Cavaliers

Everything you need to know about J.R. Smith’s contract status: WFNY FAQs

(Photo by Nathaniel S. Butler/NBAE via Getty Images)
(Photo by Nathaniel S. Butler/NBAE via Getty Images)

Three months ago Monday, the Cleveland Cavaliers became the 2015-16 NBA champions. Five weeks from Tuesday, the Cavs will begin the 2016-17 regular season and the grueling effort to defend their crown. As the new season nears and nears, the team’s most intriguing offseason question remains unanswered: What will happen with J.R. Smith?

Even without a new contract, it’s been an eventful offseason for the ever-entertaining J.R. Smith. He eventually put on a T-shirt, sadly. He got married to his long-time girlfriend, Jewel Smith, proudly boasting: “Two rings in one year!” He opened his own Team Swish lifestyle store back home in New Jersey with his dad, Earl. He got a new puppy bulldog named Cowboy. He turned 31 years old. And he’s certainly played a lot of golf, including with Complex’s Adam Caparell.

But as for Smith’s next NBA contract, there hasn’t been much activity at all. He’s had a handful of offseason interviews, explaining his perspective on the contract negotiations. It’s been announced that he won’t be at the team’s training camp in California this week. And the preseason and regular season keep getting closer and closer.

So, where do things stand now? Let’s take a look at the whole situation for the parties involved and see where things might land in the coming days, or perhaps weeks.

The Tristan Thompson Negotiations, Part Duex

Of course, last summer, the Cavs found themselves at an impasse with another player represented by the same agent who now represents J.R. Smith. That agent, of course, is Klutch Sports Group’s Rich Paul. And as is well known everywhere, Paul is LeBron James’ long-time close friend. To what extent James actually is involved with the agency, it remains somewhat vague. But it’s hard not to immediately see the similarities in these situations and to point out Paul’s fascinating young history as a player-agent.

Cavs big man Tristan Thompson, coming off his rookie contract, finally signed his new five-year $82 million deal on Oct. 21, 2015. He missed the entirety of last season’s training camp, media day and the seven-game preseason schedule. He only returned to the team with less than a week to go until Opening Night, Oct. 27, at the United Center against the Chicago Bulls.

In fact, this actually is the third straight offseason with Rich Paul at the center of a long contract negotiation impasse. In 2014, Phoenix Suns guard Eric Bledsoe, also just finishing his rookie contract, didn’t sign his new five-year $70 million deal until Sept. 24. The back-and-forth between player/agent and organization got a bit contentious over those five months of the playoffs-less offseason.

But through those two very public situations, Paul likely gained some notoriety around the league for being a strong and patient negotiator on behalf of his clients. The Klutch Sports Group agency nabbed Washington Wizards All-Star John Wall, No. 1 draft pick Ben Simmons of the Philadelphia 76ers and also J.R. Smith himself already this calendar year.

While represented by CAA last summer, Smith botched his free agency by declining his $6.4 million player option and then only receiving $5 million in a new deal with the Cavs. He grossly over-estimated his value on the open market at the time and then finally re-signed at a lower rate around Labor Day. So you can certainly expect Smith is looking for a big payday this time around. And Rich Paul has proven he will be there to back him every step of the way.

Looking at J.R. Smith’s perspective

Smith, who was the No. 18 pick in the 2004 NBA Draft and ranks No. 17 in the NBA’s all-time three-point leaderboard, has made only $45.5 million in career contract earnings, according to Basketball-Reference.com. His largest single-season payday was $6.8 million with the Denver Nuggets during the 2010-11 season.

After playing stellar two-way basketball all season long and winning a championship ring, life is undoubtedly different now for J.R. Smith. He’s shed the weight of the bad-boy days from his previous stops around the league. He also had several significant life moments happen during this offseason already, which has likely shaped his open attitude toward free agency in his public comments thus far.

But only a small handful of teams still have eight-figure salary cap space after July’s massive free agency spending spree. And those teams – Brooklyn, Denver, Philadelphia and Phoenix, per Albert Random’s cap site – are the longest of long shots to have any title hopes this coming season. That means the Cavaliers, who own his Bird rights, by far remain his most logical destination.

