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Klay Thompson got paid: Now what?

A detailed look at the logic of Klay's new contract and what it means for the Warriors going forward.

This man is getting paid!
This man is getting paid!
Ezra Shaw

Four years, $70m. As of last friday, Klay Thompson is set for life. It's quite an accomplishment and it was great to see all his teammates sending celebratory tweets. This is a big deal, a life-changing event for the Warriors two-guard. And it also will shape the franchise for many years to come.

The first thing that has to be said about the deal is that, on its face, it's an overpay. Klay's performance to date has not been productive enough to earn him a max deal strictly on the merits. Klay is reaping the benefit of the league being relatively thin at his position, the fact that he scores a lot and scorers get paid, and the fact that he looks like the prototype for what you want in a modern shooting guard: length, a quick release, solid athleticism. As the rules have changed and teams have learned to appreciate the three point shot more and more, Klay has become closer and closer to the platonic ideal of a shooting guard.

This has caused some to call him a "glorified three-and-D player" heading into this season, which is not totally wrong, but not totally right, either. Others have worried that he's our fourth best player, and paying your fourth-best player a max deal is a recipe for disaster.

While the deal is, at the moment, an overpay, it's also one that presumes a certain amount of growth on Klay's part. He is only 24, and appears to be adding to his game (having set a personal record for FTA in the team's opener, albeit in a game where the refs seemed a little whistle-happy, and then nearly matching it his next game while setting a personal scoring record and showing us some new moves). Klay should improve, and if he's able to bring the driving, foul-drawing, and passing skills he showed in FIBA to the NBA, as well as improve his off-ball defense, that will go a long way towards making him a true max player.

The second thing about this deal is that, due to a quirk in the salary cap structure, if it's a small overpay it's almost certainly a small overpay the team was right to make. The logic of this is simple: if a player is worth $12m, but letting him walk would leave you less than $12m under the cap, then you can not replace him with a player of similar quality through free agency. If your goal is to win, then overpaying is appropriate. (This is a big reason why some owners don't like the cap-and-tax structure. They know they're overpaying on the merits for players, and they know it's rational for them to do so. These overpays - along with overpays designed to pry restricted free agents loose - become the baseline for new contracts, causing overall salary inflation. And that's why we'll have a lockout in a few years).

A third factor about this deal is that, while it's a max deal, the rising salary cap is going to make it a significantly under-max deal in the second year of the contract, when the cap jumps. I was therefore not at all surprised to see Monte Poole report that the real hold-ups when it came to signing this deal was the length of the contract (the team got four full years, leaving the team's five-year contract slot open for Curry) and not the salary itself.

This is important because the Warriors might have been forced to match a shorter contract, which would have cost them more in the long run. If Klay had, for example, signed a two-year deal offer sheet with an opt-out, and the Warriors matched, then we'd be doing this whole thing again in a year, with a much higher cap. So don't be fooled: Klay left money on the table in this deal.

With that out of the way, the question now is: what is the team's path forward? For starters, let's look at the team's cap situation for next year:

Klay $15.5m
Lee $15.5m
Bogut $12m
Iguodala $11.7m
Curry $11.3m
Livingston $5.3m
Speights $3.8m (option)
Barnes $3.8m
Rush $1.3m
Ezeli $2.0m
Total $82.6m

The cap is projected at $68.5m, and the tax at approximately $81m. Also realize that the team actually has less cap space than it appears because empty roster spots, and cap holds for RFAs and draft picks, eat up space. (Also, the starting number for Klay's contract is an estimate. It could be a little higher than that).

Additionally, once the team gets over the tax, they begin to lose flexibility. If you are paying the tax, you lose the full midlevel exemption, getting the smaller taxpayer exemption (giving the team around $2.5m rather than $5.5m to play with). Also, once you get up near $85m in payroll, other restrictions kick in, such as limited sign-and-trades.

Before signing Klay, the team could have theoretically dumped Lee and all of our minor role players (Speights, Barnes, Ezeli, Livingston) and tried to land a bigger name. The odds of that happening were extremely slim, as it would have gutted the team's depth, finding somebody to take on Lee's deal and literally send no money back was hard to fathom, and there really weren't a lot of exciting targets who were worth that kind of overhaul (only Gasol, who grew up in Memphis), but with the Klay deal done that option is gone. In my opinion the team knew it wasn't going to pursue that strategy the moment they signed Livingston.

