January 26, 2012
Transaction Analysis
Evaluating Extensions

by Kevin Pelton

Three extensions snuck in before Thursday's midnight deadline to extend the contracts of fourth-year players whose rookie deals will expire next summer. Adding in the two point guards who previously received extensions (Derrick Rose and Russell Westbrook), that's a total of five--one more player than was extended from the 2007 Draft last season. The limited number of extensions has become the new normal. Since 15 players from the 2003 Draft were extended, the average has been 5.6 extensions per year, mostly only to elite players.

There are persuasive reasons not to extend players. Teams tend to have the upper hand in restricted free agency, since rivals are often unwilling to tie up their cap space with a deal that is likely to be matched anyway. Waiting until next summer also gives teams more time to evaluate players and mitigates some of the risk attached to injury.

Before breaking down the extensions that did get done, let's look at an overview of the 2008 Draft class, their performance to date (as measured by WARP through 2010-11) and the deals that were signed, valued by the first-year salary assuming standard 7.5 percent raises.

Pk    Player              WARP    Ext       Present value/notes
-----------------------------------------------------------------------
 1    Derrick Rose        24.8    5/94.8    16.5
 2    Michael Beasley      3.9         
 3    O.J. Mayo            4.6               
 4    Russell Westbrook   26.2    5/80      13.9
 5    Kevin Love          30.3    4/62      13.9
 6    Danilo Gallinari    12.6    4/42       9.4
 7    Eric Gordon         10.9             
 8    Joe Alexander       -0.7              out of league
 9    D.J. Augustin        9.7           
10    Brook Lopez         19.1             
11    Jerryd Bayless       0.0          
12    Jason Thompson       2.3          
13    Brandon Rush        -1.5            
14    Anthony Randolph     5.9        
15    Robin Lopez          1.7             
16    Marreese Speights    3.7       
17    Roy Hibbert          8.3             
18    JaVale McGee        11.0            
19    J.J. Hickson         1.7            
20    Alexis Ajinca       -0.6              out of league
21    Ryan Anderson       15.4           
22    Courtney Lee         1.8            
23    Kosta Koufos         0.3    3/9       2.8
24    Serge Ibaka          9.1              not eligible (2009 debut)
25    Nicolas Batum       11.9           
26    George Hill          6.0             
27    Darrell Arthur      -0.2          
28    Donte Greene        -2.1            
29    D.J. White           1.5              
30    J.R. Giddens        -0.2              out of league

Chicago Bulls extend Derrick Rose for five years and $94.8 million. [12/21]

The extension for Rose, the top overall pick, was the first to be completed--four days before the season opener. That makes sense, since there really wasn't much deliberation from the Bulls' perspective. The new rule allowing select qualifying players to make up to 30 percent of the cap on their rookie extension may as well have been designed for Rose, the reigning MVP. Barring health issues, Rose will be worth every penny.

Oklahoma City Thunder extends Russell Westbrook for five years and $80 million. [1/19]

The new NBA Collective Bargaining Agreement isn't great for the Thunder, which must find a way to sign Westbrook, Kevin Durant, James Harden and Serge Ibaka for the long term while avoiding paying a prohibitive amount in luxury tax. It did give Sam Presti and company one break: Because Durant was extended under the previous CBA, Oklahoma City could give Westbrook the fifth year. The tradeoff for Westbrook was agreeing to lock in his deal at the typical max (25 percent of the cap) rather than seeing whether he would be eligible for 30 percent by making an All-NBA team this season.

The trickier negotiations for the Thunder will come next October, when the surging Harden and Ibaka are up for extensions. (While Ibaka was part of the 2008 Draft, he is in just his third season because he remained in Spain for a year before joining the team.) For now, giving Westbrook the max was an easy call. He was an All-NBA Second Team pick last season at age 22, and I'm on the record as believing that concerns about Westbrook's style of play and ability to coexist with Durant are vastly overstated. Most of all, why mess with a mix that got Oklahoma City to the Western Conference Finals a year ago and has the Thunder as favorites in the West this season?

Minnesota Timberwolves extend Kevin Love for four years and $62 million. [1/25]

No extension decision has received more scrutiny than Love's deal with the Timberwolves, and understandably so. Love is one of three superstars from this draft, and actually had the highest WARP total through last season. (He's ahead of Rose and Westbrook this year, too.) As our Bradford Doolittle broke down recently, there's no question that Love is a max player statistically.