During that July free agency frenzy, Smith certainly saw a number of similar players receive mega-sized new contracts. It’s not hard for any professional player to open their eyes and compare oneself to their peers on the open market. Here are just four that seem to be decent comparisons:

  • Jamal Crawford – Turns 36-and-a-half today. Was the No. 8 pick in the 2000 NBA Draft. The league’s first three-time Sixth Man of the Year, he’s carved out an impressive niche as a bench super-scorer for the oft-good-but-not-great Los Angeles Clippers. He is a career 15.5-point scorer and ranks No. 7 on the NBA’s all-time three-point leaderboard. He re-signed with the Clippers on a three-year $42 million deal. The third year only has $3 million guaranteed.
  • Courtney Lee – Turns 31 in October. Was the No. 22 pick in the 2008 NBA Draft. A thorn in the Cavs’ side during the 2009 Eastern Conference Finals, he was a valuable contributor for the Memphis Grizzlies and the Charlotte Hornets last season. But after the Hornets prioritized retaining free agents Nicolas Batum and Marvin Williams, the career 9.6-point scorer landed a big four-year $48 million deal with the New York Knicks.
  • Arron Afflalo – Turns 31 in October. Was the No. 27 pick in the 2007 NBA Draft. A solid defender and career 11.6-point scorer, he was Lee’s predecessor on the wing for the Knicks last season. He also was traded from Orlando to Denver in June 2014, then from Denver to Portland at the 2015 trade deadline. Afflalo signed a two-year $25 million deal with the Sacramento Kings this offseason. The second season only is guaranteed for $1.5 million.
  • Eric Gordon – Turns 28 on Christmas Day. Was the No. 7 pick in the 2008 NBA Draft. A career 16.6 point-scorer, he’s averaged only 52 games played per season in his career due to a large assortment of injuries. Despite that risk, he still received a handsome four-year $53 million deal with the Houston Rockets. The deal was just shy of the four-year $58 million deal he signed back in 2012 with New Orleans, which was largely considered a bust because of his many injuries.

Something I’ve said to friends on several occasions this offseason: If I was J.R. Smith, I’d be waiting to receive $42 million guaranteed, no matter what. Cleveland.com’s Joe Vardon believes Smith is looking for a deal with $15 million annually. Crawford, who is five-and-a-half years his senior, received $42 million, albeit with a small guarantee in the third year. Lee and Gordon, who rate similarly, received over $50 million guaranteed and a fourth fully guaranteed year.

In a best-case scenario for J.R. Smith, he’d top all four of these players with a fully guaranteed four-year $54 million deal. Or otherwise, if the team prefers this instead, maybe three years and $48 million. That’d prove his standing as one of the league’s preeminent two-way wings. It’d reward his great play and solid behavior with the Cavaliers after a botched negotiation last offseason. And it would more than double his career earnings thus far in the NBA.

Smith and Rich Paul are likely just playing the long game in this negotiation, as any player and his agent should. Far too often in North American professional sports, teams receive the upper-hand in contract negotiations due to fan pressure to sign early and end any possible contentiousness. But in this case, by waiting and waiting patiently for likely $40 million-plus guaranteed and at least three fully guaranteed seasons, Smith is probing to see how far the Cavs are willing to go.

Looking at the Cavaliers’ perspective

As stated above, the Cavaliers are the most logical destination for J.R. Smith. By owning his Bird rights, they can offer him as much money as allowed for a player of his veteran status in the league. And since no other playoff contender has that significant of cap space, this should be an easy negotiation, right?

Not exactly. Any sports team of any kind, just like any business, likely operates with some semblance of a budget. Since we do not know the actual financials of the Cavaliers, there are only so many resources at our disposal. One such resource: The exact amount of money spent on player salaries and the luxury tax during the 2015-16 season. This, of course, was before the league’s gigantic cap increase that just occurred.

Following the league’s audit in July, ESPN’s Marc Stein reported that the Cavs officially paid $54 million in luxury taxes. Working backwards using last season’s $84.7 million luxury tax line and my CBA tax calculator, you can then estimate that the 2015-16 Cavaliers spent about approximately $161.1 million on player-related expenditures.

So, where do the 2016-17 Cavaliers stand right now? According to The Vertical’s Bobby Marks, the Cavs have $115.5 already guaranteed for just 13 players on the roster. That figure does not include the unguaranteed training camp invites given to DeAndre Liggins, Markel Brown, Eric Moreland and John Holland.

