With the Lakers’ season over and the new front office frequently emphasizing free agency as a means to strengthen the team, fans have been focused on ways to create more cap room and targeting potential free agent targets. This may just be my impression, but it sounded like the primary justification for hiring Pelinka was his ability to navigate the cap and leverage his relationships with agents and players to recruit free agents, and Pelinka has probably spoken more on that aspect of team building than anything else.
After the misadventures in free agency the team has experienced the last few years, I have spent a fair amount of time thinking through the best way to obtain and maximize cap room. A few months ago I worked through the Lakers salary cap picture for the next few years, highlighting how much room the team likely have under different scenarios and ways the Lakers could build around the core and add impact players like Paul George. That analysis drove home the need to take advantage of a two-year window to add pieces using potential cap room, before Randle, Russell, and Ingram’s extensions kick in and eat up any possibility of meaningful space.
In this post I will try to forecast this summer’s free agent market conditions by looking at the available capital and free agent pool, comparing these conditions to the last few summers (including last year’s mind-blowing bonanza), and then thinking through how the market should impact the Lakers’ strategy.
As detailed below, this summer’s free agency will not repeat last year’s absurdity, but it still forecasts to involve substantial cap room and corresponding high contract amounts. Given the difficulties in finding value in free agency, the Lakers must be careful to not fall into the same traps in overpaying mediocre, short-term players, and should prioritize continuing to develop and build on a long-lasting foundation.
LAKERS CAP OVERVIEW
As a refresher, below is an overview of the Lakers’ cap picture for the next two years, followed by a few summary points to keep in mind.
|Black*||$6.7||—||Non-guaranteed (assume waived)|
|Young*||$5.7||—||Player option (assume denied)|
|Russell||$5.6||$7.0||Extension eligible in ‘19|
|Randle**||$4.1||$12.3||Extension cap hold in ‘18|
|Nance||$1.5||$2.3||Extension eligible in ‘19|
|Zubac||$1.3||$1.5||Extension eligible in ‘19|
|17 #28 (Hou)||$1.2||$1.4|
|Holds||$0.0||$1.6||Roster holds @$.0.8M until 12 spots|
The above picture assumes the team keeps its 2017 lottery pick, and that Black and Young do not return, resulting in around $24M in projected cap room this summer. The numbers shrink and grow based on changing the assumptions. For example:
- If Young and Black return on their current deals: down to $11.7M in room.
- If the team loses the top 3 pick, has a mid-lottery 2018, and things otherwise stay the same as above: $30.3M in 2017 and $22.7M in 2018.
- They can stretch Mozgov and/or Deng, with the remaining salary stretched over twice the number of years plus one, saving $8-10M per contract per stretched year:
- Stretching Mozgov in 2017: cuts his salary to $6.9M over 7 years.
- Stretching Mozgov in 2018: $6.5M over 5 years.
- Stretching Deng in 2017: $7.7M over 7 years.
- Stretching Deng in 2018: $7.4M over 5 years.
- There is a path to massive cap room: if Black/Young do not return, the team stretches Mozgov this summer, and trades Deng into cap space (with the #28 and 33 picks attached): $51M in 2017 and $54M in 2018.
In other words, the Lakers have cap room to target significant free agents this summer, and have various options to create whatever cap room they would reasonably need under different scenarios (e.g., stretch Mozgov, attach assets to unload Deng or Brewer, deal Clarkson, etc.).
Note that the maximum free agent salaries are based on the player’s years in the league and a percent of the salary cap for that year, as follows:
|7 yrs or less||25% of cap ($25.3M)||30% if Designated Veteran Eligible
|7-9 yrs||30% of cap ($30.3M)||35% if Designated Veteran
|10+ yrs||35% of cap
|No Designated Veteran option|
A veteran max free agent like Gordon Hayward or Blake Griffin (7 years experience) will cost just over $30M in starting salary, and the team can create that room if needed through stretches and/or reasonable trades.
PAST FREE AGENT MARKETS
With the Lakers’ picture clear, I tried to forecast this summer’s free agent market by comparing the conditions to prior off-seasons. For purposes of this exercise, I looked at the last four free agent classes, which includes last summer’s exceptional circumstances caused by the once-in-a-lifetime cap hike, and the prior three summers to provide a few “normal” years of context.
