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Timberwolves and Team Options

 Money Talks with shrink

Last week, the biggest financial news from the Timberwolves was their decisions to exercise Kevin Love and Corey Brewer's contract options, and to decline to exercise Oleksiy Pecherov's.  All three were first round picks and thus the terms of their contracts follow the specified rookie scale. Before we discuss these decisions, let's take a quick look at the rules that govern first round picks.

In 1995, the NBA changed its Collective Bargaining Agreement to put players drafted in the first round on a strict salary scale based on their position in the draft.  Unlike other sports, this prevented rookies for holding out for exorbitant salaries beyond that of most veterans.  Teams can offer between 80%-to-120% of that salary scale, no more, no less.  For example, 2009 #1 pick Blake Griffin got nearly $5 million in his first year, and 27th pick Wayne Ellington, received a little over $1 million.  With guaranteed raises built into these contracts, the first four years of a 1st rounder's paychecks are pretty well established.
The important part for today's discussion is that while the first two years are guaranteed for the player and team, years three and four are team options.  On October 31st each year (or the next working day this year, November 2nd), teams need to decide whether they want to continue with the contract, or let the player become an unrestricted free agent at the end of the season.  You'll note that the decisions are for the next season, so a decision on October 31, 2009 is for the salary for the player from July 1, 2010 through June 30, 2011.

This creates a dilemma for the Timberwolves.  Every contract that they retain for 2010-11 means less money under the salary cap next summer.  Despite declining Oleksiy Pecherov's option for $2,380,270, Kevin Love ($3,638,280) and Corey Brewer's options ($3,703,472) cut deeply into their cap space.  Raw cap space is a valuable commodity for either signing free agents for more than other team's Mid Level Exceptions (around $5 mil in 2010), or more likely, trading with other teams eager to sign free agents or get their payroll under the declining luxury threshold.

Here's what David Kahn had to say about the decisions:

"We are happy to extend Kevin and Corey for next season.  All of us have been impressed with the determination displayed by both players this summer to make themselves better players through conditioning, hard work and skill development. I believe both have the drive and desire to be special players in this league. "As for Oleksiy [Pecherov], I spoke to him this morning that he should not interpret this decision as if Coach Rambis and I believe he has no future with our organization. Far from it. Because of our cap flexibility next season, we could re-sign Oleksiy next summer if it is in our mutual interests. He is a young player with potential, who is just seeing significant playing time for the first time in his career."

The three decisions were expected by many fans.  Kevin Love has clearly shown he is a part of the Wolves' future, and Corey Brewer showed enough flashes in the pre-season to earn another year of examination.  While Brewer's play can be erratic, he fits David Kahn's criteria of size, athleticism, and room to develop.  Pecherov has shown some offensive ability but it would be difficult at this point to guarantee his salary when it would cost the team cap space.

Dollars under the salary cap are more valuable than ordinary dollars, because they can do additional functions.  For example, with enough of them, a team seeking free agents can outbid teams that are over the salary cap which can only offer the Mid-Level Exception (about $5 mil in 2010).  These dollars can also allow a team to make a trade that isn't within the 125% + $100,000 matching requirement, allowing them to trade greater amounts of salary relief.  Even if the Wolves believed Pecherov was worth a $2.4 million salary in 2010-11, the may not have wanted to lock up the more useful dollars under the cap.  However, the break even point for this decision isn't production-vs-salary, but whether the team was confident they could trade the player and his two guaranteed years to another team for an expiring.

Examining the overall financial effects of these decisions require taking on some uncertainty.  If we predict that the NBA will set its 2010 salary cap at around $52 million, and further estimate we'll spend about $4.5 mil on our protected picks plus filler to reach roster minimums, letting all three walk at the end of the season would have left $16.9 mil in 2010 cap space. Keeping all three would put the Wolves' cap space at $7.2 mil, and the current decision puts them at around $9.5 million.

However, its still a long way until 2010, and its important to note that these "guaranteed contracts" don't lock the Timberwolves into the $9.5 million cap space estimate.  This is a team that can change.  There will be a lot of examination of the players and their fit on this team for the future, and David Kahn has certainly demonstrated that he is not afraid to make a trade or signing.  For example, like Rodney Carney last year, the Wolves could still offer Pecherov a contract up to his $2.4 mil  -- though other teams could offer more.  Things could happen that could cause Brewer to be dealt.  If Kahn believes the Wolves have a chance at one of the elite free agents for next year, he may trade players like Ryan Gomes or even Ramon Sessions, to increase the Wolves' cap space.  The possibilities are endless, because at long last, the Wolves have only expirings contracts and no over-priced deals.

With several trade assets, financial flexibility, and many other owners facing serious financial challenges, Kahn has positioned the franchise to take advantage of any number of opportunities that may present themselves.