Let’s then assume the Cavs eventually fill a 14th roster spot with some veteran minimum player. Per Larry Coon’s CBA FAQ, and as illustrated by Marks’ math and a previous clarification, only a max of the two-year veteran minimum is attributed to the team’s salary cap in such a case. The remaining amount is reimbursed by the league. So that would add another $980,431 to the player-salary bill, at a most.

Adding in that mystery veteran player, that then would put the Cavs at $116.5M for 14 players. The tax line for the 2016-17 season jumped all the way up to $113.3M. The Cavs would thus already be $3.2M above the tax line already, before even adding in any salary amount for J.R. Smith. The non-repeater tax penalty for being that far over the line is $4.8M, using my CBA tax calculator.

Here is then how the team’s tax bill and overall player-related expenditures change based on the amount given to J.R. Smith for the 2016-17 season:

  • $5 million to J.R. Smith: Extra $8.3 million in taxes and $134.5 million total spending
  • $8 million to J.R. Smith: Extra $14.4 million in taxes and $143.6 million total spending
  • $10 million to J.R. Smith: Extra $19.4 million in taxes and $150.6 million total spending
  • $12 million to J.R. Smith: Extra $24.5 million in taxes and $157.8 million total spending
  • $14 million to J.R. Smith: Extra $31 million in taxes and $166.3 million total spending
  • $16 million to J.R. Smith: Extra $37.5 million in taxes and $174.8 million total spending

As one can quickly tell, and as I’ve illustrated in multiple past occasions – here, here and here, for starters – the NBA’s progressive luxury tax system quickly adds up once you’ve passed the threshold. For every dollar given to J.R. Smith, the Cavs will be taxed at a rate between 150-250 percent. To match last year’s total spending, that would mean a 2016-17 contract of about $12.8 million for J.R.

Of course, this isn’t all that fair to J.R. It’s not his fault necessarily that the Cavs just happen to have their entire roster already built out for this upcoming season and he’s the last one to sign. Inherently, that shouldn’t force him to accept a lesser contract. But the math is the math. The Cavs will likely be adding more than $20 million to their total spending this season because of the incremental effect of J.R. Smith’s new deal.

In terms of long-term flexibility, the Cavs also likely are looking to hold on to any semblance of cap freedom as they can. Between just LeBron James (player option), Kevin Love, Kyrie Irving, Tristan Thompson and Iman Shumpert, the Cavs already have over $108 million in player salaries set aside for the 2018-19 season. If they give J.R. Smith a fully guaranteed third year, that could jump over $120 million already.

Based on current projections, that could easily be well over the luxury tax line. And although the Collective Bargaining Agreement will be renegotiated next summer, the Cavs could still stand the risk of facing the even more punitive repeater tax brackets shortly. Quickly, the Cavs might not have any financial flexibility for free agency moves or trade dumps for three full years, or more.

So it’s also easy to see that the Cavs are in a delicate situation here too. Teams like to reward their own players for great play and good service. But the numbers are adding up very quickly. They can’t necessarily plan on finding a miraculous Anderson Varejao-for-Channing Frye cost-saving and roster-improving move every season. They won’t be so lucky every time into the future.

What comes next

Now, I’m not trying to tell anyone how to be a fan. As fans, we all would like the Cleveland Cavaliers to do as well as possible on the basketball court this coming season. That pretty much exclusively requires J.R. Smith signing a new contract at some point soon. There’s no other sensible way to replace his two-way production given the team’s roster and payroll situation.

But I do think it’s perfectly reasonable that it has taken so long for these two sides to reach an agreement. One could easily point out that Dan Gilbert’s real-time net worth is $4.6 billion and the Cavaliers organization likely made millions off the championship run and related merchandise. Those are both fair points. Gilbert still likely wants to run his business as a business. And that means setting practical budgets, even if it fans don’t agree with every single move and negotiation tactic.

Yes, Gilbert gave LeBron James his promise to not cut any corners when James returned to the franchise in 2014. Still, there likely remains a ceiling of some kind for the team’s willingness to spend historic amounts of money on its basketball product. That likely has factored into the impasse with J.R. Smith and Rich Paul this offseason. Many fans might not enjoy this part of basketball analysis and I’m not one to force them too. But it’s the practical reality of the situation as it stands currently.

