How the Utah Jazz can retain their core in the face of a salary cap squeeze

Despite a few key injuries and a slightly uneven start, the Utah Jazz have an extremely talented young core and appear ready to fill the power vacuum below the Warriors, Clippers, and Spurs in the Western Conference. They’re 16-10, currently in 6th place, despite missing Gordon Hayward, George Hill, and Derrick Favors for various portions of the season, not to mention being without key reserve guard Alec Burks who isn’t expected back until January. The injury story is a common thread for the Jazz. A year ago, the team finished 40-42 and missed the playoffs due to an unfortunate combination of injuries (Burks, Favors, Dante Exum, and Rudy Gobert all missed significant time because of assorted maladies) and bad luck.1 With the same trend continuing at the beginning of this year, many around the league have begun to wonder if the Jazz are ever going to take the leap that many are expecting.

However, there are numerous reasons to be optimistic. Star wing Gordon Hayward has continued his growth trajectory, inserting himself among the top 20 or 30 best players in the league. His combination of playmaking chops, shooting stroke, and finishing ability is only topped by the league’s elite. He’s in the 88th percentile of forwards in assist percentage, is shooting 34% from three-point territory (36% career), and has a field goal percentage in the restricted area that ranks in the 84th percentile of non-bigs.

Another big part of Utah’s high level of play is the career year from veteran guard George Hill, who was acquired in exchange for the 12th overall pick in the 2016 draft. A top 20 point guard in each of the last 3 season according to ESPN’s RPM, it appears Hill has pulled the unlikely feat of actually improving during his age 30 season while running the point in Salt Lake City. Hill’s ability to create offense for himself and others as well as spot-up off the ball (he’s shooting an unsustainable but no less impressive 46% from three-point land) has meshed perfectly with Hayward and Rodney Hood, who both flourish with greater playmaking responsibility than typical wings. In addition, he’s playing his usual stellar defense, using his length to harass opposing guards and disrupt passing lanes. His play has been essential for the Jazz, especially during the games that Gordon Hayward missed due to a finger injury.

7’1” center Rudy Gobert has also improved from a season ago. He’s averaging career highs in points, blocks, and rebounds along with an unmatched efficiency on the offensive end (his 68% effective field goal percentage is among the league leaders) and his typical elite rim protection. If you’re into more all-encompassing stats, both his box plus minus and RPM are significantly higher than his previous bests, and the Jazz are 11 points per 100 possessions better with him on the court versus off, a much larger number than in previous years. This production comes in the wake of a four-year $102 million extension signed in October. Gobert would likely have received a maximum offer sheet in restricted free agency next summer, which the Jazz would have had to match to keep the talented big man in Utah. By locking Gobert in on an extension rather than waiting till he hits free agency, the Jazz will see sizeable and vital salary cap savings.2 The Gobert extension comes as just another shrewd maneuver from the Jazz front office over the course of their rebuilding project the began when the team traded Deron Williams and let Al Jefferson and Paul Millsap walk in free agency.

The rebuild has been executed nearly flawlessly. The Jazz have consistently gotten more value in the draft than expected from their draft position. Hayward was selected 9th, Gobert 27th, and Hood 23rd. All have greatly exceeded what is reasonable production to expect from those spots. The team has also made smart trades to maximize future assets in exchange for present ones. In 2011, they acquired Favors and the pick that would become Kanter in the deal that sent Williams to the Nets. In 2013, they took on the contracts of Richard Jefferson, Andris Biedrins, and Brandon Rush from the Warriors, who needed to clear cap space to sign Andre Iguodala, and were compensated with two first round picks and three second round picks for doing so. Furthermore, after Gobert’s emergence in 2014-15, it became clear that Gobert and Favors would be the cornerstones of the team moving forward and Kanter was no longer in the team’s long-term plans. Consequently, they dealt Kanter to the Thunder and took on the contracts of Kendrick Perkins and Steve Novak in a three-team trade that netted the Jazz a first and second round pick in return. By continually searching out good value for players that didn’t fit into the team’s future plans and renting unused cap space to teams looking to win now, Utah secured a war chest of young players and draft picks, which maximized their chances of finding rotation players, starters, and stars. In turn, have built a system that will lead to sustainable success. They are still owed two future first round picks (2017 GS, and 2018 OKC) as well as four second round picks in addition to owning all of their own selections. 

