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Cleveland's Overpriced Rental

Luol Deng is out in Chicago! In return the Bulls are getting Andrew Bynum and a glut of mediocre draft picks. Deng is a good player, so you'd think I'd be mad at Chicago, right? Wrong! I don't consider this move tanking because it is transforming one asset into more valuable ones.

Deng's Value

2012 wins adjusted to 82 win season. 2014 wins estimated out to 82 games. Wins taken from January 6th 2014.

I'm a fan of Luol Deng. He's been a good player for most of his career. Still, if we look at his production, he hasn't really been a star player in years. The cutoff I typically use for a player is 10 wins. Deng hit this twice during his rookie contract, but has never returned.

Deng dealt with injuries in 2008 and 2009. In 2010 he was healthy, but not quite as good as he was as a younger player. Deng in fact appears to be leveling off. He'll be 29 at the end of the season, which may still seem young, but he's already played ten seasons in the NBA. Hence, I'm skeptical that he'll ever be a top player again.

There's another issue with Deng's long NBA tenure: NBA salaries work based on seniority. Older players are eligible to earn more money. We can see that Deng's contract value has been steadily rising, while his production has stagnated. Deng is up for a contract extension at the end of this season, and he'll likely be pricey, especially as he's a scorer, and those tend to fetch more money on the open market (see Detroit for some examples).

So Deng is older, only a good (not great) player, and likely to command an expensive contract. The Bulls could just play out the season and let him walk (or worse, re-sign him) but they didn't. Deng still had trade value and the Bulls took full advantage of it. With Butler healthy again and Dunleavy playing the most minutes he has in years, the Bulls can still compete this season. In addition, they get to make sure they don't lose Deng for nothing.

The Trade Value

In return for Deng, the Bulls get the following:

  • Andrew Bynum
  • The right to swap picks with Cleveland this season.*
  • The Portland Trail Blazers 2015 and 2016 Second Round Draft Picks
  • A Sacramento Draft Pick (we'll get to this.)**

Obviously Andrew Bynum is a wash. This is purely to make the salaries match. As Bynum's contract wasn't fully guaranteed, this works out fine. The right to swap picks with Cleveland this year is interesting because it's lottery protected. Let's say the Deng rental limps Cleveland into the playoffs in a worse seed than Chicago. Then the Bulls may be entitled to a slightly better pick this season. Cleveland is currently six games out of a playoff spot, and even with Deng, I'm not optimistic.

That leaves the other picks. The Sacramento pick is heavily protected over the next two seasons. If Sacramento remains a lottery team in three seasons, it turns into a second round pick in the 2017 draft. What this means is it is likely Chicago turned Deng into an extra second round draft pick for the next three seasons.

I think this is fine, for several reasons. First, teams are still terrible at the draft; there is still talent to be found late. Second, teams should really only spend their money on top tier players. The Bulls have Noah and Butler (I refuse to give any optimism to Rose until he shows me at least 40 games), which means they've handled the hard part of getting really good players. The key now is to spend their money wisely. There is no smarter way to fill a roster than with draft picks. Rookie contracts are absurdly good values. If it were more than 50 games of Deng in a season where the east was so bad several losing teams get playoff spots I might disagree. This season though, the Bulls fleeced Cleveland for a player that probably won't help them long term.

Summing Up

The Bulls are looking to amnesty Boozer in the offseason. This will likely give them around ten million in cap space to play with. This means they can try and sign some good players (Monroe and Sefolosha will be on the market) and then use their draft picks to fill out the roster. This is a great place to be. Now, it's always possible for a team to be in a good position and mess it up. The Bulls are no strangers here. That said, I think they made the right play. They rented an overpriced asset -- remember something can still be good and cost too much (I'm a Mac user, I should know!) -- and are set up to improve their team. It's the right way to run things.

I believe it's the right to swap 1st round draft picks in 2015, not this coming draft. Makes the trade even better for the Bulls.

Chicago removed $20 million from their books ( the aporx. $14 million owed Deng and an additional $6 million that would be owed Bynum.)
I think the chart is somewhat misleading. The key thing to keep in mind when looking at contracts is that each win is worth about $1.7-$1.9 million. So you can't just look at the chart and say, the blue line has been below the red line since 2009 so Deng isn't worth the money. In reality, the *value* of the wins represented on the blue line has been consistently at or above the cost of his salary (as represented by the red line), except in 2009 and this year. So Deng has been a valuable player for Chicago (i.e., "worth it") during the entirety of his contract, not just during his rookie contract years.

