The Varejao Saga Continues

About sixteen hours after SI.com reported that Varejao was open to signing a one-year offer for the mid-level exception — a deal worth approximately $5 million — new reports indicate that the Cavs have no interest in such a deal. The consensus is that the Cavs have no interest in signing Varejao to anything other than a long-term contract.

Here’s why they’re balking at Varejao’s offer:

* Spending in the NBA is down — way down — from years past. Most teams aren’t throwing huge amounts of money at free agents as many teams are either approaching the luxury tax (like the Cavs) or exceeding it (like the Knicks). For every dollar over the salary cap a team goes they must pay a dollar for the luxury tax. This is highly costly, which is why you’re seeing teams like the Suns sell off some of their pieces for next to nothing. Avoiding that tax threshold is an aim for any sensible organization.

Which is why there isn’t a huge market for Varejao at the price he’s seeking. Furthermore, since Varejao is a restricted free agent the Cavs would be able to match any offer another team makes, so other teams are reluctant to enter into contract negotiations with Varejao because they know there is a huge chance that the Cavs wouldn’t let him go. In order to pry Varejao from the Cavs, then, a team would probably have to exceed his free market value. That’s just not happening.

* If Varejao doesn’t play in the NBA this season — if he goes and plays in Europe, say — that does not change his free agency status. In order to become an unrestricted free agent Varejao must play another season in the NBA. Going to Europe isn’t much of a threat since all it would do is prolong the limbo Varejao finds him in. In the meantime he’d likely be exposing himself to injury while making less money (few teams in Europe have the means to spend like an NBA team). This is a big risk for Varejao. The costs do not exceed the gains.

* Without a market to sign him at a price he wants and without recourse to other basketball leagues, Varejao is essentially left with a one-year contract. Sources say that Varejao is open to signing a one-year contract provided that it’s for the mid-level exception. But the Cavs could sign him for as little as a $1.2 million qualifying offer. In a one-year contract stare-down the Cavs hold all the cards. The only reason to sign him for $5 million is that it will get him here sooner (presumably). But doing so would put the Cavs over the luxury tax and it would mean ceding the power in the negotiation.

Right now Varejao is stuck between a rock and a hard place. The Cavs hold all the power in this negotiation, which is why they haven’t caved and which is why they don’t appear to be interested in the $5 million offer. All Varejao has working for him is the possibility that the team will be crippled without him. The worse the Cavs do the stronger his negotiating position becomes, but a 1-2 record in three games isn’t close to what’s needed to tip the scales in his favor. This is looking like a holdout that’s going to continue.