In fitting with this trend, the three additions they made this offseason (Hill, Joe Johnson, and Boris Diaw) all fit in swimmingly with team current team and come at a minimal cost in terms of assets and future flexibility. The Jazz are going to be contenders this year and still sit $13 million under the salary cap (an impressive feat in cap management). However, rather than sit on those savings, the Jazz have some options to use that money to help the team in the long-term. Hill, who is headed to unrestricted free agency next summer, and Favors, who will be a free agent in 2017, are both eligible for extensions and the Jazz would significantly increase future cap flexibility by trading in their current cap room in exchange for having more money to keep their key players in Salt Lake City down the line.

To start, an extension for Favors makes financial sense for both sides. The big man out of Georgia Tech signed a 4-year $49 million contract in 2013 that paid him a fair salary for a starting big man under the financial environment at the time. The average annual salary of Favors’ contract was about 21% of the $58 million cap in 2013-14 and 19% of the 2014-15 cap, which is typical money for a good starter in the NBA. For context, Kent Bazemore and Ryan Anderson signed contracts this offseason to be starters for their respective teams that pay them between 17% and  20% of the current $94 million cap. Meanwhile, because Favor’s contract started at higher annual payments, which have declined, he will make just $11 million this season.4 Because he can be expected (barring injuries) to produce at the rate of an above average starting power forward given his past success (9th among power forwards in RPM in 2014-15 and 18th in 2015-16 ) and age (25), he is scheduled to be woefully underpaid this season and next.

Favors and the Jazz can remedy the situation with a renegotiation and extension. Using the $13 million in cap space, the Jazz can bump his current salary up from $11 million to as high as $24 million and then extend the contract for 3 years beyond this season using that higher salary as a baseline. Yet in an ideal world, the Jazz would be able to extend both Favors and Hill, dividing that $13 million between the two of them. However, ESPN’s Zach Lowe cut against this hope when he wrote, “The Jazz have about $13 million in cap room they can use now to give Favors or Hill a raise, and a long-term extension based on that higher salary. They cannot extend both.” While I have no inside information on the ongoing negotiations between the Jazz and each of the players (and Zach usually does), I do not necessarily agree.

I think the Jazz can pull the ultimate coup, retaining two pieces of their core that have the opportunity to jump ship and using surplus cap space this year to maximize their future flexibility, but it would require finding a trade partner to take on Shelvin Mack for zero salary in return. Mack has played well at backup point for the Jazz and has even been solid in a pinch while filling in for Hill in the starting lineup. While he lacks the ideal playmaking ability for a lead guard, he has decent size, can attack the basket in the right matchup, and won’t kill you spacing-wise (32% career from beyond the three-point line). He’s been an above-average backup so far this year, ranking 38th among point guards in RPM, and there are teams such as the Hornets, Bucks, Pacers, and Grizzlies that could use a good backup point guard. While these teams don’t necessarily have the cap space to fit Mack, a trade could be swung through Philly or Brooklyn, which are under the salary floor, that benefits all parties involved without sending the Jazz any salary back.

A workable option would be for Utah to send Mack to the Hornets. Charlotte to trade Brian Roberts and Aaron Harrison (only $1 million in guaranteed money) along with a second round pick to the Nets. Finally, the Nets could send a zero-value asset to the Jazz such as a top 55 protected 2nd round pick or the rights to 2004 51st overall pick Christian Drejer.3 If the Hornets are wary of giving up Harrison, they could substitute 2nd-year forward Christian Wood, or simply dump current backup point guard Ramon Sessions and his $6 million salary altogether (which would, of course, require more compensation to Brooklyn). Similar deals could be cobbled together for any of the other teams in need of point guard, making moving Mack a relatively easy task for the Jazz.