Ultimately, I would have given Love the fifth year if that's what he wanted. The odds of Ricky Rubio or any other Minnesota player proving more valuable than Love are low, and it's entirely possible the Timberwolves will never need the designated player provision again. Still, I see the decision as a defensible one. Beyond saving the designated player if needed down the line, shorter contracts are usually better from the team's standpoint. That math changes to some extent with max players, who are often underpaid because the rules prohibit paying them any more. As noted repeatedly today, the teams that lost free agents because of their ability to opt out after three seasons (most notably LeBron James) surely would have been happy to lock those stars up for five years.

At the same time, it's easy to forget how much uncertainty there is with the performance of any player. While the Class of 2003 has aged well, previous max extensions for players like Steve Francis and Stephon Marbury that seemed like no-brainers at the time have held up poorly. More recently, we saw just such an example with Brandon Roy and the Portland Trail Blazers. Obviously, Love doesn't have the medical red flags that ultimately doomed Roy's career, but five years remains a long time in the NBA.

If he was truly upset about not getting offered five years, Love's trump card was to decline an extension altogether and retain the option of signing the one-year qualifying offer before hitting unrestricted free agency in the summer of 2013. However, that would have meant giving up $7.8 million next season (the difference between the qualifying offer and the first year of his extension) in addition to taking an enormous financial risk in the case of injury. There's a reason no marquee player has ever gone this route, and it explains why teams have so much leverage in extension negotiations--often more than they use. It remains to be seen how this will affect usage of the designated player provision. Right now is much too early to make strong statements about designated player strategy.

The fear in Minnesota will be Love remembering this slight and deciding to bolt when he's able to opt out in the summer of 2015. Whether that's realistic depends on how quickly the Timberwolves progress in their rebuilding. If they're contending behind a Love-Rubio core, this could easily prove a footnote in the historical record. If not, Love might be looking to get out. As a result, this decision really is a gamble on Rubio--both the possibility he might require a designated player designation in three years and the hope that Love won't be able to give up the chance to play with him.

Denver Nuggets extend Danilo Gallinari for four years and $42 million and Kosta Koufos for three years and $9 million. [1/25]

As I wrote in Pro Basketball Prospectus 2011-12, Gallinari's combination of age and performance suggest he's got a good chance to develop into an All-Star at some point. At the very least, he should be close to that level of play, so for the Nuggets to get him for significantly less than the max makes this potentially a very good deal. Gallinari was paid right about in line with his WARP total over his first three seasons, which doesn't take into account the fact that he barely played as a rookie due to back surgery. Since then, he's progressed quickly, and shown the ability to take on more of a leading role this season.

The Koufos deal was more surprising, if only because players of his ilk rarely get extended. Koufos' extension is the second smallest on record, and the Nuggets also handed out that one--three years and $5 million for Renaldo Balkman. The money seems about right given the promise Koufos has shown when he's gotten extended action this season. The only question is whether he could have found more playing time elsewhere than in the crowded Denver frontcourt, which goes six deep with rotation-caliber contributors.

The Nuggets' payroll is adding up after new contracts for Gallinari, Arron Afflalo and Nenê within the last six weeks. Assuming Gallinari and Koufos are getting standard contracts with 7.5 percent raises, Denver is committed for $56.9 million next season and a little over $48 million in 2013-14, using ShamSports.com's salaries as a guide. There's plenty of wiggle room next year to re-sign either Wilson Chandler or Rudy Fernandez as a backup wing and find a backup point guard for Ty Lawson. The issue is when Lawson comes up for an extension, which would kick in during 2013-14 and figures to be north of Gallinari's contract in value.

At some point, the Nuggets will be unable to keep paying Chris Andersen and Al Harrington their escalating salaries for declining production. Harrington looked like an amnesty contract before a resurgent performance this season. Instead, Denver may hold off until the summer of 2013, when the last two seasons of Harrington's contract are just half guaranteed. Waiving Harrington would leave the amnesty provision free for Andersen, who is due $4.8 million in 2013-14 and may well slip to third on the depth chart at center by then. For most teams, losing Andersen and Harrington would be a blow, but that's the beauty of the depth the Nuggets have built. They can easily slide Koufos and rookie Kenneth Faried into this backup spots with little drop-off.

Kevin Pelton is an author of Basketball Prospectus. You can contact Kevin by clicking here or click here to see Kevin's other articles.