Saturday, July 25, 2009

Warrick Qualifying Offer Rescinded

Posted By on Sat, Jul 25, 2009 at 11:06 PM

410d/1248580594-hakim-warrick.jpgThe Grizzlies announced today that they have rescinded their qualifying offer to Hakim Warrick, making the incumbent forward an unrestricted free agent. It was a slightly unexpected and curiously timed move.

Trying to make sense of this decision requires wading into some pretty detailed material regarding league contract rules, so try to follow me.

There are essentially three types of free agency that apply to Warrick. By issuing the qualifying offer (a one-year contract offer I estimate at $2.7 million based on league rules, but which has been reported at $3 million) to Warrick earlier in the summer, the Grizzlies made him a restricted free agent. This meant that Warrick was free to negotiate with any team in the league but that the Grizzlies had the right to match any contract offer. Warrick could also negotiate any contract with the Grizzlies. Warrick could also sign the qualifying offer and play next season on a one-year deal for that amount. (This is what ended up happening with Stromile Swift at the end of his Grizzlies' rookie contract.)

By pulling back the qualifying offer, the Grizzlies have made Warrick an unrestricted free agent. Warrick could still negotiate a contract with the Grizzlies, but now the Grizzlies no longer have rights to match offers from other teams and Warrick no longer has the one-year qualifying offer as an option. My understanding (I'm admittedly slightly uncertain about the first part) is also that the cap hold (the amount that counts against the team's salary cap until an actual contract is signed) for Warrick increases from the qualifying offer to an amount equal to 300% of his salary last season (approximately $6.3 million).

The next step could be to renounce Warrick. In doing this, the team would lose Warrick's Bird Rights (the ability to exceed the salary cap in signing him) but would remove the cap hold, thus maximizing the team's available cap space. (It would seem intuitive that by renouncing a free agent a team would lose the option of using them in sign-and-trade scenarios, but apparently this is not the case.)

Next, to really understand the options, let's look at where the team's salary situation currently stands. It should be noted that teams do not release contract information, so all the numbers here related to individual salaries are estimates. I'm using Hoops Hype's generally reliable salary numbers where applicable and my own estimates when Hoops Hype doesn't furnish a number:

Current Roster:

Team Payroll:

Zach Randolph 16,000,000
Marko Jaric 7,100,000
Hasheem Thabeet 4,458,840
O.J. Mayo 4,165,560
Mike Conley 3,883,800
Rudy Gay 3,280,996
Marc Gasol 3,240,000
Hamed Haddadi 1,627,779
Darrell Arthur 1,050,480
DeMarre Carroll 1,009,680
Sam Young 600,000

Total Active Payroll: $46,417,135

Non-Active Salary/Holds:

Jerry Stackhouse (buyout) 2,000,000
Juan Carlos Navarro (qualifying offer) 900,000

Cap Total: $49,317,135
League Salary Cap: $57,700,000

Hakim Warrick cap hold 6,300,000

Team Cap Figure (with Warrick hold) — $55,617,135 ($2,082,865 in cap space)
Team Cap Figure (if Warrick renounced) — $49,317,135 ($8,382,865 in cap space)

What Does It All Mean?

With all that information established, what's the meaning and strategy behind the team's handling of Warrick?

The immediate speculation, including in the ESPN.com article from Chris Sheridan that first reported the rescinding of the Warrick offer, was that it's about creating cap space to sign Allen Iverson. But this doesn't really make any sense. Additional cap space will be created by renouncing Warrick, not by pulling his qualifying offer, though the team can do that at any time needed.

The bigger point is that the Grizzlies didn't need to take Warrick out of the equation to sign Iverson, not if the $5 million offer that has been reported is accurate. Even with Warrick's qualifying offer as a cap hold, the Grizzlies would have had roughly $5.7 million in cap space to sign Iverson. Signing Iverson to a $5 million deal then having Warrick potentially play for the qualifying offer absent outside offers would have put the Grizzlies at the minimum 13 players at just under the cap.

So, pulling Warrick's qualifying offer isn't about creating cap space for Iverson or about creating roster spots. What is it about? I don't know how you can avoid the obvious: It takes away the option for Warrick to sign the sheet and play next season for the $2.7-$3 million one-year tender.

Look at what Warrick's agent, Bill Duffy, says, on the record, in the Sheridan piece:

"This was a directive from the owner. It came down from the top, and it is consistent with the cost-cutting measures going on across the NBA," Duffy told ESPN.com. "Eighty percent of the NBA teams, their focus now is economic."

Unless someone close to the situation can convince me otherwise, I'm assuming that the team isn't concerned about losing matching rights on Warrick because they've decided they didn't want to pay him even the amount of the qualifying offer, which would seem to be a relative bargain based on Warrick's production. And I'm assuming that Duffy is accurate is locating this decision squarely in the owner's box. Just a few weeks ago, coach Lionel Hollins was joking about mixing up the names "Hashim" and "Hakim" in practice this upcoming season. And members of the basketball staff have talked about Warrick's experience — in the league and with the team — as pluses.

But, with Zach Randolph on board as the starting power forward and a cheaper, potentially more well-rounded Darrell Arthur as a back-up, the assumption is that team — already safely above the league-minimum salary requirement — didn't want to risk filling that roster spot at the $2.7-$3 million range of Warrick's offer sheet when they could fill it in free agency for something in the range of $460,000 (rookie minimum) to $1.3 million (highest vet minimum).

Removing Warrick from the equation puts the team at 11 players. Replacing Warrick's roster spot cheaply would allow the team to sign Iverson to the rumored $5 million deal and remain a few million under the cap going into the season. Sign a cheaper free agent to fill the guard spot (Anthony Carter, Marcus Williams, Troy Hudson, whoever) and the team could enter the season still several million under the cap.

This is an important financial consideration based not just on the amount of payroll a team is on the hook for, but because the more cap space you have during the season, the more you can rent out to other teams seeking luxury tax relief. The Grizzlies have made several of these deals over the past year — with "cash considerations" coming back, like a service fee at a check-cashing place. And having lots of cash space and open roster spots will allow the team to pursue more of these money-making deals.

Now, is it possible that the Grizzlies are really trying to maximize available space to put them in position to take advantage of tax-fearing teams in a deal to garner significant talent in return? Sure. And those deals will be out there. But recent history suggests that owner Michael Heisley has found a loophole of sorts (based on the $3 million teams are allowed to exchange in trades) to generate revenue that offsets the team's lousy attendance (and other poor revenue streams), and that he intends to fully exploit it.

I'm somewhat sympathetic to this gambit, but the ability to do these kinds of deals creates an incentive to stay under the cap. And recent history shows that while spending is no guarantee of success, staying significantly under cap almost certainly guarantees losing. Winning basketball might end up being a decent revenue-generator too.

I hope there's a compelling basketball rationale for withdrawing a contract offer to Warrick that would have been a relative bargain had he ended up accepting it, but I suspect Duffy is correct here.

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