Moreover, the Jazz have the pieces to replicate Mack’s production internally. They could increase Dante Exum’s minutes, in particular letting him spend more time as the lead ball handler. While this might not be the best option for the Jazz this year (there’s a reason Mack has soaked up most of the backup point guard minutes), letting Exum spend time as the primary ball handler could be a significant boon to his development as a point guard. Plus, it would allow the Jazz to observe how he operates with the ball in his hands on a more consistent basis and make judgments on the viability of him playing the point long-term. They also could insert second-year point guard Raul Neto into the rotation. His minutes have been scarce thus far this year racking up 14 DNPs coach’s decision and playing mostly in garbage time when he does get minutes. However, he performed admirably when thrust into a significant role as a rookie last year, playing 18 minutes per game, defending adequately, and shooting 40% from beyond the arc, albeit in just 160 attempts. While I don’t want to overstate his value — he was solid but unspectacular, ranking 45th in RPM among point guards  — he is probably deserving of a chance to prove his worth as a rotation player in the NBA. So in essence, the Jazz not only can mimic Mack’s production with the combination of Exum and Neto, but the benefits are such that it might actually be in their best interest to move him.

If the Jazz were to move Mack, they would have a little more than $16 million in space to give raises to Favors and Hill. I think a smart division of this money is enough to satisfy both players given they enjoy playing in Salt Lake City. Below, is a salary cap projection for the Jazz in which they distribute the $16 million in space approximately equally and each gets the maximum 7.5% raises for the remaining three years of the respective contracts. (I also included salary projections for Hayward and Hood for luxury tax context.)

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This scenario is perfect for the Jazz. They can lock in future payouts to Favors and Hill at lower figures than they would make in free agency. Plus, they have the security of not having to worry about either of them leaving in free agency. The problem, of course, is that no one is sure Favors and Hill would agree to these contracts. However, I think there is sufficient incentive for each to accept contracts similar to the ones proposed.

Let’s start with Favors, he’s set to be paid $11 million this season, and $12 million next season, after which, he will be a free agent eligible to receive a contract up to the maximum, about $31 million according to my math. While it’s unclear is Favors is worth the maximum, he probably thinks so. However, because his free agency is more than a year and a half away, there is significant uncertainty in whether or not he will get that amount of money. Firstly and most importantly, is injury risk. Favors has had his share injuries (none exceedingly serious), missing about 15% of the Jazz’s games over the course of his career. In fact, just returned after missing the last month with a knee injury. Secondly, there is pure production risk. It is not a foregone conclusion that he plays well enough to deserve a maximum contract in 2018. Because of these risks, I assume an even 10% discount rate (derived from working out expected contracts if he gets injured or doesn’t play well in addition to if he plays as well as expected and doesn’t get injured). This would mean that Favors could expect to get a contract that starts at about $28 million in 2018-19. Assuming a maximum raise for 2019-2020, the total expected 4-year payout, if he stays under his current contract and hits free agency in 2018-19, is just under $82 million.

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This number is significantly less than the number he would receive in the projected extension that gives him a $8 million raise this year and 7.5% raises over the next three years and ends up paying more than $87 million total over four years. As a result, I think there is sufficient reason for Favors to accept an extension close to the one proposed.

