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Charlotte Hornets: Why MKG’s Contract Extension is a Steal

By Greg Chin

Mar 25, 2015; Charlotte, NC, USA; Charlotte Hornets forward Michael Kidd-Gilchrist (14) in a time out during the second half of the game against the Brooklyn Nets at Time Warner Cable Arena. Nets win 91-88. Mandatory Credit: Sam Sharpe-USA TODAY Sports
Mar 25, 2015; Charlotte, NC, USA; Charlotte Hornets forward Michael Kidd-Gilchrist (14) in a time out during the second half of the game against the Brooklyn Nets at Time Warner Cable Arena. Nets win 91-88. Mandatory Credit: Sam Sharpe-USA TODAY Sports /
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The Charlotte Hornets have had a busy offseason, reloading and retooling their team in an attempt to make up for their dismal performance last season. After an impressive 2013-14 season, many thought the Hornets were ready to take the next step and establish themselves as a perennial Eastern Conference playoff team, only to disappoint greatly last season.

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Amidst their poor season, Michael Kidd-Gilchrist was one of their bright spots. Initially, harshly criticised for being selected with the second overall pick, MKG’s growth and burgeoning reputation as one of the best perimeter defenders in the league has slowly but surely vindicated the Hornets’ decision to draft him in 2012.

It was announced on Monday that the Hornets and MKG had agreed to a four-year, $52 million contract extension. This deal will start next season and will prevent MKG from entering restricted free agency at the end of the season. While this does affect the Hornets’ ability to sign free agents with the upcoming boost in the salary cap, locking MKG down to such a cheap deal significantly outweighs the downside.

At $13 million a season for four seasons, MKG’s contract is a steal. With the cap set to jump to $89 million next season, MKG’s contract constitutes 14.6 percent of the cap. Translating it to this season’s cap figure gives us an equivalent salary of $10.2 million. That’s right – MKG’s new deal is the equivalent of a $10.2 million salary under this season’s cap. Players with salaries in that range include Danny Green, DeMar DeRozan, Gerald Wallace, and Monta Ellis. None of those players have the same upside that MKG brings, and MKG is easily the youngest of all five.

One of the biggest things we learned from the recent free agency madness was that next season’s impending salary cap jump gave everyone a taste of the crazy money being thrown around. Reggie Jackson, Corey Joseph, and Aron Baynes were examples of players that were offered big money contracts that not many foresaw. Next season’s new cap will result in inflated values for many players, which further emphasizes how good of a deal this extension was.

By choosing not to drag the contract talks out, the Hornets made the right decision. Last offseason, we saw the Chicago Bulls try to squeeze every last penny out of Jimmy Butler’s extension – a decision that backfired when Butler put in one of his best seasons and earned himself a five-year max contract. According to sources, both parties were two million apart annually over a four-year deal (the Bulls offered four years, $44 million).

The cost-saving potential is always there when a team chooses to defer a contract extension. After all, the incumbent team retains the right to match any offer sheet the player signs and also gets another season to fully evaluate the player. However, allowing a player to enter restricted free agency is a gamble – teams will always try to offer players a contract that is above their true evaluation, in order to dissuade the incumbent team from matching. If a team offers the player a contract that is representative of their true value, the incumbent team will often match, with the thinking that it is a fair deal.

It is safe to assume that had MKG entered free agency, he would have received an offer more lucrative than $13 million a season. The new cap would have kicked in, and he would have received an offer at around $16-17 million a season – which could be argued is a conservative figure. The worst case scenario would have been a team offering MKG the max, which would have been $22.3 million a season, in an attempt to dissuade the Hornets from matching.

With the upcoming salary cap rise and the potential for an overpay, the Hornets made the right decision to lock MKG down early. I have been critical of the Hornets’ front office decisions this offseason, but it looks like they finally got something right.

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