That's not to say that I dis like the deal from Chicago's perspective. They likely know what it will cost to resign Deng, and assuming Deng will command a salary somewhere north of $10 million per year in the future, it is unlikely that Deng will be too valuable in the future. But we'll see. If Deng signs with another team for less than that - say in the $8 million range - then the Bulls really will have given up a valuable asset for little more than dollar savings this year and a bunch of second round picks.
Oh, and I'll disagree with Dre when he says that "rookie contracts are absurd values". That's only true if you look at *good players* on rookie contracts. But that misses the full picture. You need to adjust for the risk that the rookie is going to be a bust. Look at Cleveland. They have 6 players on rookie contracts right now: Irving, Bennett, Thompson, Waiters, Karasev and Zeller. Are those contracts, taken as a whole, "absurd values"? Uh, no. They are playing $22 million for 6 players who have produced a total of 2.1 wins so far this year! Those rookie contracts are, in fact, *horrible*.
Yes, Chicago can swap 1st rounders with Cleveland in 2015. Also, the Sacramento pick is top-12 protected this year, and top-10 protected over the next three, so not exactly lottery protected. It's hard to imagine getting much more than this for an expiring contract.
Great comments as always Al_S, I would like to see that updated chart if someone has the time to make it.
Rookie contracts are great value. Its risk averted and cost effective. Especially with those second round picks. These contracts have team options in place with them to further my point of risk aversion. If you hit with a player who can gain you 10 wins, that is basically stealing. If not, the lost isn't as bad as bringing in a free agent who underperformed. Plus, they are young so they will likely get better. If it was up to me, I would have the rookie contracts uncapped so we can see more contracts like the Glenn Robinson rookie contract. You know a real free market.
Deng is looking for $15-16M per year. Anything close to that an he'll start a contract at 29 years old that is only going to get more overpriced every year thereafter. Bulls and Cavs won't be paying that much. But there is always the Lakers to up the ante. Good move to get rid of him by the Bulls.
Andrew, the point Al's making is that rookie contracts are not inherently wildly good deals. A lot of the averaged value of rookie-scale contracts comes from a small subset of very good players, who produce at above-average levels on below-average contracts. The majority of rookies are below-replacement players whose contracts are still a good bargain, but not necessarily a path to success.

It's a problem that crops up with some of the analysis here from time to time: averages don't do a good job of capturing the realities when the thing we're interested in isn't normally distributed. If 80% of the wins produced by rookies come from 20% of the players, the average rookie might look pretty decent, but the majority of rookies won't be.

All that said, I don't entirely disagree with the logic; the Bulls have been picking fairly well late in the draft, and getting 3 inexpensive shots at finding another Jimmy Butler is a good deal.
As a first matter, it would be very helpful if someone had looked at the value of draft picks (in terms of average wins produced) as compared to the cost of rookie contracts. Oh, wait:

What we don't know, as DooDoo Jump points out, is how those wins are distributed. I'd be interested to know what the *median* wins for each draft slot is, rather than average, for example. And we don't even know whether those players are above or below average (in terms of WP48) such that you could, on average, get a better deal from a veteran.
I should add that, if you look at the model that Dre built for the WoW post I linked to above, it looks like second round picks average producing somewhere less than 1 win per year. I'm not sure that they're all that great a deal. Which is what the market shows, since teams can usually simply purchase a second round pick for $1 million or 2 in cash.
I'll repeat what I said on Twitter: Deng is going to be this year's version of Gerald Wallace or Joe Johnson: a once-great player who is far too old to justify a lengthy near-max deal. He's likely to get $12+ million, and in year one that might be a fair value but in years 3 and 4 it will probably be a horrendous deal.

But I keep hammering on this: NBA teams shouldn't be trying to give out "fair" contracts north of 12 million. You talk about risk with rookie contracts, but tying up 20% of your salary cap on a contract that is "only" fair is a huge element of risk and a very big opportunity cost.

Max/near max deals should aim to be exploitative, not fair, to mitigate both your risks (of injury, age, decline) and opportunity costs (of being unable to sign or trade for a max player should one become available).

Most of these owners didn't become billionaires by making deals where both sides got a fair shake, so this concept shouldn't be new to them.
I'd add further that draft picks are more valuable than rookies, on average. A 2nd round pick is worth $1m and a first around 2-3m, on average, because they are unknown quantities.

But who's paying $3m for Austin Rivers?

So there is value in having a large collection of picks that can be packaged in deals.
I disagree that Cleveland made a bad move- that Deng graph is very misleading because it suggests there is a $1M:1 Win relationship- it should instead compare the value of his wins to his actual salary. And it would be enhanced with an overlay of Andrew Bynum's relative production.

