I’m not sure whether to be surprised or not. On one hand, I’m amazed that the Knicks opted not to match Houston’s offer sheet to Jeremy Lin. On the other hand, it makes perfect sense, because the Knicks are involved, and the Knicks are a dumb organization that tends to do dumb things.
Let’s recap the last few seasons of New York’s moves, just to set the scene.
In the summer of 2010, the Knicks offered Amar’e Stoudemire and his microfracture-repaired knee a five-year, $95 million contract, which no other team in the league even came close to matching. The worst part? The contract was uninsurable, because of his injury history. If LeBron or Kevin Durant, for example, got injured and missed an extended period of time, an insurance company would cover the cost of the contracts to their respective teams. Amar’e’s uninsured deal makes him effectively untradeable. Nobody wants to take on that risk.
During the 2010-2011 season, the Knicks worked out a trade that would effectively send half their roster to Denver in exchange for Carmelo Anthony and Chauncey Billups. This is despite the fact that New York would have had more than enough cap space to sign Anthony outright after the season in free agency. But Anthony, afraid of the upcoming lockout, wanted to make sure he was able to get a max extension under the more favorable rules of the previous collective bargaining agreement. The Knicks obliged. If you connect the dots on all of the subsequent transactions on Denver’s part, they ended up with Danilo Gallinari, Wilson Chandler, Andre Miller, Kosta Koufos, Timofey Mozgov, Jordan Hamilton, Corey Brewer, and first-round picks in 2014 and 2016. That’s nine players.
After the lockout, the Knicks used their amnesty provision on Chauncey Billups, wiping his contract off their books, in order to sign Tyson Chandler to a max contract. At face value, this doesn’t seem like such a terrible mistake, as Chandler’s is a fine player, and won the Defensive Player of The Year award in 2012. However, in using their amnesty provision on Billups, they in effect threw away the silver bullet that could potentially rid them of Stoudemire’s unfavorable contract, should they ever need it. In effect, they decided that adding Tyson Chandler was worth marrying themselves to Stoudemire, a decision that now looks dubious when you consider Stoudemire had arguably the worst season of his career in 2012, and New York’s “Big Three” of Anthony, Stoudemire, and Chandler were outscored when they were on the floor together.
This summer, point guard phenom Jeremy Lin was offered a three-year, $25 million contract from Houston. All the Knicks had to do to retain Lin was match the contract. They chose not to. Instead, they opted to bring in Jason Kidd (who turns 40 in March), Marcus Camby (who turns 38 in March), and Ray Felton (who isn’t old, but makes up for it by being fat). Each were signed to three-year contracts worth a combined $30 million.
Here’s the weird part – over the first two years of each contract, Kidd, Felton, and Camby will make twice as much as Lin will. Lin’s contract is structured in such a way that it will pay him close to $5 million in each of the first two seasons, before ballooning up to $15 million in the third year. That structure is the primary reason that the Knicks opted not to match Houston’s offer, but it’s also the primary reason that the Knick SHOULD have matched.
During the “Linsanity” month of February, Lin played at a level that people don’t seem to be remembering correctly in hindsight. From February 4th through February 22nd, Lin played 11 games, starting 10, and averaged 24 points, 9 assists, 4 rebounds, and 2 steals on .581 True Shooting %. Yes, his turnovers were high, but during that stretch, he was producing on a level comparable with Chris Paul, Russell Westbrook, Derrick Rose, and every other elite point guard in the league.
If we return to the structure of Lin’s contract, if he performs anywhere close to that level during the first two years, he’ll be one of the most underpaid players in the league. Even if he doesn’t perform to that level, perhaps instead only to the level he played at in March (14.5 PPG, 6.5 APG, .523 TS%), $5 million is still a very fair price for that level of production. In any realistic scenario, the first two years of Lin’s contract would either be (1) a fair market price, or (2) wildly and comically underpaid. And in either case, Lin’s production will still be significantly better than whatever the 40-year old Jason Kidd (2012 PER: 13.1) or the overweight Ray Felton (2012 PER: 13.4) will give them.
The third year is where it gets tricky.
Let’s say, for the sake of argument, Lin, against all odds, develops into an All-Star caliber player and continues to play at the level he did for the month of February, only he sustains it for multiple seasons. Would that be worth $15 million? Absolutely.
Okay, but what if he does the opposite? What if his month of February was just a giant fluke and he turns out to be a total stiff by the time that third year rolls around. Would that be worth $15 million? Obviously not. But the part that is being left out is that now Lin becomes a $15 million expiring contract. Expiring contracts that large always have value, as teams are constantly trying to unload bad contracts and offering the receiving team picks or young players for their trouble. A $15 million expiring contract will always have value, even if the player doesn’t.
The argument that the Knicks will make is that a contract that large will push them too far into the luxury tax, which is technically true. The tax hit for Lin’s contract alone will likely cost $30 million. However, there are two very important counters to this point.
First, the Knicks are basically guaranteed to be paying that money anyway. Kidd, Felton, and Camby are slated to make $11 million in 2015, and one basically has to assume that the Knicks will take on more money between now and then, either through signing draft picks or other free agents next summer or the summer after. The only way that argument makes sense is if the Knicks believe that adding Kidd, Camby, and Felton was more important than retaining Lin, and therefore had to happen regardless. This argument is rather ridiculous, as Lin was better than all three of those players last year, and in the case of Kidd and Camby, is 16 years younger.
Secondly, even if (1) the Knicks opted to break open the piggy bank and pay for all four players, (2) Lin turned out to be unworthy of his $15 million contract, and (3) they couldn’t find a suitable trade for Lin’s expiring contract, they still would have a way out of the luxury tax penalty that Lin’s contract would cost them, by way of the new “stretch” provision.
The “stretch” provision allows a team to waive a player, and stretch his payments over twice the remaining seasons on the player’s contract, plus one. In layman’s terms, the Knicks could stretch the $15 million for the final year of Lin’s contract over three years for $5 million each. This would significantly reduce their luxury tax bill.
Finally, the part that people seem to be overlooking is that the team in question is the New York Knickerbockers. This team prints money. Even during the Isiah Thomas years, when the Knicks consistently had payrolls north of $100 million, and the team was still awful, virtually all financial speculations said the team still turned a profit. Furthermore, Lin presents countless marketing opportunities, especially overseas. It’s basically a guarantee that simply having Lin on the roster would bring in enough money to pay for his contract. It makes no sense that the Knicks would start pinching pennies at this exact moment. But then again, we are talking about the Knicks.