The chart below lists high level data for the last four free agent classes, including the salary cap level, the total amount of cash available in the market, the number of teams with cap room, and contract information for players changing teams. Note that the second row attempts to capture “total capital in the market,” which means how much money teams collectively had to spend on free agents that year. There are a few ways to calculate this total, and I chose to combine: (1) the total cap room for teams under the cap, plus (2) the midlevel salary times the total number of non-cap teams (to include teams’ ability to offer significant contracts even if over the cap).
Teams also can use Bird rights and other smaller exceptions to spend money over the cap, but I did not factor in those amounts when calculating market capital. My estimate is not accurate to the dollar, but it should provide fairly accurate comparative data points, which will help analyze resulting player contracts.
|Salary cap level||$59M||$63M||$70M||$94M||$101M|
|Total capital in the market||$216M||$283M||$333M||$972M||$475M|
|Capital/salary cap ratio||3.66||4.49||4.75||10.34||4.70|
|Number of teams with cap room||13||18||20||30||16|
|Total contracts at midlevel or above||21 contracts
|Total players changing team at midlevel or above contract amount||16 contracts
|Average contract amount for players changing teams at midlevel or above contract||$9.4M||$9.2M||$10.7M||$13.1M||$15M|
|Total players changing teams on contracts over $10M per year||5||2||8||25(!)||8|
(*Note that the 2017 numbers are projections, particularly the predicted contract details, as explained below)
2016 obviously leaps off the page as total absurdity. With the cap rising over $20M, every team had cap room, totaling approximately $1 billion in spending power, 3-4 times what was available in prior summers. As a result, 42 players changed teams while receiving contracts at or over the midlevel amount, almost equaling the three prior summers combined (46). Over 25 players changed teams with contracts over $10M per year, compared with 15 combined the prior three years. Everything about last year’s free agency was unprecedented.
The prior three years shows what happens in more normal market conditions, with a significant portion of the league not having cap room, and only about half the teams picking up a free agent at the midlevel or above. The much lower amount of capital in the market in those years also controlled salaries, with very few massive Mozgov-ish deals going to role players.
2015 was particularly interesting as there was a spike in the total number of midlevel or above contracts (42), and $545M was spent on those contracts (well above the total capital in the market, mostly from teams using Bird rights to go over the cap to keep their own players). This suggests that many teams were planning ahead and trying to lock players up ahead of the pending cap spike. Many of those contracts looked rich at the time are now providing great value (e.g. Danny Green at 4/$40M, Beverly at 4/$23M, etc.). Note the distinction between teams who wisely planned ahead and were spenders in 2015 to lock in long term deals vs. teams that decided it would be better to save all their money and be big spenders in 2016 (cough, Lakers…). Whoops.
PROJECTING THE 2017 MARKET
So how does 2017 compare to prior summers? The summer will be somewhere in between 2016 and past summers, but more like 2015 than 2016:
- Salary cap: $101M
- Midlevel exception: $8.4M
- Teams with projected cap room: 16
- Total capital in the market: $475M
- Total capital/salary cap ratio: 4.70
Even with the cap rising to $101M, only about 16 teams project to have cap room (although this is very fluid based on what teams/players do with options, non-guaranteed deals, etc.). As a result of last year’s frenzy, the midlevel exception rises to $8.4M. The total capital in the market projects to about $475M, far lower than the $1B available last summer, and closer to the $333M in 2015.
The capital to salary cap ratio, which is a good way to normalize the available dollars based on cap inflation, is at 4.70, right in line with 2014 and 2015, and less than half of 2016’s 10.34 level. To me, this indicates that free agent contracts this offseason should compare to 2015 levels once adjusted for cap inflation. In other words, if we look at player contracts based on a percentage of the cap, rather than in pure dollars, then I expect the contract percentages to be closer to 2015 levels than 2016 levels.