The bigger issue is that Draymond Green is a restricted free agent next year. He's an extremely valuable player despite not scoring a lot. RAPM ranked him the 46th-best player in the league last year, for example - and that was despite a TS% south of .500. It wouldn't be surprising for a smart GM from another team to throw a $10m/yr contract at him. Matching a deal like that would put the Warriors deep into the tax. Lacob could be willing to pay the tax and still balk at a $94m payroll, which would be more than the Nets are paying this year and among the highest payrolls ever assembled. Clearly that makes no sense unless the team feels it is among the favorites for a title.

Additionally, if the team re-signed Green, it then couldn't use the full MLE. While some writers have worried about this, it strikes me as a relatively unimportant factor compared to the tax payment:  That team would be two or three quality players deep at every position, and it's not clear that an MLE-level player would be good enough to get playing time on a squad where Green, Livingston, and Ezeli are the primary backups. (Every year one or two quality players ends up signing for the MLE or less, but that's usually because they're still standing when the music stops, so there's a large degree of luck involved in landing them).

The prospect of being $10-$15m over the tax threshold explains why Tim Kawakami has claimed that the team is likely to look to move Iguodala or Lee, and suspects they are already putting out feelers about Lee, with an eye towards keeping Draymond. (Tim enjoys riling up the fanbase, but he's usually pretty astute about this sort of thing).

That being said, if there was ever a year to pay the tax, next year might be it. if you're not worried about roster flexibility for a year (since you like your team) the Warriors could take massive hit and lose money next year, and it'd be a one-year thing. Lee's expiring contract, combined with the rising cap and tax lines, and the soon-arriving new stadium, mean that the Warriors are going to be making a ton of money in the near future.

Trading Iguodala would likely be a disaster, as by some metrics he was the team's best or second-best player last year. It's not a coincidence that his arrival coincided with us becoming a top three defense. But trading Lee makes some sense: Draymond slides into the starting 4 role, and the team acquires a backup 4 who is more offensively oriented than Draymond to play with Ezeli. It's worth noting that a trade along the lines that Adam Lauridsen suggested (Lee for a long-term contract making around $8m a year and a $7m expiring) leaves the team paying the tax next year, anyway, and possibly over the apron (depending on Draymond's new deal). It's not clear who the team might target in deals like that, however.

So I suspect the team will be looking very hard at David Lee this year. If the team doesn't find itself in contention for the top seed in the west, trading Lee makes a lot of sense. Speights continuing to play like he did in the opener (which, let's be honest, seems unlikely unless Steve Kerr is a magician and those things on his fingers are rings of power.) could make him a great front court pairing with Ezeli and, at least in the short term, fill the void left by a Lee departure.

If the team is dominating in the regular season, however, it becomes very hard to make a deal that makes the team worse in the short run. The team might bite the bullet and decide to find a buyer for Lee in the offseason, trading to him to a team with cap space in order to take less money back, but if the team gets a top seed and does well in the playoffs, that'll be hard to do, too. It's extremely unlikely they'd be able to shed his full salary by that route, however, but they could probably get down into the range of reasonable tax payments. Klay's apparent (two games in - I'm writing this before the Portland road game) development offensively makes Lee appear much more expendable.

A middle ground would be declining Speights's option and hoping to get Draymond for around $7m. The team is still paying the tax, and still above the apron once they fill out the end of the roster with veteran-minimum types, but the tax bite might be small enough to reasonably swallow. The team would have a long-term question at backup PF (after one year) but the rising cap would give them room to address it. A lot hinges on the market for Draymond, who is the type of player who is often under-paid, but the better the team does this year the more teams will start to notice what a big role he plays. The Warriors aren't the only team with an analytics department, even if Dray's limited scoring makes him a hard sell for a GM as the summer's big signing for $10+m.

That being said, none of this is really impacted by the team's decision to sign Klay now. They would be doing the same math in their heads if Klay was heading towards restricted free agency. If fact, no longer having to worry about having to match a two-year-plus-opt-out contract gives the team more certainty, and makes planning easier. But the path ahead for the team is murky, between a lack of flexibility and the threat of major tax payments. Unless the front office sees a title in this team's immediate future (this year or next) some sort of salary-cutting move is likely.

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