The Denver Nuggets are ahead of schedule. They knew they had a star in Nikola Jokic when they signed him to a max contract last summer, but they had no idea they were going to jump from out of the playoffs in 2018 to the second seed in a loaded Western Conference in 2019. Their playoff run was cut short by the Portland Trail Blazers in the second round, but the Nuggets will be back, with a young core that will only improve as the years progress and a true star at the top of the team in Jokic. Moving forward, Denver will have to figure out which of their young players are able to progress to the level they’ll need deeper in the playoffs, as well as perhaps consolidating some of the players they have on the current roster to obtain a high-level running mate for Jokic.
Their offseason will begin with Paul Millsap, who has a $30.4 million team option for next season. Picking up that option would lock him in on the last year of his contract but keeps their books clean for 2020 and beyond, while opting out and negotiating a longer deal with less annual money relieves some financial pressure this season.
Opting in leaves them with about $11.9 million separating their current payroll from the luxury tax threshold, which would allow them to use their entire non-taxpayer mid-level exception without triggering the tax. Adding a pair of players making the veteran’s minimum would push them over the tax by about $2.2 million, but they can always find a way to duck back under later in the season with a small financial trade. They can also go without a 15th player on the roster, since they have a ton of depth across pretty much every position, which would put them even closer to the tax threshold. The advantage to opting in is that Millsap would come off the books in 2020, allowing them to use cap space to add to their team before Jamal Murray becomes significantly more expensive – his $13.3 million cap hold is a lot lower than what he’ll actually be paid in 2020-21. How much lower will depend on how his fourth season goes and what the market is for him in restricted free agency, but the Nuggets will be able to go as high as they need for him.
Holding onto Murray’s cap hold opens up $28.3 million in cap space for Denver to add to their team before re-signing their young point guard, though that number will change with their first-round pick next year and any other business they complete this summer. That number also does not include cap holds for Juancho Hernangomez ($10.0 million) and Malik Beasley ($8.2 million), two players who have varying degrees of value to the Nuggets and the league at large. Hernangomez isn’t likely to command a contract for more than his $10.0 million cap hold, but unless he shows absolutely nothing in Year 4, they’ll want to tender that qualifying offer and make him a restricted free agent anyway. Beasley has a better chance to outplay his cap hold and is a larger part of the future in Denver than Hernangomez is, but retaining that hold as well will push their usable cap space down even further. Add in another $3.8 million for Torrey Craig’s restricted rights, which would make sense for Denver to keep given how key he was to their playoff rotation, and the Nuggets are down to $9.2 million in cap space, which is less than the projected $9.84 million mid-level exception and doesn’t even take into account their first-round pick, additional money added this summer, or any downward fluctuation in the projected $116 million salary cap.
As you can see, opting in to Millsap’s contract in order to save cap space for 2020 isn’t necessarily as feasible as it looks at first. Moving on from one or more of their restricted free agents would give them back some significant financial flexibility, as would signing Hernangomez to a contract that starts below his cap hold, but they likely won’t have a ton of space next summer.
Opting out and re-signing Millsap to a longer deal for less annual money would almost certainly zap their cap space next summer, but would give them a bit more flexibility this year, particularly on the free agent market. While most over-the-cap teams have their own free agents and whichever version of the mid-level exception for which they qualify, the Nuggets have a trio of extra bullets in the chamber in the form of three traded player exceptions generated in last summer’s salary dumps of Kenneth Faried, Wilson Chandler, and Darrell Arthur. The resulting traded player exceptions can be used to take on players already under contract for up to the various values (but cannot be aggregated with each other nor other salary on Denver’s books) or can be used for the same purpose to execute sign-and-trades to bring in outside free agents.
