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2016 NBA Free Agency: New Orleans Pelicans salary cap explainer

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Can the Pelicans chase the big fish in the free agent market? How much cap space does Dell Demps have to work with?

Derick E. Hingle-USA TODAY Sports

[Editor's Note: Updated to reflect Pelicans declining to provide the qualifying offer to James Ennis and Alonzo Gee opting out.]

Free agency begins on July 1st at 12:01 AM Eastern. For the New Orleans Pelicans that means Eric Gordon, Ryan Anderson, Norris Cole, Kendrick Perkins, and Jordan Hamilton are unrestricted free agents. Dell Demps has until June 30th to tender qualifying offers to Tim Frazier and James Ennis, which would make them restricted free agents. Just how much cap space do the Pelicans have to work with? What kind of scenarios are available to the front office? Let's take a look.

Alonzo Gee has opted out of his player option. He will be a free agent and the Pelicans have a little more cap space to work with beginning on Friday.

Bird Rights matter

Next up are the qualifying offers (just a one year contract at almost $1.2 million) to Frazier and Ennis. I would expect the Pelicans to tender both offers. [Update: Pelicans will not make a qualifying offer to Ennis.] Since Frazier is restricted the Pelicans have the right to match any offer he might sign on the open market. However, there is a catch. New Orleans does not hold Frazier's Bird Rights The Pelicans will only be able to match a contract offer if they utilize cap space or an exception. It would be the best case scenario to sign Frazier to a contract of at least two years. This would mean the Pelicans would have full Bird Rights (and the ability to go over the cap) should Frazier be deserving of retention when he becomes a free agent again in 2018.

Important Note: Since the Pelicans signed both to contracts for the rest of the season last year that counts as one year towards earning full Bird Rights. Full Bird Rights requires three years without switching teams in free agency. Two more are required for Frazier.

This situation also applies to second round draft pick Cheick Diallo. Second round picks do not occupy cap space until they are signed. As in the case with Frazier, the Pelicans would need to utilize cap space or an exception to sign Diallo this summer. If the Pelicans dip below the salary cap the only exception available is the room exception, which has a maximum duration of two years. Diallo would become a restricted free agent in 2018 but, again, the Pelicans would not own full Bird Rights. These are valuable and the reason you see most second round picks sign for contracts of at least three seasons.

How much will Diallo's contract be in year one? A good benchmark is the contract the Boston Celtics signed the 33rd pick last year, Jordan Mickey, to in 2015. Mickey's begins at almost $1.2 million. For purposes here I will assume Diallo will occupy around the same number; the front office didn't trade away two picks to get cute signing the selection.

Unguaranteed contracts and cap holds

The last two chess pieces Dell Demps has to work with is the partially guaranteed contract of Luke Babbitt and the unguaranteed contract of Toney Douglas. Both could potentially be included in a trade if transactions get complicated in the next week or two. The guarantee date on both is July 12th, giving New Orleans plenty of time to decide if both will be around on the roster.

Until the Pelicans renounce their unrestricted free agents they will not have any cap space whatsoever. Eric Gordon's massive $23.2 million cap hold alone is enough to keep the franchise over the $94 million threshold. I fully expect he will be renounced early on in the process, along with Kendrick Perkins and Norris Cole.

Ryan Anderson is a trickier dilemma for the front office. His cap hold alone means New Orleans would have under $6 million in cap room before they start dealing with the unguaranteed contracts and restricted free agents. Even releasing all of those would not give the Pelicans enough room to become a realistic player in the market. Does Dell Demps roll this roster back with Buddy Hield taking Eric Gordon's minutes? Doesn't that sound foolish?

How much to spend?

If the Pelicans renounce all of their unrestricted free agents (everyone but Frazier) they have over $21.2 million in cap room. (Remember, I'm keeping a "hold" for Diallo at $1.2 million that will not appear elsewhere on the internet.) That's not enough for a max offer to any free agent. If they waive both Douglas and Babbitt that amount increases to $23 million. Enough for a max offer to Chandler Parsons (Free Agent Profile), Kent Bazemore (Free Agent Profile), or Harrison Barnes but not enough for the next tier of free agents such as Nicolas Batum.

Important Note: These numbers of cap space do not provide any wiggle room to re-sign Frazier. If he receives an offer starting above their qualifying offer (nearly $1.2 million) the Pelicans must watch him walk or hope the room exception ($2.898 million) is enough.

Simply put, to become significant players in the market a trade of a large contract is necessary. Preferably that outgoing contract is large enough to create sufficient flexibility. Alexis Ajinca and Tyreke Evans are the natural targets. Trading away Tyreke Evans to a team in need of a point guard creates more than enough room to sign a max contract or two at a lower value. Ajinca provides less flexibility, but enough to offer the lower tier of max contracts and retain Tim Frazier easily.

Here's a look at the situation after renouncing unrestricted free agents but keeping the unguaranteed contracts and Frazier's qualifying offer on the books.

Pos Age 2016-2017
Anthony Davis PF/C 23 $22,200,000
Jrue Holiday PG 26 $11,286,518
Tyreke Evans SG 27 $10,203,755
Omer Asik C 30 $9,904,494
Alexis Ajinca C 28 $4,713,203
Quincy Pondexter SG/SF 28 $3,617,978
Dante Cunningham SF/PF 29 $2,978,250
Buddy Hield SG 23 $2,931,000
Toney Douglas PG/SG 30 $1,315,448
Luke Babbitt SF/PF 27 $1,227,286
Tim Frazier PG 26 $1,180,431
Cheick Diallo PF/C 20 $1,200,000
Cap Space $21,241,637
Total 26.42 $94,000,000

Salary data from Basketball Insiders and RealGM.

I truly have no idea how Dell Demps is going to approach this summer. Much of what happens will be less about his ability to manage the cap space (moving Evans or Ajinca should be relatively easy if he eases off his required compensation) and more about the ability of the franchise to sell free agents on the New Orleans Pelicans.

Can Demps, Danny Ferry, and Alvin Gentry convince a quality free agent to come to the Crescent City? If they do, some other transactions will quickly follow to make the room necessary.