This isn’t a post about Jeremy Lin’s ability. This isn’t a post about the Knicks team composition. This isn’t a post about the somewhat hypocritical comments made by Carmelo Anthony (if he meant that ‘ridiculous’ was Lin signing the offer then let’s not forget he forced the Knicks to gut their team rather than simply sign with them outright in free agency for less money). This post is purely about the game theory of matching Houston’s $25.1M, 3-year contract offer.
Okay, so the easy scenario to look at is what happens if the Knicks don’t match the contract. In this case, you simply do not add salary to your team and you lose Lin for no compensation. Let me rephrase; you lose a 23 year old potential star with extremely high marketability, a player whose in game shenanigans virtually forced a contract resolution between MSG and Time Warner Cable, for nothing. The no compensation thing is an important thing to remember when we get into what happens if you do match the offer.
No one seems to have a problem with the first two years of the contract, which would pay Lin $5M in year 1, and $5.2M in year 2. That’s in line with a back-up quality PG in the league and is clearly something the Knicks would do even if that costs them something on the Luxury Tax side. The biggest issue is the $14.8M balloon payment, the ‘poison pill’ if you will, in the 3rd year of the deal and the Luxury Tax burden associated with the team’s total payroll.
The first thing I want to clear up is that the Luxury Tax is a TEAM payroll burden, so while it is true that this deal will cost the Knicks an addition $15.6M for Lin, it also means that the tax will cost an additional $25.7M for Carmelo, $24.7 for Amar’e, and $15.4 for Chandler above their contract values. The difference between what the Knicks said they would match ($9.8M in the 3rd year) versus this current deal would increase the team payroll + tax from about $179M to roughly $205M. This is mainly because the $5M difference would be taxed at a rate of 425% due to the new CBA agreement.
It’s pretty much a given that the Knicks are committed to being Luxury Tax offenders. Since that will always be true forever into perpetuity, then the value argument of player with respect to their costs should be thrown out. If we do want to make that argument that the Luxury Tax matters, then we should evaluate whether we want a 42 year old Jason Kidd at $6.2M or an injury prone and old Marcus Camby at $8.6M. Neither one of those deals makes sense from an all in cost perspective. Even without Lin’s contract, does anyone out there think Melo and Amar’e are worth $37M+ each? Do you want to pay Steve Novak $5.25M/YR for 15 minutes of shooting 3s?
Now that the Luxury Tax issue is hopefully squared away, the last piece to figure out is that $14.8M third year of his contract. We don’t know what Jeremy Lin will be so let’s examine the two extreme scenarios, Linsanity and Inlinsanity. The Linsanity scenario is that Lin is the legitimate 25 PTS, 9 A, 4 R, 2 S, 50% FG% clutch winning PG we saw in his incredible run. In that case, the Knicks should gladly pay his $14.8 salary as you are looking at an All-Star production level at two-thirds the price. For comparison sake, Deron Williams will be making $21M+ at the end of his Brooklyn Nets contract. Sign him, done deal, Lin for President.
The second scenario, the Inlinsanity one, is where Jeremy Lin is a complete bust. Then you are in the Eddie Curry situation. A bloated contract on the books set to expire that year. There is value in that, as we’ve seen in the past. In fact, it was Eddie Curry’s terrible contract that helped land the Knicks their
alleged superstar Carmelo Anthony. It’s conceivable that you could parlay Lin into at least a 2nd round pick, if not in a sign-and-trade deal for a potential free agent. Oh, and look which potential small market players would be at the end of their contracts: 2015 – Kevin Love, LaMarcus Aldridge, Marc Gasol; 2016 – Kevin Durant, Al Horford, Danilo Gallinari, David Lee.
Lin will most likely end up somewhere in the middle of these scenarios. If he doesn’t gravitate to the worst extreme, then paying an average of $8.3M over three years seems reasonable. Even as an average PG, there are a few teams in the league that would probably make a deal for him in hopes of a recapturing Linsanity or to capitalize on his marketability. This was the player that had the 2nd highest jersey sales this year despite only being available half way through the season AND spiked MSG’s stock to the tune of around $100M during his run. Wouldn’t the Clippers love to pair him with Blake Griffin as compensation if the end game is really Chris Paul in a Knicks uniform?
This seems like a no-brainer. To let Lin walk now means absolutely no compensation for a player that has incredible market appeal. The worst case scenario for signing him would be the Knicks paying fair value for him for the first two years of this deal and then having an expensive but interesting trade chip in the last year of the deal. If MSG’s stock is any indication, then it’s time for the Knicks to show him the money.
If you want to be mad at someone, how about being mad at the Knicks front office for breaking some of the most basic rules of negotiation. If they had half a brain, they would have waited for Lin to sign something (potentially the lower offer) rather than say they’d match it and give Houston and Lin the opportunity to ramp it up. Be mad that they waited to wrap up their most valuable free agent and during that time threw money at Steve Novak, Jason Kidd, and Marcus Camby to the tune of $10M. And be mad they panicked and acquired Raymond Felton, a player that was vastly worse than Lin last year. I don’t care much about the comparison but rather the absolutes that show Lin ranked 3rd in points per play on ISOs, 3rd in FG% shooting off the dribble, and was in the top 1/3 in the league on defensive points per play.
“I LOOVVEEEEE BLACCCKKKKK PEEEEOOOPLLLLLEEEEEE” – Jerry Maguire