Explainer: NBA restricted free agency

Explainer: NBA restricted free agency
Mon 11th March 2019

As the 2018/19 NBA season rises towards its (seemingly) inevitable Warriors-Bucks crescendo in June, the defeated challengers will begin looking wistfully to the summer, casting their eyes towards the mythical land of “free agency”.
A “free agent” is an NBA player who does not have a current contract. In most cases this means either their contract has expired, was terminated or never existed (e.g. a player who met the qualifications for the NBA draft but was never actually drafted).
But what really is this magical world? What happens when Kevin Durant, Kyrie Irving, Kawhi Leonard, Kemba Walker, Klay Thompson and Jimmy Butler become freely purchasable commodities on the open market in July 2019? Has “loyalty” become a foreign concept? Why would any basketballer in their right mind want to go to the New York Knicks? 
Let’s find out, as we take a trip down the free agency rabbit-hole in this weekly series of articles.

Restricted free agency

There are two types of free agents; unrestricted and restricted.
In simple terms, a restricted free agent is a player who can be courted by and signed by any other team, but whose current team (to whom they are contracted) retains the ultimate decision of whether to keep them or not
Most commonly, a player becomes eligible for restricted free agency at the conclusion of their rookie contract.
A rookie contract is initially dictated by draft position – for example in 2018/19 the first-year salary for top pick DeAndre Ayton is $8,165,160, whilst Marvin Bagley III as the number two pick will take home $7,305,600.
All rookie contracts are for two years, with what’s known as “team options” for the third and fourth years of the contract.
This means the team can decide whether they want to renew the contract after a player’s second and third years in the league, with the salary increasing at an incremental rate (again dependent on draft position). Ayton’s contract, for example, means the Suns have the option to pay him $12,632,950 in 2021/22 in order to extend his contract. 
By the end of the fourth year of a first-round rookie contract, the team the player is contracted to is required to choose whether or not to make a “qualifying offer”.
If they do, the player becomes a restricted free agent.
If not, the player is a fully unrestricted free agent. 

Qualifying offers

The qualifying offer is a one-year contract which is required to contain a 30% increase on top of the fourth-year salary. So, for example (and assuming he doesn’t sign a rookie contract extension), if Phoenix were to provide Deandre Ayton with a 1-year qualifying offer prior to the 2022/23 season, it would have to be for over $16 million.
If the player signs the qualifying offer they are then contracted for that year and become an unrestricted free agent at its conclusion. For example, it looks as though Kristaps Porzingis will sign a one-year $4.5 million qualifying offer with the Dallas Mavericks for the 2019/20 season, which will make him an unrestricted free agent in the summer of 2020.
Players who were not taken in the first round of the NBA draft become unrestricted free agents if they have been in the league for up to three years, and their original team has made a qualifying offer for up to 125% of their previous salary. 

The effect of restricted free agency

A restricted free agent is allowed to sign an offer sheet from an opposing team. Their current team is then given 72 hours to decide whether to match that offer. 
If they do, then the player becomes contracted to their current team under the terms of that offer. If they don’t, that offer becomes a binding contract with the opposing team. Unlike in past years (and in other sports) the team that lets the player go receives no compensation.

Rookie contract extensions

If a player is entering the fourth year of his rookie contract, teams are able to offer a “rookie contract extension” in order to stop him from entering restricted free agency.
For example, in 2017, during the fourth year of his rookie contract, the Philadelphia 76ers signed Joel Embiid to a five-year, $146.5 million contract extension, preventing him from becoming a restricted free agent at the end of the 2017/18. Houston did the same thing with Clint Capela’s 5-year, $90 million contract last summer.
In this way restricted free agency allows teams to determine their own destiny. They can effectively gauge what a player’s market value is, and choose whether or not they rate the player at that value.

The Good

From the perspective of the players, restricted free agency retains the ability for players to “bet on themselves”. 
For example, if Capela thought he was worth more than what the Rockets were offering, at the end of the 2018 season he could have simply signed their one-year qualifying offer of $4.7 million. 
This would have led to him becoming a restricted free agent at the end of the 2019/20 season. He then, effectively, would have become worth whatever another team was willing to pay for him in July 2020
Capela’s management clearly determined that his situation in Houston was, if anything, flattering his stats (due to the impeccable service he receives at the rim from James Harden and Chris Paul), and he was unlikely to attract much more on the market than the $90 million the Rockets were willing to pay.

The Bad

The risk for players, obviously, comes from the potential for the player to turn down the rookie extension, sign the qualifying offer, and then get injured or drastically decrease in form prior to hitting unrestricted free agency.
Obviously, this would result in a player not receiving any contract offers, or offers at much less than their market value was the year previously.
This can lead to situations where some players (usually those with persistent early injuries) are grossly underpaid thanks to signing conservative rookie extensions. 
For example, Stephen Curry infamously signed a 4-year $44 million rookie contract extension with the Warriors in 2012, which meant in 2016/17 (the year after he won his second league MVP award) Curry was making $11,370,786.
As a point of contrast, Mike Conley (whose current career highlight is making the NBA All-Defensive Second Team in 2013), made $26,540,100 in 2016/17 as part of a back-ended contract which will see him take home over $32 million next year.
Curry signed this contract (with its guaranteed money) rather than risking becoming a restricted free agent with no suitors at the end of the 2013/14 season. At the time (to be fair to Curry and his management) this was a distinct possibility given his injury-riddled first few years in the league.

The Ugly

Restricted free agency can lead to teams grossly overpaying players against the risk of losing them in situations where the market dictates they are worth millions of dollars above the going rate. The perfect example of this is the case of the Miami Heat and Tyler Johnson.
In 2016 Johnson hit the market as a restricted free agent. At that point he had played 68 games in the NBA, barely averaged over 7 points a game, and was taking home $507,000.
The Brooklyn Nets gave him a mind-boggling four-year, $50 million offer sheet (mostly back-ended). Apparently the Sacramento Kings offered even more. There were other suitors as well.
Admittedly, there were factors which influenced these numbers, and made it so that Johnson was actually worth this much to several teams. 
The NBA salary cap floor (the minimum amount teams have to spend on players) jumped from $63 million in 2015 to $85 million in 2016. Johnson was also (arguably) the only viable shooting guard on the market, with DeMar DeRozan, Bradley Beal, Jordan Clarkson, Nicolas Batum and Evan Fournier all re-signing.
Rather than run the risk of losing Johnson and seeing him become an All-Star, and in a market where there were no other decent shooting guards available, the Heat decided to match the offer sheet from the Nets. 
Johnson averaged a career high 13.7 points per game in 2016/17, but regressed after that, and was subsequently salary-dumped by the Heat over to the Phoenix Suns 44 games in to the 2018/19 season. 
The Suns are currently paying Johnson $19.245 million to play 31 minutes and contribute 10.5 points, 4 assists and 4 rebounds per game.
Conversely, in examples of good management, some teams choose not to match outrageous restricted free agent offer-sheets, regardless of what the market is dictating.
In 2017 the Atlanta Hawks wisely chose to go nowhere near the New York Knicks’ baffling four-year, $71 million offer to Tim Hardaway Jr.
Hardaway was paid $16.5 million by the Knicks in 2017/18 despite only averaging 14.5 points, 2.8 rebounds and 2.3 assists in the previous season.
Restricted free agency is a minefield. There are myriad ways for players with poor management to leave vast amounts of cash sitting on the table, or for teams to pour money down the drain on players whose value has been grossly inflated.
Next week:
The glorious mirage that is unrestricted free agency.

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