the books in 2017, but the remaining salaries on the roster will all be well into eight figures and are attached to essential pieces.  Perhaps Barnes or Ezeli could be moved that summer to open up max space, as there should again be ample cap room around the league.

For the Warriors, failing to extend Barnes and Ezeli has a lot of risk.  If Ezeli establishes himself as a future starter this year, he could garner a deal in the $15 million per season range as a restricted free agent.  Barnes could also take a step forward; if he plays well this year a max contract in restricted free agency would not be out of the question either.

On the other hand, Barnes and Ezeli (particularly the latter) have quite a bit of risk as well.  The Warriors’ backup center missed all of 2013-14 after surgery to his MCL and PCL to address structural issues in his knee.  He then played only 46 games and 504 minutes last year, though with solid box score metrics in limited minutes.  While he showed some improvement offensively, particularly catching the ball, down the stretch of the year and in the playoffs, it is unlikely he will ever be a plus handling the ball and finding teammates in Golden State’s beautiful backdoor and DHO game.  He has excellent tools defensively, but has not quite mastered the nuances of defense at the rim (contesting a shot with his left hand once in awhile would help) or in the post (recall Zach Randolph destroying him to a comical degree in last year’s playoffs). Ezeli also turned 26 a few days ago, meaning he probably does not have much ceiling left to explore.  Those viewing it as fait accompli that Ezeli will emerge as the heir apparent to Bogut this season and a quality starting-level center might be going a bit too far.  There is even a possibility that Ezeli could end up the third-string center behind Marreese Speights in a lot of games.

Barnes is much younger, but faces risk as well despite his well-chronicled value as a plus shooter and defender who can also play up defensively in small lineups.  What if he just has the exact same year as in 2014-15, but shoots 35 percent on three-pointers instead of 41 percent?  Or if he loses his starting spot to Andre Iguodala, who until further notice is a superior player? At only 23, the expectation is that Barnes will take another step forward with his ballhandling, passing, shooting, and defense this year, but much of his perceived value is his upside to grow into a second or third option on offense.  If he fails to improve this year, the upside will look a lot lower.

So where will these extensions end up? Barnes reportedly turned down a four-year, $64 million extension that would start at $14.4 million assuming the maximum 7.5 percent annual raises.  If the Warriors chose to structure that deal for the minimum possible salary in 2017-18, Barnes would have a $14.8 million cap number that season[5. His four-year salaries in that scenario: $16 million, $14.8 million, $16 million, $17.2 million.].

So how much will the Warriors raise their offer?  Once they get much above paying Barnes $17 or $18 million for 2017-18, there isn’t much point in extending him.  Their downside is having to pay Barnes a maximum of $21.9 million in 2017-18.  That is the most he could get if he signs a four-year max offer sheet from another team (with raises limited to 4.5 percent) and the Warriors are forced to match.  It does help a bit that by extending him they could potentially have his salary dip in 2017-18, but if Barnes is demanding much beyond $17 million a year the Warriors might as well just let it play out.  There are also some negative optics for the locker room if Barnes is the highest-paid but fourth- or –fifth-best Warrior in 2016-17.

My prediction: If Barnes is willing to take a four-year, $68 million extension (perhaps with some “unlikely” incentives to push it higher) that dips in 2017-18, the Warriors would do it.  If he holds out for more, the deal doesn’t get done.

For Ezeli, the right number seems to be in the $10-$11 million a year range, again with a dip in 2017-18.  While Ezeli would eat into the Warriors’ space in 2017-18, they will need a starting center with Andrew Bogut coming off the books.

An average starter on the free market should make about $15 million in free agency next year.  Ezeli probably tops out as an average center at best (he’s probably somewhere in the low 20s right now), and his limited history of performing at this level plus the injury risk requires a substantial discount as well.  It’s very difficult to imagine him getting an offer sheet of more than $15 million per season even in this inflated market.  My prediction is Ezeli gets done, but Barnes does not unless he is willing to reduce his apparent demands.

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