Breaking down Bogut's extension

The basics of the Bogut deal: five years at a flat $12 million annually, for a total of $60 million guaranteed. Additionally, Bogut could earn up to $12.5 million in incentives over the course of the deal, for a maximum total deal value of up to $72.5 million.  Charles Gardner reports the incentives are tied to both team and personal performance, so Bogut won't be making that higher figure if he's merely an average center on a lottery team.  That's good, though the pessimist could say that he's going to be paid $12 million per year even if he makes no progress.

Given what we know about the 23-year old Bogut and the improvement he's shown so far, that shouldn't be too big of a concern, however.  My initial reaction is that the $60 million number sounds reasonable while the $72.5 million figure seems steep.  But it all comes down to what those incentives are and, more importantly, what Bogut does from here on out.  I know that's something of a cop-out answer, but we're fooling ourselves if we think we can provide a final judgment on this deal today.  We'll hopefully get some specifics on the incentives next week, but the real test will be the next six years.

If Bogut becomes a perennial all-star who helps turn the Bucks win 45+ games every year, no one will be moaning about his $70 million deal.  Given his performance after the all-star break (16.3 ppg, 11.6 rpg), that level of personal and team success is a distinct possibility in the near future. Still, there's also no guarantee that the current core of players can be developed into a legitimate contender or that Bogut continues to improve at such a steady rate. For instance, Chris Kaman got a five year, $52 million deal two summers ago and promptly regressed the following season, before making major strides this past season. Fortunately, Bogut will probably earn his future salary if he can maintain the sort of production he showed in the final months of 2008--and adding a jumper and a consistent stroke from the line would all but guarantee it.

What's not being talked about is that the deal doesn't appear to include an early termination option or player option, which is important.  Economically, ETOs and POs have a similar effect as incentives in the long term, since a player can take advantage of his increased market value to opt-out and sign a new, bigger contract.  Similarly, a player with performance incentives can realize a higher salary by playing well. One advantage of incentives is that they don't allow the player to leave for greener pastures if he starts to outperform his salary, though at the end of the day an incentive is only of much use if it's not easily attained.

The optics of incentives and options are a bit different, however.  When Mo Williams signed a six year deal last season with both an ETO after the fourth season and a PO for the sixth, little was made of those structural details.  Fans and the media focused on the pure dollar amount of $51 million, since that's the easy soundbite.  But in effect the Bucks signed Williams to a four year, $34.2 million deal in the best case scenario, given that Williams will only play the final two seasons for $8.5 million each if he ends up being a disappointment.  If he were to become everything Bucks fans hoped and dreamed for in a point guard, Williams would simply opt out and sign a bigger deal after four years, meaning that six year, $51 million figure could in effect be something closer to six years, $60-65 million. Of course, that doesn't make for much of a headline, does it?

Similarly, everyone will focus on the biggest figures associated with Bogut's deal, while not paying much attention to whether the deal has an ETO/PO or the nature of the incentive clauses. Sure enough, the ESPN ticker is reporting the $72.5 million figure with no mention of incentives or guaranteed dollars. 

Given that agents want the biggest possible dollar amount for their client, it's perfectly logical that Bogut's agent David Bauman told both Gardner and myself today about the $72.5 million figure and did not want to comment on the lower guaranteed figure.  Perhaps not surprisingly, the JS altered their headline a bit over the course of the day, going from the agent-friendly $72.5 million figure early in the day to the more Bucks-friendly "$60 million guaranteed" headline tonight.

The deal will also further strain the Bucks' payroll, though that was to be expected.  As of now the Bucks will not have any major free agent dollars to spend this summer or next, which is especially true given Bogut's deal is flat, rather than starting at a lower amount and escalating in the later years. The Bucks now have $65.5 million committed to eleven players for 08/09 and $66.8 million committed to eight players for 09/10.  With the luxury tax at a shade over $71 million this year, that means John Hammond probably won't sign a player for much more than the BAE this offseason ($1.91 million).  Beyond that, Hammond will have to work the phones to alter a roster that still has a shortage at PF and questionable fits in the backcourt.

One interesting counterargument to this move is that the Bucks should have waited a year if they were going to give Bogut a near-max deal.  Afterall, if Bogut turns into an all-star big man, the Bucks would pay more but the premium could be worth it given the greater certainty about how good Bogut actually is.  However, stacking the deal with incentives means that the deal's guaranteed dollars aren't that close to max numbers. 

We won't know what exactly a max extension will look like until next summer when the 09/10 cap is set, but our man Dan at RealGM crunched some numbers showing various scenarios that put it at over $80 million for the same five year period.  The upside of Bogut's actual extension is that he will earn well below that no matter how good he is. 

And as Dan further notes, the real danger might have been low-balling Bogut and risking the chance that he simply takes the qualifying offer in 09/10 ($8.2 million) and becomes an unrestricted free agent in the summer of 2010.  That summer is likely to be a free agent bonanza in which Bogut would make a desirable consolation prize for teams who strike out on LeBron, Wade, Bosh, etc.

Lastly, the media is reporting everywhere that Bogut's 08/09 contract is worth $6.9 million, but it's not.  Bogut will earn $6.29 million in 08/09, which represents the maximum allowable 120% of the fourth year rookie scale figure set by the CBA.  Keep that in mind next year when you're complaining that he's not playing like a $12 million/year guy--at least for one more year he'll still be a relative bargain playing for only half that.

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