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Caponomics: What Bogut's deal means for the Bucks

Now that Bogut's contract has been signed and made its way through the league office, we have confirmation from Dan's sources that Bogut's deal is not a flat $12 million per season, as was first reported by the media.  Instead, Bogut will receive $10 million in 09/10, $11 million in 10/11, $12 million in 11/12, $13 million, and $14 million in 12/13. 

That still works out to $60 million total and an average of $12 million, but the escalating nature provides the Bucks more breathing room against the luxury tax next year.  And it also makes me feel slightly vindicated.  The contract appears to only include 10% annual raises rather than the max allowable 10.5%, but that's most likely a result of the negotiations targeting the $60 million figure rather than a starting salary plus max raises.  Round numbers are nicer anyway.

And perhaps more importantly, Bogut's incentives appear to be based on major milestones that will be  difficult to reach--even if Bogut continues to improve.  As Ian Thomsen at SI first alluded to last week, the incentives are reportedly based on some lofty targets: ballot all-star appearances, all-NBA selections, all-defensive recognition, leading the Bucks to a championship, and being named Finals MVP. Given the likelihood of those things happening, the contract is effectively a $60 million deal with some upside in case Bogut goes crazy (in a good way).

Barring a massive leap by Bogut this coming season, the incentives will likely be classified as "not likely to be achieved" for cap purposes next offseason, when Bogut's current rookie deal expires and the new deal kicks in.  So the value of the incentives will likely not count against the Bucks' cap number, which will be a convenient thing should the Bucks ever get close to creating cap space again.  Should Bogut reach one or more incentives, the status of those incentives could be reclassified and counted against the following year's cap number.  Incentives can only be worth up to 25% of the annual base salary, so it also makes sense that the incentives are worth up to $2.5 million annually--exactly 25% of his $10 million first year base salary.

According to our latest estimates, the Bucks have about $69.09 million committed to 13 players for the upcoming season, leaving them about $2.06 million under the luxury tax level of $71.15 million.  The mid-level ($5.585 million) and bi-annual ($1.91 million) exceptions can be split among players, but it's a little unclear yet if the Bucks used part of the BAE on Malik Allen ($1.3 million) and part of the MLE on Tyronn Lue ($2.25 million), or if the MLE was used to sign both. 

Shamsports also lists Luc Richard Mbah a Moute as being on a three year deal rather than the standard two year minimum deal that most 2nd rounders get.  If true, that would knock at least $442k (the rookie min) out of the Bucks' MLE or BAE, since the minimum contract exception can only be used for up to two year deals.  Free agent big men Kwame Brown is among those still on the market, but the Bucks' needs could obviously change if they were able to swing a trade. It's also not clear whether Brown will be available for only $2 million.

In 09/10 the Bucks have about $69.70 million committed to 10 players, though that includes Charlie Villanueva's $4.6 million qualifying offer and Malik Allen's $1.3 million player option.  The structure of the Bogut extension is important here since the luxury tax will probably be around $75 million.  We won't know for sure until next July when the 09/10 cap numbers are finalized, but the luxury tax has grown by about 5% annually so I'll assume a round $75 million number for simplicity.  If Bogut's deal was flat, the Bucks would only have about $3 million under the tax to pick up another four players for their roster, and much of that would likely go to signing their first round pick.  Fortunately, Bogut's deal will start at $10 million, providing an additional $2 million to work with next summer compared to the flat contract scenario.

Bogut's agent David Bauman told me that Bogut wanted to optimize the cap effect of his deal and thus allowed the Bucks to decide how they wanted to spread out the $60 million.  Given the tax issues next year, I'd say the Bucks were smart to structure the deal as they did.

The downside of an escalating deal is that it provides less flexibility in the final two years of the contract when the salary is greater than $12 million, in addition to altering the negotiating dynamics once the deal expires.  Though it's largely just an issue of optics, Bogut earning $14 million rather than $12 million in 2013 could improve his negotiating position for his next deal.  It could also affect the maximum salary he would eligible for, since max salaries are the greater of 105% of the player's previous salary and an amount dependent on service time that is determined annually by the CBA. 

For instance, if Bogut's extension started next year, his max salary would be $13.76 million, whereas a nine-year veteran (which is what Bogut will be when his extension expires) can make up to $16.51 million.  Players can earn more if their 07/08 salary times 105% exceeds those numbers, however.  A new CBA will be in place by the time Bogut enters free agency in 2013, so those figures will be different and the rules used to determine them could change as well.