More than a month since most NBA teams completed their offseason business, Peyton Watson and the Nuggets remain locked in a contract standoff that is not all that unusual for a restricted free agency negotiation.
Nonetheless, it is one of the noisiest lingering NBA storylines of the summer — mostly because Watson is in a tight spot. After attempting to set his average annual value north of $25 million, the 23-year-old wing was unable to obtain an offer sheet from any of the three teams with salary cap space at the beginning of the offseason. The Lakers, Nets and Bulls went about their business without throwing their hat into the ring for Watson. Los Angeles even chose to aggressively pursue a different restricted free agent instead. Basically, Watson’s representation tested the market, and the market didn’t respond.
That doesn’t mean he’s not viewed as a valuable player. It just means he had limited pathways to a lucrative offer given the league’s financial landscape, and the few teams with the resources to extend one decided against it because of other roster priorities or the risk of it being a waste of time. The Nuggets would’ve had up to 48 hours to match any offer sheet, as they eventually did to keep fellow restricted free agent Spencer Jones.
An offer sheet is highly unlikely at this point because most of the money has dried up around the NBA. That’s good news for Denver; not so much for Watson. Now for him to get paid, his camp must either come to the negotiating table — there’s no indication that Denver’s offers to this point have exceeded $20 million annually — or convince another team that Watson is worth not only what he desires financially but also a trade package that will satisfy Denver.
This is the cruel reality of restricted free agency. It’s designed to favor the incumbent team. The Nuggets effectively have the rights to Watson, their 2022 late first-round draft pick who revealed glimpses of star potential in his fourth season. Playing the long game has positioned them to benefit from this process in some form, regardless of the outcome.
But what are the remaining outcomes, and what do they mean? As the awkward situation drags out and Watson’s side is left feeling increasingly disrespected, here’s a breakdown of the three main possibilities.
Sign-and-trade
Let’s start with the complicated stuff. Most of the recent national speculation about Watson has been focused on the possibility of a sign-and-trade. This is probably the preferred outcome for his camp at this point, because it’s the clearest path to a higher salary.
For the Nuggets, it functions as a solid contingency plan if they decide the negotiation is a lost cause. While they’re certainly in a position to squeeze Watson down to a more team-friendly contract extension, they’re in a position to flip him for other assets by the same token; they can make another suitor pay them for the right to sign Watson. He’s a young two-way wing who seems to be on an upward trajectory as a shot creator. Every team wants that, for the right price.
The dilemma with this option is purely logistical. Denver’s payroll — already the most expensive in the league without Watson on the books — is $2 million over the second apron. That presents more than just a financial obstacle. Among the many convoluted rules of the NBA apron system is this: If a team takes back any salary in a sign-and-trade, that team becomes hard-capped at the second apron for the remainder of the league year. You can be over the second apron before executing the sign-and-trade, but you must be under the apron when the transaction is completed. Otherwise, it is not legal under the collective bargaining agreement.
In the Nuggets’ case, that means if they want to receive a player in return for Watson, they have to send a second player out in the sign-and-trade, and the incoming player must have a 2026-27 cap hit $2 million less than the second outgoing player. (Keep in mind that Watson’s outgoing salary for trade purposes would be $0, given that trading him would not be getting rid of any money that already exists on Denver’s payroll; it would merely be getting rid of the rights to a free agent.)
Still following? This introduces all kinds of problems. Who’s the second player? If it’s a bigger contract like Cam Johnson or Christian Braun to create more wiggle room on the incoming salary, you’re suddenly giving up two starter-level players, not just one. If it’s Zeke Nnaji’s $7.5 million cap hit, which is considered a negative-value contract around the league, then you’re willingly diluting the quality of your return. And if the Nuggets find themselves deciding to trade Watson, they must net a substantial return.
The easier sign-and-trade concept to grasp is an entirely picks-based package — Denver could simply try to obtain as much draft capital as possible for Watson, without taking back a player. As counterproductive as that sounds for a win-now team, it would have its merits. Since the draft in June, the Nuggets have been trying to replenish their war chest of future picks so they can eventually flip those picks back into win-now players at the right time. They’re currently operating without a single trade-eligible first-round pick, preventing them from pursuing prominent players on the trade market. They have very little maneuverability, unlike other Western Conference contenders (OKC, San Antonio).
