As as been reported, Pascal Siakam is set to sign a $130 million maximum salary extension to stay in Toronto for the next four years, a contract that starts after this coming season. On paper, that means Siakam and the Raptors will be together until the summer of 2024.

Plenty will be written about how the Raptors punted on cap room in 2020 to sign him now, rather than wait for next summer. Waiting would let them keep his small cap hold on the books and try to use the extra cap space, before using his Bird Rights to sign him and exceed the cap.

But there was a risk in making Siakam wait; it could have run him the wrong way. Meanwhile, there’s upside too; maybe Siakam proves he can’t quite carry the load the Raptors are going to give him this year, and they’ve agreed to pay him less. Of course, the team is kind of losing that bet too, because they’d far rather he be worth the max, right? And then there is the implied resulting question — do we know Siakam is worth the max right now? Is there a chance he’s not, and this is an overpay?

None of that interests me here. And is frankly very straightforward.

The team was clearly not intending to use cap space in any meaningful way as soon as they extended Lowry for one additional year after this one. The trade-off with signing Pascal now versus later hasn’t been about 2020 cap space since the Raptors decided to stay competitive as they bridge to the more interesting 2021 summer.

Meanwhile, yes, Pascal is already worth the max. The max is not some status symbol in the NBA for the very best players. Most competitive teams pay their top two or even three players the maximum salary available to them. And Pascal’s max is the cheapest tier of maximum salary, and locks him up through his peak years.

Okay, we’re done with that. So, what was the real trade-off then for Toronto?

One Big Summer

The real concern for the Raptors was not summer 2020, but summer 2021. The 2020 free agent class was pretty underwhelming even before extensions started taking names off the market. The 2021 class meanwhile is very deep, and also headlined by a perennial MVP candidate.

With the Raptors giving Lowry a big payday for one year to keep his extension term down, and keeping their free agent signings this summer limited to two years at most (McCaw and Stanley Johnson both got 2020-21 years in their deals), the Raptors’ books in 2021 are still very clean.

Here is what the salary situation looks like for summer 2021 right now.

Player | Salary

Pascal Siakam: $31.32M

OG Anunoby: $11.62M (cap hold)

Norman Powell: $11.62M (player option)

Terrence Davis II: $2.06M (cap hold)

Dewan Hernandez: $1.78M (unguaranteed)

Matt Thomas: $1.78M (unguaranteed)

6 empty roster slots: $6.07M

There are also cap holds for guys like Stanley Johnson ($4.9 million) and Patrick McCaw ($7.6 million) but this is my article and I’m not envisioning either on the Raptors two years from now. There may also be a draft pick or two added between now and then, probably on something like $3.5 million between the two of them, assuming a late first round pick each year, though they would each cut off a $1 million empty roster slot cap hold, so little impact there.

Including the draft picks, that puts Toronto’s committed salary (assuming those contracts and cap holds listed above are kept) at $67.72 million. The salary cap is currently projected at $123 million. Now, that projection could be wildly off, considering the drama in China, and could drop by around 15 percent by some estimates. But that would also drop the cap next year, and therefore drop Pascal’s salary, and drop the values of the minimum salaries, and the rookie scale deals, and the max salaries for any free agents that summer, and so on. We’ll assume for now the projection is correct and evaluate later what impact the cap dropping could have.

That means the Raptors are looking at $55.28 million in cap room, if they sign a single free agent. Which is obviously plenty, considering the max they can offer any free agent with cap space is 35 percent of the cap, $43 million that summer. The point of outlining it like that is that if you sign more players with that cap space, you have fewer of those roster slot cap holds eating up your usable space — meaning if you split that cap space between two players, you can take a $1 million hold off the books, giving you $1 million in extra cap room to split between them. Make it three and it increases by another $1 million. And so on.

Anyway, that $43 million max is for a 10+ year veteran, not likely the sort of player the Raptors would target to partner with Siakam. They’ll want a 7-9 year veteran (30 percent of the cap), as those players will be unrestricted free agents, and won’t have a prior team that can match any offer. They’ll also be in their prime, rather than still developing or already declining. That 30 percent max is projected at $36.9 million. So let’s set that aside for one max salary signing and clear off a $1 million cap hold.

That leaves the Raptors with $18.38 million in cap room to spend on one more player, or a little more than that if they want to split it up between multiple players. But keep in mind, this is a projected cap where the Mid-Level Exception (MLE), whereby such elites as C.J. Miles and Jason Kapono were acquired, is projected at $10.5 million. $18 million doesn’t buy you what it used to. There is a good chance that’s what a Fred VanVleet might command in salary next summer. You’ll notice his name is not listed above — he’s a free agent this coming summer and if the Raptors want him, or any of the other incumbents not listed above, to be on the team in 2021 they’ll need to re-sign him in a shallow free agent market and eat into that cap space.

But what does this have to do with Pascal’s extension? He’s making the max.

Right?

Well, Actually: Reviewing the Siakam Math

Remember up above when we were talking about how much cap space the Raptors projected to have, and it was well above what they could offer even a 10+ year veteran? The maximum salary differs based on a player’s experience in the league. Any player with six or fewer seasons can make up to 25 percent of the cap. 7-9 years is 30 percent, and 10+ years is 35 percent. In a world where the cap is well above $100 million, those percentage points can be huge.

