NBA HD: How To Get Your Free Agents Half-Off

Lost in the whole Free Agentpalooza of 2010 was the fact that the party could have been bigger. Outrageously bigger.

With the cap-slashing climate over the past few years, the writing was on the wall well before the calendar reached July 1, 2010: this class of free agents were due for an enormous payday.  Seeing the formation of the storm on the horizon, organizations wisely arranged meetings with their imminent 2010 free agents and their representation in effort to prevent their prized players from hitting the market at all.  The plan? Sign them to a contract extension.

Contract extensions can be mutually beneficial; the player receives job security  from the team and the team gets the player at a discount.  The latter part of the deal isn’t guaranteed by any means but the team doesn’t have to compete with other bidders to sign their player long-term.  And that exclusivity is a huge advantage for teams.  But how can we quantify that advantage?

Let’s compare some contracts.  Of course, every free agent’s situation is different but to responsibly compare apples to apples, let’s examine the 2006 draft class whose rookie scale contracts were generally due to expire after the 2009-10 season, allowing them to become free agents this past summer.

First, the guys who cashed in early.  Can you imagine if Brandon Roy, Rajon Rondo, and LaMarcus Aldridge joined the free agent sweepstakes? Believe it or not, each of these players could have waited to test the free agent waters but elected to sign long-term with their respective clubs in the fall of 2009.  But they weren’t alone; Andrea Bargnani and Thabo Sefolosha also agreed to contract extensions before hitting free agency.  How much did they sign for? Let’s take a look.

For each player, the first two columns after their name tell us the contract length and dollar amount, with the third column calculating the average salary over that contract. For example Rajon Rondo inked a contract extension with the Boston Celtics in early September 2009 for 5-years, $55 million for an AAV (average annual value) of $11 million.

Then, for each player, I included their 2008-09 Wins Above Replacement Player (WARP09) with the “09” signifying the year.  I chose 2008-09 to reflect their output before they signed their contract extension.  The WARP numbers are courtesy of BasketballProspectus.com and the brilliant work of BBP author and Indiana Pacers consultant Kevin Pelton.  To be clear, this version of WARP is not his newest version, WARP2, which incorporates an added bonus for players who space the floor with 3-point shooting.  Why? The Basketball Prospectus site has not updated their databases with WARP2 yet so for continuity purposes I opted for the older version.

So, this chart tells us that Rajon Rondo received a $11M AAV contract extension after a 13.2-win season in Boston, meaning he was being paid $0.8 million for each win that he accrued that season.  To be sure, teams pay for future projected performance not past performance, but this provides a quick dollar-value conversion that I’ve outlined in previous articles.

Through some research, I found that teams roughly paid $2.25 million for each win in this past free agency period.  Using that standard, the contracts handed to Rondo, Roy, and Aldridge were incredible bargains for their respective organizations.  Sefolosha received a contract fairly in-line with the going rate and Bargnani’s salary hasn’t quite reflected his production in the eyes of the WARP model (although WARP’s opinion is not unique in the statistical nor the scouting world).

All in all, the players who received contract extensions were paid about $1.4 million per win which is far below the free agent price observed this season.  Rondo undoubtedly would have received a max contract had he tested free agency and a case can be made that Aldridge would have pulled one down as well, given his age and productivity.  They left money on the table for job security, ensuring that they’d be set long-term should a career-altering injury occur in 2009-10 (which happened to Roy to some extent).

But how much money did they leave on the table? To find out, I looked at the going rate for their fellow 2006 draftees who received at least three-year deals in free agency: Rudy Gay, Tyrus Thomas, J.J. Redick, Jordan Farmar, Ronnie Brewer and Kyle Lowry. (The three-year qualifier captures players in the same stratosphere as those worthy of an extension and excludes players like Shannon Brown.)

While these free agent deals aren’t all completely egregious, the free agent premium bears out in this small group with the average price for a win costing $3 million compared to the previous group’s $1.4.  In fact, according to this method, inking an extension gave the parent organization about a 50% discount on the commodity of wins.

The biggest difference? In free agency, it’s nearly impossible to sign a talent like Rondo at a clearance markdown price.  Rondo has nearly four times as much impact on the standings as Rudy Gay but the latter will earn about $25 million more over the next half-decade.

So how are teams able to convince players to sign extensions that are probably below their market value?  Well, it’s not easy.  It’s paramount for an organization to produce a winning attitude from the top on down.  That means not just winning in practice but also in style (right, Dan Gilbert?).  It’s the responsibility of the owner, front office staff, and the coaching staff to make the players feel like there’s no sense to risk losing the professionalism, commitment, and comforts they can enjoy at home.  In other words, make your lawn as green as green gets.

Seth Carstens