Tobias Harris’ strange contract

Tobias Harris signed a four-year deal with the Orlando Magic. But its structure is reportedly strange, and it gives the Magic some cap flexibility.

The Orlando Magic finalized a four-year, $64 million deal with Tobias Harris earlier this week. It was the work of a long season of proving himself and the benefit of a crazy market. It was simply pretty hard to let a great offensive player like Harris go at just 23 years old.

With where the Magic are at, they had plenty of options and plenty of cap room to make some major moves. They went for it with Paul Millsap and struck out. They got Tobias Harris for less than the market amount, considering he reportedly received one max offer sheet.

There are numerous ways the Magic could structure this deal. Some assumed he might get a flat $16 million per year. Others believed he could get the maximum raises with a salary starting at about $14.4 million and finishing at about $17.6 million.

Orlando though appears to have gone in a different direction. A much more creative direction.

According to Eric Pincus of Basketball Insiders, the Magic put a unique structure to Harris’ four-year deal:

To say the least, there are few contracts structured exactly like this. Really, it is an odd way to go.

For the second straight year, Rob Hennigan’s major free agent acquisition took a front-loaded contract. And considering the expected increase in the salary cap, that creates more flexibility. Lots more flexibility — and in more ways than one.

The first, and obvious question, is how is a contract like this legal? Someone asked Pincus that directly and the simple answer is that the maximum raise or decrease on a year-to-year basis is 7.5 percent. It can go up and down as it pleases as long as it stays within that parameter. Indeed, Harris gets a maximum raise for the second year of his contract and a maximum pay cut for the final year.

This is a completely legal contract construction. There is nothing preventing his year-to-year salary fluctuating this way.

The bigger question is why would Rob Hennigan choose to structure Harris’ contract this way?

There seem to be lots of benefits if you look at the Magic’s future balance sheet.

The salary cap this season is set at about $70 million, actually an increase over the projected $68 million it was going to rise to. The Magic, even with Harris’ contract, are about $1 million below the cap room (if the Magic wanted to add another player, they would have to use the nontaxpayer mid-level exception, the room exception would put them over the cap).

That is all fine. The Magic are not likely to add anyone else unless they are on a minimum contract and they still have to guarantee Dewayne Dedmon and Devyn Marble‘s contract, if they so choose. Harris’ contract has little effect for this season.

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Even next season, it has little effect.

Think of Harris’ contract this way: His $16 million salary this year will occupy 22.9 percent of the cap. With the cap projected to rise to $89 million for the 2017 season, Harris’ $17.2 million salary takes up just 19.3 percent of the cap. Considering his salary decreases from there and the cap should continue to increase, his actual cap hit will also lessen reaching that wonderful valley when he is paid $14 million in the final year of his contract.

There is some method to the madness here though. When Harris is owed $14 million, it will be the second year of whatever extension Victor Oladipo gets and the summer Elfrid Payton hits restricted free agency. The year his salary goes from $17.2 million to $16 million will be the summer of Victor Oladipo’s restricted free agency.

This is some interesting planning.

As things stand, the Magic have about $53.4 million committed to next year’s team not including the draft pick (can’t place that cap hold yet) and non-guaranteed contracts (Devyn Marble and Dewayne Dedmon fall into this category yet again). Essentially, the Magic would have room for a max guy again.

Would they make their move then? Probably not a huge chance now that we know Harris is getting his highest salary in the 2017 season. And especially considering they have made maneuverings to keep cap room for Oladipo and Payton down the line.

Then again, with the cap rising so much, just about everyone has max cap room. If the salary cap rises as expected, the Magic would have somewhere near $36 million to spend. That is more than enough room for one max salary guy.

Then you spin it forward a year. The Magic owe about $62.5 million in salary for the 2018 season (including picking up team options for Payton, Aaron Gordon and Mario Hezonja). If the Magic went after a max guy in 2017, that would bring the total to about $82.5 million.

If the cap does indeed jump to $108 million, the Magic would have roughly $26 million. That should be plenty to lock up Oladipo with a long-term extension. Beyond that, there are no projections for how the cap will rise. So cap management and flexibility remain a big thing.

Looking at Harris’ contract, though, it becomes clear the Magic have given themselves some flexibility. Should they look to retain the players on their current roster, they can still go after a max player in the next two years for sure. They should still have the cap room to acquire a big contract in a trade if they should choose to do so too.

And, on top of that, Harris’ cap hold for the 2020 season will not be onerous as it will be based on his $14 million salary for the final year of his deal.

The one thing that becomes clear is the Magic have committed to this core group. However the way they have structured their deals — the Nikola Vucevic extension is extremely cap friendly and under market — and Tobias Harris’ fluctuating deal gives the Magic some flexibility to give other core guys extensions while still having the opportunity to go after a max guy.

It also seems clear the Magic probably feel they are one max player away. They are just waiting for the right time to take that important step. It was almost this season when they targeted Paul Millsap.

It is pretty hard to project too much into the future. The cap could change. The players could agree to smoothing and the cap may not rise as quickly.

With the information the Magic have though, they seem to have planned well to make room for all the players they will want to sign in the next few years.

Tobias Harris’ contract has given the Magic some flexibility moving forward, and that is really all they could ask for in making such a huge commitment to him.

Next: How can Nikola Vucevic improve?