To illustrate, below is a chart listing free agents that changed teams during the last four seasons and their contract details (years and starting salary as a percentage of that year’s cap). The right hand column lists the free agents available this summer, with players likely to stay highlighted (many of the others will stay too, of course).
|Capital in Market||$216M||$283M||$333M||$972M||$475M|
|Teams with cap room||13||18||20||30||16|
*0 stayed home
*1 stayed home (Melo)
|*4 stayed home (MGasol, Love, Kawhi, Butler)||Durant: 2/29%
*1 stayed home (Lebron)
|Fringe/solid all star||JSmith: 4/29%
Al Jeff: 3/23%
*0 stayed home
|*3 stayed home (Hayward, Wade, Lowry)||Aldridge: 4/30%
*5 stayed home (Jordan, Millsap, Green, Lopez, Dragic)
*7 stayed home (Conley, DDR, Beal, Drummond, Dirk, Whiteside, Batum)
*4 stayed home
*6 stayed home
*8 stayed home
*8 stayed home
JaM Green (R)
*Players signed (changed teams) by category
(1 changed teams)*3 fringe/all stars (3)
*12 starters (8)
|*2 superstars (1)
*3 fringe/all stars (0)
*12 starters (6)
|*4 superstars (0)
*6 all fringe/all stars (1)
*16 starters (8)
|*2 superstars (1)
*8 fringe/all stars (1)
*27 starters (19)
*4 fringe/all stars
*15 solid bench players
One significant factor that impacts the market is the depth of the free agent pool, and in that respect 2017 is a mixed bag. There are only 5 all star level players (Paul, Hayward, Griffin, Lowry, and Millsap), and most will likely stay put. But there are 20+ starting quality players, many of whom could be available, and a large group of high quality bench players. This isn’t quite as deep as 2016 (many agents wisely planned ahead to have players hit free agency last summer), but it is still a solid collection of impact players.
When projecting players through comparison to prior free agent contracts it is important to think in terms of the contract’s percentage of the cap. A $10M contract in 2014 is not worth the same as a $10M contract now. Monta Ellis and OJ Mayo getting 14% of the cap in 2014 ($8M salaries), when they were considered low end starting guards, equates to a $14M contract now (think about Patty Mills, James Johnsons, etc.). Similarly, Demarre Carroll and Robin Lopez getting around 20% of the $70M cap in 2015, for solid starting players, equates to around $20M now (think of Jeff Teague, JJ Redick, etc.). Based on this data, I will attempt to project where free agent salaries are likely to end up this summer, to frame how we think about the Lakers’ options.
It’s safe to project that the 5 all stars and the top 3 RFAs (Noel, KCP, Porter) sign at or near the max. Six of their seven teams don’t have cap room (WAS, UT, LAC, DET, ATL, TOR), and those contracts thus would not eat up cap room if they stay put.
That leaves a significant amount of money that will be spent on non-star players. Based on prior years and market conditions, I project that Holiday, Hill, Ibaka, Gallinari, and Teague will get large salaries at 18-25% of the salary cap ($18-25M this year), similar to comparable free agents from prior summers (e.g., Barnes, Parsons, Ryan Anderson last year; Matthews and Robin Lopez the year before). Some of these players will be signed using cap room, and some using Bird rights for non-cap teams.
I also project that the other starting quality players (14 others on my list) will be paid between 12-19% of the cap (between $12-19M in starting salary), with an average of around $14-15M. This includes players like Patty Mills, James Johnson, Joe Ingles, JJ Redick, and Dion Waiters. This amount is in line with what players at that level were paid as a percentage of the cap in 2015.
High end bench players/fringe starters, like those on the list in the chart, typically go for between 5-10% of the cap ($5-10M starting salary), and several will get midlevel or above contracts this year in the $8-10M range. This includes intriguing players like Ian Clark, Ilaysova, Olynyk, etc.
These projections result in around 32 players signing midlevel or above contracts (5 all stars, 3 elite RFAs, 5 near max starters, 14 solid starters, and 5 bench players). Based on prior offseasons, we can expect around half of those will change teams, mostly from the starter/bench group, with the all stars and elite RFAs mostly staying put.
LAKERS FREE AGENCY STRATEGY
What do these market conditions mean for the Lakers this offseason? It means they need to be very, very careful, and not repeat the mistakes they made last year. The Lakers will be able to create as much cap room as they need for a max player, and enough to sign two players to $10M+ deals if desired. If there are opportunities to sign players at value then they should do it, of course, but free agency is not always the place to find value, as we’ve painfully learned.
I am not going to here think about which players the Lakers should and should not sign, but want to instead think more in terms of guiding principles. Not all free agents are cut from the same cloth, and certain categories return more on their investment than others. By virtue of the maximum salaries imposed by the CBA, the best players in the league are underpaid, and produce far more than they are paid. If the Lakers have an opportunity to sign one of the younger all stars (Hayward, Griffin) or one of the elite RFAs (Porter, KCP, Noel) they should probably do so. Those players are likely to produce at high levels and return solid value on their contracts for several years.