Acquiring a free agent through sign-and-trade would immediately hard cap the Nuggets at the $138.21 million apron, but if Millsap’s 2019-20 salary was slashed by $10 million, they’d have enough financial flexibility to use at least one of those exceptions in a sign-and-trade and still use their full mid-level exception without exceeding the apron. Re-upping with Millsap on a two-year deal worth $40 million would net him an extra $10 million guaranteed, without having to hit the market next year, and give the Nuggets the flexibility to add two key pieces to their roster, as opposed to just one. They could even duck the tax in this scenario, if they acquire a player through sign-and-trade for less than the full $13.8 million afforded to them by Faried’s trade exception.
There aren’t many teams as competitive as the Nuggets who have that sort of spending power on their side, which will be attractive to free agents who would otherwise take the mid-level exception from a competitive team or sign for more money to a worse team. Denver has a very enticing pitch to this mid-tier free agents who aren’t necessarily commanding full starter money but are better than the mid-level exception, particularly because the right addition could vault them even higher in the Western Conference hierarchy. Should the Nuggets generate significant interest from multiple free agents in this range, they have multiple trade exceptions to use in sign-and-trades, though they’d really have to worry about bumping up against the apron at that point. If it were worthwhile to them, they could always make another salary dump trade to get rid of Mason Plumlee’s $14.0 million expiring contract, either in a straight salary dump or in a deal for Cleveland’s J.R. Smith, who can be cut for $3.87 million in guaranteed money and would open up another $10 million below the tax and apron for Denver to use in a sign-and-trade. Making that move would require them to have advance knowledge of multiple players interested in signing with them via sign-and-trade, since Smith’s contract guarantees on June 30, but it’s not an impossible scenario.
For the reasons laid out, it makes more sense for Denver to opt out of Millsap’s contract for next season and bring him back for less annual money, even if it impacts their 2020 cap space. The likelihood that they even have 2020 space is relatively low, particularly if they do go the sign-and-trade route, since sign-and-trade contracts have to be at least three years in length (before any options).
Punting on 2020 cap space this summer would also give the club the opportunity to negotiate extensions with Murray, Hernangomez, and Beasley, should those players be interested in committing to Denver long-term. Extending any of these players would require them to give the team a significant discount, which is somewhere between slightly and very unlikely in each case. For Denver to get value on a Murray extension, he’d have to take less money than Gary Harris is making, which, given where Murray likely believes he stands in the pecking order with the Nuggets, is not something in which he’d be interested. Hernangomez still hasn’t caught on in their rotation and head coach Mike Malone clearly doesn’t trust him, which should lead to an impasse in extension negotiations. Signing an extension would be doing so at his lowest value and doesn’t make sense for him unless the Nuggets wildly overpay him; it makes more sense for Hernangomez to play out the year and hope that he can break into the team’s rotation to prove himself ahead of restricted free agency in 2020. Beasley is already in the Denver rotation, though that may change depending on their summer activity. He’s probably the most likely player to sign an extension of this group, since his value as a rotation player is pretty high coming off a strong playoff run, but there’s some uncertainty as to his role next year. He may want to lock in guaranteed money now, rather than take the risk of hitting the market next year.
For all three players, Denver will be able to see out their entire summer before engaging on extension talks. Rookie scale extensions aren’t due until the season starts in mid-October, so they’ll have plenty of time to make their other decisions before seeing just how their three 2016 draftees fit in their future plans.
Denver’s in a really interesting position, both on and off the court. They had a phenomenal year in 2018-19 and will be looking to build on their success this summer, whether through solidifying the roster with a trade for a star, opening up space to use their traded player exceptions in a sign-and-trade, or solely adding to the team through the mid-level exception and banking in internal development from their young players to propel them forward. A more aggressive approach may depend on what their competitors do; if the Clippers and Lakers miss out on their free agent and trade targets and the Warriors look weaker in the wake of Kevin Durant’s Achilles injury, Denver may throw everything they can into improving their roster this summer and giving themselves the best chance to top the Western Conference in 2019-20 without risking their long-term future to do so.
If you’re looking for more Nuggets talk, I talked with Adam Mares on Locked on Nuggets covering a lot of what is written here, plus some additional free agent targets and more talk about their future plans. You can listen to Locked on Nuggets here.