Cleveland was on the hook to pay either $6M or $12M for essentially zero wins from Bynum. With the addition of Deng (7-win pace) and the subtraction of Bynum, the Cavs are easily 10-15 games better over 82 games because they have three productive big men to take Bynum's minutes AND they get to replace many of their terrible, terrible wing minutes with a very productive player who actually knows how to play team basketball (more assists and more space for Kyrie's drives and Jack's midrange game!) and is an A+ on defense.

Considering the fact that Cleveland signed Bynum to a low-risk, high-upside deal because they wanted to keep their books clean and get a shot at the playoffs, this deal fits their organizational goals very well. Even with Bynum's slow recovery, bad wing play, and a mediocre backcourt, their 26-win pace is still somehow only 2½ games out of the 8 seed. And they clearly weaken a competitor by obtaining its fourth-best player.

Though $20M in off-court savings is very significant, Chicago gave away a very productive player for three in the bush (yes, Deng is a bit overpaid- but he's on pace to produce $11M of wins for the price of $14M this season, which is certainly better than Bynum and light years better than Kobe's ZERO win pace for $30M), while Cleveland was able to shore up its biggest team weakness. There is a very good chance this trade costs the Cavs only second-round picks because right now, Sacramento would essentially have to be a better team than the #3 seed in the East to convey the pick this season.

Obviously, the better strategy last offseason would have been to pick literally anybody but Anthony Bennett, add a cheap, productive wing player like Ronnie Brewer in free agency, hire an offensive coordinator for Mike Brown, and cut Waiters so he can open a bakery with a secret basement (since he likes turnovers so much and so he can start a fight club), but the Deng trade is a coup given their current situation.
Patrick, you keep "hammering" on the point that NBA teams shouldn't be trying to give out large "fair" contracts, and should only give out large contracts that are exploitative. But I'll point out again that there simply are not many such contracts available. So, of course, if you are able to get one of those contracts, great! That's a no-brainer. The hard part is figuring out what to do if you can't get one.
Just for giggles, I spent a few minutes looking at how many players were available to be signed to large "exploitative" contracts last summer. Here's my methodology. I looked at the universe of players who produced over 7 wins last year (7 wins equates to about $12 million of value, at $1.7M/win, with $12M the value that Patrick mentioned in his post above for the types of contracts we ought to be discussing here). There were 63 players in the NBA who produced at least 7 wins (again, $12M of value) last year. Of those 63 players, only 16 were free agents and thus available to be signed. So already we are down to a universe of only 16 potentially large "exploitative" contracts available last summer. But how many of those contracts actually turned out to be exploitative so far this year? Only Chris Paul, Calderon, Iguodala, Aminu, Korver, Millsap, Tony Allen, and Darren Collison (that is, the value of their production so far this year vastly exceeds the salary that they are getting, and which you would have had to pay if you wanted to sign them). So I got a total of 8 players you provided at least $12M of value last year, were free agents last year, and whose contracts actually turned out to be exploitative. It's not a lot.
Appreciate the comments but a suggestion: when your comments exceed the length of the original post, consider writing your own blog post and just including a link to it in the comment section.
Thanks Dre. I'm glad someone said it. Btw, there are tons of undervalued guys in the dleague and overseas if you don't want to build through the draft but it is essentially the same thing in regards to risk aversion and cost effectiveness.
Dollar value per win assumes all teams are equal. Low visibility markets, teams in less desirable locations, and teams in bad state tax locations all have to pay a surcharge for players. Cleveland is defiantly a surcharge team.
While I think you are spot on about Deng's career arc, I think you overestimate the value of 2nd round picks. You only have 7 rookies playing significant minutes and having a league average production in WP48. None of them are second rounders (2 are undrafted though). Expanding it to any minute level doesn't improve that picture much. Most players require a few years to start being productive, meaning by the time they are worth more, they'll be paid more. The only way to overcome this is to give long term contracts for these second rounders. And for every Chandler Parsons type of steal, there are plenty of Royce White level worthless contracts. I'd include the costs of these gamble contracts into a success story like Parsons to get a full picture of the true costs.
Chicago has received an excellent return for a guy who they were going to lose at the end of the season to free agency. All teams that do not figure to do much in the playoffs should always always always take what they can get for unrestricted free agents-to-be who will not be retained. You'd think this is obvious but teams consistently fail to do this. Lots of examples. The Lakers are likely to make this mistake with Pau Gasol. The Jazz made this mistake last year with Paul Millsap and Al Jefferson.

So, great job by Chicago here. If they can bring over the Mirotic kid next season, they have a nice foundation; if Derrick Rose can become healthy and relevant again, and especially if the team drafts well, the Bulls should be challenging Miami and Indiana in the East.

