In the NBA, teams don’t trade for players, they trade for contracts. Kyle Lowry, reportedly acquired Thursday by the Toronto Raptors from the Houston Rockets, has one of the most favorable deals for any veteran player. Over the next two seasons, Lowry will be paid a little less than $12 million for borderline All-Star performance as a starting point guard. Based on comparable players, we project Lowry to provide somewhere in the neighborhood of 12 WARP, which would generally command nearly $30 million on the open market.
Still, the Rockets dealt Lowry, possibly because he was still disgruntled with Head Coach Kevin McHale despite getting his starting job back when Goran Dragic agreed to sign with the Phoenix Suns yesterday. In return, Houston needed to get a valuable asset. GM Daryl Morey settled on a future first-round pick from the Raptors, plus throw-in Gary Forbes. As is customary, the pick is protected at the top of the lottery–within the top three next year, the top two in 2014 and 2015 and if the top overall pick in 2016 and 2017, according to Jonathan Feigen of the Houston Chronicle. However, Toronto also agreed to protect the pick the other direction, meaning the Raptors will keep their pick if it is outside the lottery.
The Rockets aren’t quite guaranteed a lottery pick because of the possibility Toronto makes the playoffs each of the next five seasons, in which case Houston gets a 2018 first-round pick, but the protections generally suggest the Rockets will get a valuable pick.
The question, then, is just how good the pick Houston eventually gets would have to be to match the $17.7 million in surplus value Lowry projects to provide over the next two seasons. Based on how past picks have performed over their first four seasons, plus the rookie scale contract, that translates into the same value as the No. 12 pick.
That analysis leaves out one important factor–the time value of performance. All other things equal, teams would prefer to trade a win later to get a win now, and the Rockets won’t begin reaping the value of the Raptors’ pick until at least the 2013-14 season. Most of the surplus value comes at the end of the rookie contract, which may not come for years. Based on that, I think Houston would have to get a top-10 pick to feel good about the trade. The surplus value of the average No. 10 pick is $20.5 million over the life of a rookie contract.
As a counterpoint, the Rockets may not mind deferring value to the future as they bide their time trying to find the superstar that is their white whale. Lowry’s trade value goes down with every game he plays, while the pick will retain its value and might be easier for Houston to trade.