Chris Andersen’s Palatable Contract

How big of a deal is it that Chris Andersen agreed to a first year salary of $3.7 million? Not only does it help decrease the luxury tax payments Denver will have to shell out over the next two seasons, but it also makes the fourth and fifth seasons much more palatable as Birdman reaches his mid thirties.

Under the terms of the Collective Bargaining Agreement the maximum raises for Andersen’s contract are 8% and that percentage is based on the first year of the contract. Eight percent of $3.7 million is $296,000 so the base salary will increase by that amount every season. That would make his fifth year salary $4.884 million and the total guaranteed value of the deal $21.46 million over the five years.

Why would Andersen agree to a first year salary of $3.7 million when he had teams offering him three years at the starting midlevel salary of $5.854 million? A three year full midlevel deal would have netted Birdman almost $19 million over the next three seasons. It is clear that Andersen gave the Nuggets a bit of a hometown discount while Denver gave him the chance to play in the NBA for the next five seasons instead of only the next three.

The Nuggets have also included incentives in the contract and should Birdman reach all of the incentives the contract will then reach the $26 million, the reported value of the deal. Incentives can be anything from games or minutes played to statistical accomplishments to individual achievements or even team wins, which was reportedly an incentive in J.R. Smith’s contract. From what I have heard not all of the incentives are readily achievable for Andersen, but there have been no specifics released on that as of yet.

What do incentives do for his cap number? Any incentives that Andersen earns, and are in place for the upcoming year of his contract, will be considered incentives that he is likely to earn. These incentives are then added to his cap number for the next season. We can look at Marcus Camby’s contract as an example.

Camby had base salaries of around $8 million and incentives worth around another $2 million. He reached most or all of those incentives in 2007-08 and thus when the Nuggets traded him last summer his cap number was $10 million even though the 2008-09 season had not started and he obviously had not reached any incentives yet. Last season Camby did not hit any of his incentives and as a result his cap number for next season will be back down to $8 million.

Because of the incentives we cannot know for sure exactly what Birdman’s contract will be worth in the final couple of seasons although I doubt it will be for much more than the $4.884 million base salary.

There has been more financial information come out since the news that there was an agreement in place for Birdman to return to Denver. The NBA has reportedly warned teams that the salary cap and luxury tax could decline again next season and we are not talking about just a million dollar dip. It could be a significant decrease to as low as $50.4 million.

The NBA is basing that on a projected 2.5% decrease in Basketball Related Income (BRI) which is the basis for the formula to derive the cap and tax levels. Under that projection the cap would be set at an amount between $50.4 and $53.6 million. They also announced that if the cap comes in at the upper end of that projection, $53.6 million, the luxury tax limit will fall down to $65 million. Obviously, if the cap falls in the lower end of their initial projection, the luxury tax will be lower as well.

Of course, should the economy turn around and BRI hold steady or increase the cap and tax levels could rise, but who knows what will happen in that realm.

This is clearly bad news for teams like the Nuggets who are going to be well over the tax level, but it is even more devastating for teams who have been banking on having a huge amount of cash to spend on the big name free agents next summer.

It is also not what the restricted free agents such as Linas Kleiza wanted to hear. With a much smaller pool of cash ready to be spent next season they can no longer sign their one year qualifying offer and expect to rake in the dough that is left over after the big names have been signed in 2010.

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