Poison Pill Contracts

[sportscrazy]

What makes a contract a poison pill contract and what about it makes it harder for teams to match?

[giberish]

That terminology is a bit unclear. There are 3 possible answers depending on what you mean.

In the old CBA, there was something called the 'poison pill provision' This applied to salary matching when trading players who were the last year of a rookie deal (or perhaps another small contract) but had already signed extensions with significant raises. It made matching salaries more difficult - similar to BYC status. This is the only poison pill status contract terminology I've herd of, though it has to do with salary matching rather than signing contracts. I believe it's gone away (or merged into some modified BYC status).

There's what's often referred to as Arenas rule contracts. When a player is an RFA after two seasons (usually 2nd round picks or undrafted players), their team will only have 'early Bird' rights which limits them to MLE sized contracts (unless they have cap space for more). Previously, such as when Arenas left GS - if another team offered them more than MLE money their current team couldn't match at all as they had no way to offer more than MLE money. Now if a player in that situation is offered more than MLE money, the contract gets forced in to a MLE starting salary with a big raise in year 3 (or years 3 and 4). This is how the actual money is distributed. If the original team matches, this is how the salary works for cap/tax purposes, with big money in years 3 (and 4 if relevant). The big money years can be problematic for cap/tax reasons but the total money is the same. If the player moves to a new team then the salary is averaged for cap/tax purposes. The Lin and Asik deals that are just ending are the only prominent cases of this (most teams now sign 2nd round picks to 3 year deals, eliminating the issue). A surprising number of posters assume that teams can offer these sorts of contracts under all conditions, which isn't true.

A third possibility is just offering somewhat unfavorable parts of a standard contract to make it less appealing. There are limits to this though, so it's tough to really make it an issue. A deal could have a substantial trade kicker, but that's limited to 15% at most, can't go over a max contract limitation and is irrelavant if the original team wants to keep the player. A deal for a star could be shorter than ideal but has to be at least 3 years, and while a team like SA wouldn't want Leonard signing a 3 year deal they'd still obviously match it. The Chandler Parsons contract is often referred to like this, but there isn't anything dramatic about it.

[DBoys]

What makes a contract a poison pill contract and what about it makes it harder for teams to match?

As the FAQ notes, "Poison Pill" isn't a defined term in the CBA. But it's generally used to refer to situations that create a potential difficulty (or advantage) for one team or another because the cap accounting can vary from the norm.

For the explanation of a couple of situations in which this informal term is used, see Coon's FAQ 90.

[Curmudgeon]

Speaking of "poison pills" is it possible to front load an offer sheet?

Let's say a team covets restricted free agent Jimmy Butler. He was the last pick in the first round, so none of the Arenas stuff applies. What can a team do, if anything, to make the offer sheet difficult to match? Obviously it offers $15M (25% of the cap) in year one and a player option for 2016, when the cap is slated to go up to $88-90M, and a 15% trade kicker. What else is possible?

[DBoys]

Speaking of "poison pills" is it possible to front load an offer sheet?

Let's say a team covets restricted free agent Jimmy Butler. He was the last pick in the first round, so none of the Arenas stuff applies. What can a team do, if anything, to make the offer sheet difficult to match? Obviously it offers $15M (25% of the cap) in year one and a player option for 2016, when the cap is slated to go up to $88-90M, and a 15% trade kicker. What else is possible?

"Speaking of "poison pills" is it possible to front load an offer sheet?"

Not really. There are no cap tricks that would make it a cap challenge.

In theory you could pay a big bonus up front. That doesn't change the limits of the cap hit, and bonus money reduces overall max contract size. CHI is a rich franchise and could match any big bonus, financially.

The Bulls biggest hurdle may be a willingness (or lack of it) to pay Butler a max deal. They have a reputation for being miserly with payroll. To me, your best angle is offer the max, and maybe on a 2-3 yr deal.

[Curmudgeon]

Yes, I see, because the bonus is prorated and the 4.5% raises are computed on a lower base salary in year one.

However, it seems to me that the player is better off taking the bonuus. Suppose the 2015-16 cap is 68M . 25% of that is 17M, and a 4-year deal with 4.5% raises totals 72.7M. So the 15% bonus is nearly 11M, and if you invested that bonus at a 4.5% rate of return (compounded) over four years you would make up the difference. That's a pretty conservative ROR and chances are the player could do better.

I realize the Bulls could pony up the cash, but IMHO the up front bonus makes matching the offer sheet a little more painful. It might depend on how the annual bonuses of the execs who run the Bulls are calculated, since that extra 11M is going to come off the 2015-16 bottom line.

[Dunkenstein]

From everything I hear, the Bulls are prepared to offer Butler a 5-year max contract which should shut out every other team that may be looking at him. I suspect Butler, Kawhi Leonard and Anthony Davis will all get max contract offers from their current teams.

[Curmudgeon]

Perhaps so but Butler is just one example. There are other RFAs who won't be getting max offers.

[DBoys]

Perhaps so but Butler is just one example. There are other RFAs who won't be getting max offers.

Well sure. If you offer D'Brickmaster Turnover a bloated deal for the max, when he is worth less than that, his team isn't likely to match and you can get him. But then you're stuck with an overpaid player. Do you want the talent at that cost? That's always been the conundrum.

[Curmudgeon]

Duplicate deleted.

[Curmudgeon]

Well, someone like Khris Middleton is fairly talented but probably won't get a max offer from the Bucks.
A restricted free agent is always a conundrum for both teams, as well as restricted free agents who may wish to leave their current teams. Does that player accept the QO and take less for a year instead of signing an offer sheet that might be matched?

[Dunkenstein]

Well, someone like Khris Middleton is fairly talented but probably won't get a max offer from the Bucks.
A restricted free agent is always a conundrum for both teams, as well as restricted free agents who may wish to leave their current teams. Does that player accept the QO and take less for a year instead of signing an offer sheet that might be matched?

Part of the answer to that question depends on how big the QO is. Because he was taken early in the first round, Monroe opted to take a $5.5M QO from Detroit last summer. Middleton's QO will be significantly smaller.

[Curmudgeon]

So the conclusion seems to be that the best a team can do to make an offer sheet difficult to match-- in addition to offering an over market salary-- is to give a 15% trade kicker and a 15% up front bonus.

Obviously RFAs who sign offer sheets will likely be overpaid, except in the situation in which the player's original team would be in luxury tax land if it matched the offer.