Where will it go from here? I’d imagine the sides will meet somewhere in the middle, as always tends to happen in situations like this. Maybe Smith won’t receive that fourth year. Maybe he’ll still receive a guarantee of $40 million in some way. But I’d still figure that he’ll be in a Cavaliers Wine & Gold uniform come Opening Night and the ring ceremony at The Q on Tuesday, Oct. 25.

  • RGB

    Reality is, the Cavs will eventually pay him more than any other team.
    But, if no other team is going to pony up $15m/year, he’s not getting it. Period.

    JR…wish in one hand, crap in the other…

  • mgbode

    So, sounds like $12.8m for this year with a total of $42m guaranteed over three years (possibly a bit more unguaranteed so both sides can claim victory). Sure.

  • NankirPhelge

    I don’t blame J.R. one bit. He saw Mozgov cash in with $64 mil/4 yrs as a reward for being the Cavs potted plant last season.

  • JNeids

    At what point, if ever, does Lebron lower his salary to allow the team to get/keep more help? I realize 1) we’re so far over the cap that we’re not getting much help through free agency, and 2) he has no real reason to do this, so I guess I’m more curious to know if he WOULD be willing if it was beneficial.

  • RGB

    My guess is this is LBJ’s passive aggressive way to make Gilbert pay for the Letter.

  • JNeids

    You think he would be willing to take a pay cut for another team/owner? Lebron, much like Gilbert and all other owners, is a businessman, and I just don’t think he’s the kind of guy willing to take less than the max he can get.

  • WFNYJacob

    LeBron already signed his contract, so there’s no way this will happen for at least two more seasons. It’s also a terrible strategic move in his position with the NBPA. If a star like LeBron is willing to sign for less than the max, then why should owners keep paying players so much at all?

  • WFNYJacob

    I believe there were reports that he had an offer from other team(s). But obviously, they’re not playoff contenders. So it’s a matter of how seriously the Cavs might be treating their competition here.

  • It’s a limited market for J.R. Smith’s services. He’s a wild card to be a distraction in any scenario not involving LeBron James and the existing Cavaliers infrastructure. The Cavaliers can bid against themselves, but I expect Griff and the Cavs to take the unpopular stance of waiting this out. This isn’t Tristan Thompson all over again, and I expect J.R. to get the biggest contract of his career, but not close to $15 mil per. I don’t know why I feel this way, but I kind of expect it to come in less than $42.8 in overall contract value as well. I love J.R. Smith and think he’s super valuable to the Cavaliers. I just don’t think the leverage is on his side in this case.

    I’m not going to worry too much until he starts missing games.

  • JNeids

    I wasn’t suggesting he do it this time around as I knew he had already signed. But I’m looking at guys like the Spurs Big 3 who were willing to take a little less for the benefit of the team. Lebron might be slightly different in the sense that he is in the GOAT discussion, but replace “Lebron” with “Duncan” in your question and then tell me why the owners still do.

  • RGB

    “I’m not going to worry too much until he starts missing playoff games.”

    Fixed.

  • Harv

    Won’t happen. Per Windhorst, before returning LeBron had never before been his team’s highest paid even while winning MVP’s and rings and he let it be known that on the back nine of his career he’d had enough of that. I don’t blame him at all – he generates fortunes for his owners and the city where he plays. May seem ridic to us, but if the metric of status between rich players is paycheck size, demanding one that reflects his importance to every team he’s been on and his impact on the league isn’t outrageous.

  • Harv

    Klutch has excelled at applying pressure by exploiting a team’s need rather than jacking up the competitor’s offer. In the Cavs’ case they simply don’t have a potential replacement (at any price) for his particular skill set, especially since he started playing defense. He’s not young or a self-motivator like Tristan, and the longer he holds out the more he’s likely to start the season in poor shape and prone to ineffectiveness and injury.

    Both sides should be plenty motivated. Waiting him out carries implications on the chance to repeat. Expect a deal with about 2 weeks to go in camp.

  • JNeids

    Didn’t say I fault him at all. Just saying there are guys who are clearly more team-first than me-first. Again, he’s absolutely earned the right to be as me-first as he chooses, for reasons you stated and others. But it just makes dynasties harder to build.

  • mr. steal your costco samples

    Duncan did that, but he was a simp and got all his s_it took too. LeBron is a walking dynasty so let’s not worry too much.

  • mr. steal your costco samples

    yeah, he gets 3/$43 on Columbus Day and it’s all good.

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