But if those players are not available, the Lakers may have a hard time in this market signing the players they like to contracts at good long term value, without seriously jeopardizing future cap flexibility. In this market, Holiday will likely cost $20-25M per year, and maybe get a max; JJ Redick will get $18-20M; Patty Mills will get $13-15M; James Johnson and Joe Ingles will get $10-12ish; Ian Clark will get $8-10M.
These are all players that would help and fit, but locking them into deals at those rates will also make it more difficult to secure true blue chip stars down the road when the core is ready. This is the cost of having signed Mozgov and Deng to over 30% of our cap for four years. I’d be thrilled to land Mills or Clark on the right deal, and the Lakers certainly need better players to win games and help with the core’s development. But we should also be aware of the cost of signing role players to contracts at that level, and be ready to roll over the cap room if the market conditions aren’t favorable to our long term plans.
The best front offices have avoided these traps and found creative ways to use cap room during the early stages of team building (e.g. Utah renting its cap space a few years ago to help GS obtain Iggy). The core will be much further along in the 2018 offseason, and that free agent class looks fairly Lakers friendly… While I am anxious to see the team improve next year, I am more anxious to build right, and I hope the team uses its cap room with an eye towards the long game.
Analyzing the past few free agency classes closely has also confirmed a few high level thoughts about free agency and team building:
First, with very limited exceptions (e.g., Hinkie’s 76ers), owners are going to spend the money they have. Even when this results in overpaying, teams almost always decide to use their cap room to add the best available players they can, at whatever price it takes to add them, rather than letting cap room go unused.
Second, the lion’s share of free agents who sign deals with new teams are some shade of overpaid as a result of market dynamics. These players are typically paid based on what they have done in the past, or based on one team being a bit over-optimistic about strong past play continuing, or improvement happening, or injuries not recurring. Because salaries are the result of the top bidder, rather than the average bidder, it just takes one team to drive a player’s salary higher than it should reasonably go, and there is always that one team. As a result, if you want a player, you have to outbid everyone, including the crazy Kings-ish owner who is irrationally invested in getting that particular player.
Third, and most importantly, history shows that free agency is not an effective way to build a roster. Because teams spend about the same in total salary (with a few exceptions like the Cavs), and the goal is to beat 29 other teams, good teams must get the most value out of their limited salary resources. Free agency has proven to be the least effective place to find value of the three methods for acquiring players (draft, trades, FA). Free agency is a place to add a final starter, or acquire bench depth, but not a place to build the foundation of your team.
Teams do everything possible to keep the best players in place and avoid them ever going to market. Consider, for example, the top 20 or so players in the league, and how few were obtained via free agency: Lebron and Durant are the only ones, and those acquisitions were exceptional circumstances. Most of the top 20 players were drafted, and a few were obtained via trade at times when their value was low (Harden, Paul, M Gasol, Isaiah, Cousins). The teams who have obtained significant players in free agency did so because they already had a strong core in place and the free agent saw a foundation they could complement (Aldridge to SAS, Horford to BOS, Anderson/Gordon to HOU, Iggy to GS etc.).
The lesson is to build your team first and foremost through the draft and shrewd trades, and then supplement the team through a free agent acquisition or two, not to count on free agency as the means to build the team from the outset. Furthermore, recent history shows that when mediocre or poor teams start making significant free agent additions, things often go poorly… (Parsons to MEM, Monroe to MIL, Turner to POR, Noah to NY, every FA Detroit or Orlando has ever signed, MozDeng, etc.). The best free agents want to go to the best teams, who are already built and ready, and the types of free agents that second and third tier teams can obtain often have warts that make the investments extremely risky.
What does this all mean? The Lakers shouldn’t put too many eggs in the free agency basket. The best path is to build the foundation slowly through the draft and well timed deals. And then, once the foundation is set, try to supplement through finding value deals in free agency.
Now, teams also have to be opportunistic and flexible, and the Lakers may have an opportunity to acquire Paul George or others in free agency in coming offseasons. This certainly seems to be a priority for the new front office. But I hope they are fully committed to getting the foundation set in place – developing the existing core, perfecting the scouting and training processes, improving the coaching, attracting first rate talent to each aspect of the organization. If George or other superstars are going to come, and if they are going to do something meaningful once here, it will be because they see something worth joining.