I will say that I think this move makes sense for Cleveland because that organization needs to change its culture, and badly. Luol Deng will be overpaid by the Cavs to re-sign, and he is not going to earn that money, not on the court, anyway. However, Deng is a true professional, a grown-up. He works hard and takes this job seriously. He comes from a winning culture. He has absorbed a lot from the great Tom Thibedaou in Chicago. The young guys in Cleveland will look up to him and hopefully follow his lead.

It's hard to quantify this sort of impact. However, if the Cavs start
winning games after this deal, and they re-sign Deng, and Deng continues to play well for a while, then the trade, and the money paid to Deng this summer, will be worth it. Teams that win make more money than teams that lose, and the Cavs have been a real laughingstock ever since Lebron left.

I'm okay with this deal, in other words.
Nice, Al.
Trade makes sense for Chicago in that they take advantage of the unique opportunity of Bynum's contract to save some money, get out of the tax, and get three minor assets.

That said, from Cleveland's perspective, the picks aren't very valuable. Two second rounders from Portland, one of which (in 2014) is going to be late second round. The Sac pick is as likely as not to turn into a second rounder in 2017. The right to swap picks in 2015 (not 2014, by the way) only happens if the Cavs are in the playoffs -- it's lottery protected and the obligation extinguishes if it doesn't convey that year.

By far the bigger issue from Cleveland's perspective is (1) if they can't re-sign Deng; or (2) if they overpay when they re-sign him (as Patrick correctly points out). However, it's tough either to sign top free agents in Cleveland or acquire undervalued stars via trade, so I think you have to factor these considerations into the Cavs' decision to trade for Deng and their likely offer to him as a free agent. All told, I think it's a tough call, though given his age and mileage, I tend to be against this deal for Cleveland. My preference would have been to go hard after Ariza as a free agent this off-season -- could have been had cheaper.
So Chicago's biggest upside is capspace sans Boozer it seems. $64,525,410 - $16,800,000 = $47,725,410. Assuming a cap of $60 million, that is about a rookie max deal.

They could get Lance Stephenson (Maybe), Bledsoe (VERY Unlikely), Gordon Hayward (EXTREMELY unlikely). Evan Turner would be a massive mistake, as would any number of vet max guys.

Do we wait to judge the trade until the FA period is over?
If I can't sign a star player to a near max deal in free agency, but still have a bunch of money to spend, I'm generally looking for two things:

1). Players with upside that I can sign cheaply. Two that jump to mind from last off-season were Mike Dunleavy and Tyler Hansbrough. Each signed for less than 4 million a year and are productive players without much of an outlay risk. The Rockets going out and grabbing Omer Asik and Jeremy Lin a couple years ago had the same idea. You're looking for potential upside with the ability to fail cheap. There are always guys like this on the market.

2). Teams with onerous contracts that will pay me to clear their books. This is the Utah Jazz strategy last off-season - find a team with some bad contracts on their books that is willing to give me future assets - draft picks, good prospects, trade exceptions - to take their bad contracts off their books. If there aren't any good deals available on the free agent market, I'd happily turn that cap space into future draft picks.

If all of that fails, find players that I can sign to short, preferably one year contracts that will get me to the minimum salary for the year.
Don't make this too complicated - from the Bulls' perspective, this is a very simple transaction. The Bulls had built this team around Rose. His second knee injury compels them to abandon that strategy and chart a new course. That requires shedding salary to avoid the repeater penalties related to the luxury tax and, eventually, to get below the salary cap. Deng carried the second highest salary cap hit and his contribution is replaceable from the existing roster with minutes from Butler and Dunleavy, much less expensive players. Although the combined value of the draft picks and the potential 2015 1st-round swap with Cleveland is modest, it is better than nothing. They may amount to nothing or they may be used as sweeteners in a future trade - but they're just a bonus, not the basis for evaluating the merits of this deal. It's all about the money.

The Boozer amnesty will likely occur this summer and Chicago can begin to reshape its roster - one that will likely be less dependent on Rose's scoring.
Lance Stephenson is easily the best target for any team in free agency this summer, and the Bulls's best use of their newfound savings from this trade would be to amnesty Boozer and give BORN READY the biggest offer they possibly can with their newfound savings. He is 23 (!) and is a UFA (at 23!), he'd probably cost 4 years/$50M to pry away from Indiana (which would put the Pacers at least $10M over the tax threshold, effectively making Lance cost $25M to them), and given that he produced 8 wins last year and is on pace for 15 wins this year, he might be underpaid at the max.

It's expensive to win over 60 games because you need multiple underpaid max players AND very good role players at every position (last season, the Heat underpaid LeBron by $20M and they STILL had $84M of salaries on the books). The Bulls should make sure their division rival Pacers are paying as close as possible to market value for it.

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