As for Hill, the reasons are also compelling that he and the Jazz could reach an agreement on an extension. He could receive a $8 million raise this year and gain the certainty of having the next three years guaranteed eight months ahead of his free agency, which is a significant hedge against the injury risk. Abstractly, there are reasons to think the market for Hill might be slightly less robust than expected. Teams went on a massive spending spree last summer, which leaves a reduced amount of cap space for upcoming free agents. In addition, there are going to be a plethora of point guards on the market: mega-stars like Stephen Curry and Chris Paul, underrated cornerstone Kyle Lowry, solid starters Jrue Holiday and Jeff Teague, and even lesser contributors like Derrick Rose, Deron Williams, Rajon Rondo, Patty Mills, Sergio Rodriguez, and Michael Carter-Williams are all going to be free agents next summer. While it’s a good bet that many of those players will remain with their incumbent teams, many will be competing with Hill for more limited dollars than was originally thought.

To describe Hill’s value more concretely, according to fivethirtyeight.com’s  “CARMELO” player projection system, Hill is expected to produce 4.9 wins above replacement (WAR) this season, 4.3 next season, and decline to 3.1 and 2.2 WAR during the two respective seasons thereafter. Moving forward, to come up with Hill’s expected value in dollars, we apply a multiplier to his projected WAR. FiveThirtyEight estimates market value by applying multiple to WAR that corresponds to the value of a win in the free agent market. Applying this multiple ($4.2 million per win) to Hill gives an estimate that he would be worth $60 million over four years (including this one) on the open market. The proposed contract pays him $70 million over that span (a $10 million premium) and offers more certainty. All of which justifies the fact that Hill would likely accept an extension from the Jazz.

When it’s all said and done, the Jazz are going be finish as one of the best teams in the NBA this season. Their core group (Hill, Hood, Hayward, Favors, Gobert, Exum, Lyles, Burks) will only improve with age and more time together. As a result, they have one of the brightest futures in the league. However, the salary cap crunch that inevitably comes with having a strong collection of talent is going to hit them hard. The luxury tax bill is going to be extremely steep if they want to keep all of their players. While going deep into the tax is an undesirable situation for any owner, the Jazz, being in the smallest market in the NBA according to metropolitan population, will logically be exceedingly wary of fronting massive luxury tax bills. So Utah’s front office must perform a careful salary cap waltz just to retain the talented players already on their roster, let alone make additions. The team took the first step by extending Gobert on a smaller deal than what he would have gotten in free agency. The next moves to secure the team’s future are to trade Mack and extend Favors and Hill. Doing so will reshuffle future salary commitments into their current space, make sure they retain the team that has performed so well this year, and maximize the team’s ability to retain Hayward, extend Hood, eventually bring back Exum and Lyles, and keep their core intact.

***

1. Last season, the Jazz had the point differential of a 46-36 team, according to basketball-reference. The team’s Pythagorean expected record, which is better predictor of future wins than actual wins, suggests that it would have finished 5th in the West had it not been unlucky.

2. Maximum salaries are expected to be larger than what was thought a few months ago. There are three primary reasons behind this phenomenon: (1) In the new collective bargaining agreement (CBA) maximum salaries are going to be a slightly larger percentage of the salary cap than in the previous CBA. (2) Basketball-related income (BRI) will have a broader definition, thus increasing the amount of money to be divided between the players and owners, which increases the salary cap and maximum salaries as a result. For more information, see //heathoops.com/2016/12/nba-players-association-reach-agreement-on-new-cba/ (3) BRI may simply come in larger than expected. One reason to think so is that team’s jersey sponsorship contracts appear to be larger than previously thought

3. The rights to unsigned draft picks that are never coming to the NBA are often included in trades because the NBA’s trade rules require all teams in a transaction send and receive something. An example of this is when the Denver Nuggets traded JaVale McGee and a first round pick to the Sixers in a salary dump. The Sixers had to send something back for the league to approve the deal, so they sent back the rights to 2005 draft pick Cenk Akyol

4. The declining annual payments in Favors’ extension are another example of the Jazz doing the little things to put them in the best position to retain their talent. It makes Favors much more inclined to agree to an extension because the raise the Jazz can give in an extension over his salaries this season and next is larger than if the contract had increasing annual payments and he was currently making $13 or $14 million versus $11 or $12.

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