This is part of why the NBA introduced the new designated veteran extension, allowing a team to offer its own free agent with only seven or eight years experience (and a trip to unrestricted free agency coming up) a contract worth 35 percent of the cap. It’s a huge pay difference coming earlier in a player’s career and a way to hold onto drafted talent even longer than the restricted free agency system allows. It hasn’t worked quite like they expected so far, but that’s the reasoning.

Well, there is a similar rule for players who are getting their rookie deal extensions (like Pascal). Confusingly, this is not the designated rookie scale extension (which allows for a longer term but not higher pay). But nonetheless, there is a rule (called the fifth year maximum salary criteria) that allows teams to offer their players seeking rookie deal extensions or to re-sign in restricted free agency up to 30 percent of the cap instead of just 25 percent. Players are only eligible for this if they win Most Valuable Player, Defensive Player of the Year, or make one of the All-NBA teams.

And there is the rub for Pascal. He hasn’t made the All-NBA teams yet, but stepping into more of a primary focus this year, there is every reason to believe that he has a shot. And players can sign extensions for 30 percent of the cap on the condition they make the team in the upcoming season (which will default to 25 percent if they don’t). Which is exactly what happened with the Ben Simmons and Jamal Murray deals — they signed full 5-year extensions for $170 million dollars — but if they make an All-NBA team this year, they will actually end up getting over $200 million over the length of their deals.

Siakam’s representatives would certainly have been asking for a deal like that in negotiations.

But generally, there is a tradeoff. Only the home team can offer such a deal. If Siakam wanted to sign elsewhere, he would be limited to the 25 percent max regardless of how well he performs. So the only reason for the Raptors to offer it would be to buy term. That fifth year (or, if the starting point is three years plus a fourth year player option, locking in the fourth year) is what the team wants.

Also, teams have the option to offer that 30 percent as an incentive that is narrower than the rule requires. So, instead of making any All-NBA team (the third team is what Pascal has a solid chance at), a team can say the player needs to make the top two All-NBA teams or win MVP to get that raise. And that’s exactly what the Raptors did (per Michael Grange) — if Pascal makes the third All-NBA team he stays at 25 percent. If he makes the top two, or wins MVP, he gets his 30 percent. That’s a much more unlikely scenario.

The two sides appear to have met in a middle ground here: less likely potential payday for Siakam, no fifth year for the Raptors. Pascal hits free agency at 30, still in his prime, and able to ask for a big contract — potentially including that aforementioned designated veteran extension, as he’ll have eight years of service to his name at that point (oddly, the early 35 percent max is not available to players with nine years of service, even if they are All-NBA talents). The fifth year would not only have taken Siakam an extra year away from his prime, but eliminate the possibility of that early supermax.

But back to the impact of potentially giving Siakam that more likely opportunity to get 30 percent next summer. If his signing salary was 30 percent instead of 25 percent, then his salary in 2021 would have been $37.6 million — a full $6.3 million more than he is currently lined up for. That very quickly makes that projected $18 million to sign one or two players go from a reasonable amount that might be enough to hold onto a key player or a couple solid depth pieces, to an amount ($12 million) likely not enough for either of those things.

So you can see why the Raptors would not want to risk that outcome unless he’s legitimately an MVP candidate or close to it at that point.

Earlier in the fall I had proposed the Raptors should try to get Pascal to shave a couple million off his max salary to free up a little more wiggle room in 2021. But the impact of avoiding that potential pay raise is actually far larger than the small amount I was hoping to save, so I am fully behind this safer play.

Cap Drop Analysis

Further to that, let’s now re-examine that scenario we discussed earlier where 15 percent of revenues just disappear and the cap drops by 15 percent to match those lost dollars.

If the cap in 2021 drops to $105 million, and the 2020 cap drops to $99 million, the immediate effect is that the Raptors lose $18 million in cap room in that key summer.

That is mitigated to some degree by a few contracts dropping in value. The second max player they want to sign would command $5.5 million less. Pascal’s salary would drop by $4.7 million. But most other salaries would stay the same — most importantly, the cap holds for free agents and the already signed players, so most of the rest of the salary commitments. All in the Raptors would lose out on about $8 million of that $18 million in cap room they are projected to have now. Leaving them with $10 million. And in a cap crunch world where the cap is suddenly dropping, that’s still a little over the MLE and might be able to keep them one key piece if the market is crunched enough.

But then if Pascal gets that 30 percent max, once again, it turns into a $5.3 million raise, eating up half of the remaining flexibility the team had managed to hold onto. So even in that cap crunch scenario, with Pascal’s salary reduced accordingly, the risk associated with that typical 30 percent max salary criteria was just not worth it for the Raptors.

This was a deal that made sense for both sides from a risk reduction perspective. Pascal is locked into a very big payday for a term that guarantees him security and also lines him up to receive an even bigger payday, having not even stepped on the court this season. The Raptors lock in their young star long term, with no option years to worry about, and cap his earnings at a number they project to be able to fit, without risking a great performance from Siakam further increasing his cost to the team, unless he really does launch himself into Kawhi Leonard-esque heights — an outcome the team would surely be delighted with.

Win-win.

Salary figures on existing contracts per basketballinsiders.com.