A picks-based package has its own difficulties, of course. One of the teams actively showing interest in Watson, a league source confirmed to The Post, is Milwaukee. The Bucks officially embraced a rebuild six weeks ago when they traded Giannis Antetokounmpo. Even if Watson makes sense for them as a long-term building block, teams in their position don’t traditionally cough up first-round picks to acquire a player. Denver’s best hope of completing a solid deal with Milwaukee would more likely need to involve one of the Bucks’ young players, such as Ryan Rollins, Jaime Jaquez Jr. or Kasparas Jakucionas.
The Clippers, Cavaliers and Hawks have been the other teams to reportedly engage the Nuggets in sign-and-trade talks. The Clippers, whose interest The Post can also confirm, would make sense as a desirable destination for Watson; they play in his hometown. Derrick Jones Jr. has been floated as a return candidate for Denver, but his $10.5 million salary complicates matters, as it’s more than Nnaji’s cap figure. Kris Dunn’s $5.7 million is closer to the potential sweet spot.
Denver could technically avoid a second apron hard cap by splitting a sign-and-trade into multiple transactions — Watson for picks, then a separate player-for-player deal. But even in that scenario, the apron rules dictate that Denver’s incoming salary would need to be less than the outgoing money in the player-for-player portion.
It might be a moot point, because if the Nuggets are willing to be a second-apron team, they might as well use their Bird rights to pay Watson instead of jumping through hoops to flip him for a different player.
Qualifying offer
The other two outcomes are much simpler. At the end of June, the Nuggets tendered Watson a predetermined qualifying offer of $6.5 million — “a standing offer for a one-year guaranteed deal.” Teams are required to submit a qualifying offer to trigger their restricted free agency rights. It basically gives the player a thin layer of protection in an otherwise unfair situation. If negotiations go poorly, they can take the cheap one-year contract and become an unrestricted free agent next summer.
Watson is reportedly considering the possibility of playing next season on the qualifying offer if the Nuggets don’t pay up or find a sign-and-trade soon. That could be the truth, or it could be a bluff. The qualifying offer route would be an extremely risky vote of self-confidence by Watson. He would be passing up millions of dollars to enter another contract year and to bet on himself. He would be motivated to play well, but he would also be one injury away from costing himself a life-changing amount of money.
Whether or not he’s actually considering the QO, it doesn’t hurt to insist that he is. Applying public pressure on the Nuggets is one of the only ways his camp can squirm for leverage here. And this is the one outcome the Nuggets might feel most pressured to avoid.
Why? It’s not like it would be an abject disaster. Even amid their efforts to low-ball Watson and utilize their leverage in the RFA process, the Nuggets clearly value him at a way higher number than $6.5 million. They would be getting him at an obvious discount for the 2026-27 season.
Then, in all likelihood, they would lose him in free agency next summer for nothing in return. Maybe if the Nuggets are bullish that they can win the 2027 championship, that’s worth the risk. But Denver is widely viewed now as a second-tier contender after losing in the first round of last season’s playoffs. The most tantalizing short-term option for the Nuggets is also the least favorable long-term outcome.
Contract extension
And so we finish here, with the most self-explanatory of these three outcomes, the one that has been Denver’s goal all along — signing a young homegrown talent to a long-term extension that would make him part of the core alongside Nikola Jokic.
As of now, the Nuggets and Watson seem worlds apart on deciding a fair salary. The Nuggets have taken a patient approach, as is the blueprint for front offices in this situation. Their determination to land a team-friendly deal stems from the possibility that other key players might be sacrificed for cap relief if Watson stays.
But Denver might need to budge at least a little to convince Watson’s camp to compromise. If this eventually ends in an extension, there’s a decent chance it’s for an average annual value that neither side is thrilled about. Could $20 million per year be suitable for everyone under the circumstances? Would it have to be more for Watson not to take the qualifying offer? Would he really pass up that much money?
The answers aren’t clear yet, as everyone is looking for an upper hand in the negotiation. One month in, it’s a stalemate.
