The Denver Nuggets head into the 2011-12 NBA season with a ton of cap space and a ton of questions. How they approach this free agency period will go a long ways towards determining the franchise’s path over the next few years.

After they sign first-round picks Jordan Hamilton and Kenneth Faried, both forwards, the Nuggets will have $32.1 million on the books for 2011-12 to nine players. They have Qualifying Offers out to Gary Forbes ($1.0 million), Arron Afflalo ($2.9 million) and Wilson Chandler ($3.1 million), making all three restricted free agents and taking up another $7.0 million in cap space. The Nuggets also hold Bird Rights on Kenyon Martin, J.R. Smith and Nene. Chandler, Martin and Smith all signed contracts in China this past summer with no NBA outs, so are committed to their teams there – unless they get cut – until March.

With a lot of young talent and spending power, here’s what the Nuggets should be looking to do.

Sign and Trade Nene

For whatever reason, it’s become pretty clear that not only does Nene want out of Denver but he’s also going to be very, very expensive in the open market. How much is too much for a center with a career rebounding average of 6.9 a game? Yes, he’s very efficient around the basket and a decent passer, but will he be worth upwards of $13 million a season to the Denver Nuggets? Or are they better off facilitating a sign-and-trade deal to pick up a draft pick or a player who could really contribute to the team’s future? Also, Nene turns 30 in 2012. A five-year deal starting at $13 million will be very expensive when he gets into his mid-thirties.

Take advantage of the situation. The Nuggets should be agreeable to a deal wherever he wants to go and ask no more than a first-round pick (well, ask for two and see how it goes) in order to facilitate a deal that gets him higher annual raises. That allows the Nuggets to add some talent in the future and doesn’t clog their cap with Nene’s contract for the next five years.

Re-Sign Arron Afflalo

Is this more or less important than doing a Nene deal? Not sure, they might just be 1A and 1B. Keeping Afflalo is of absolute importance to this team’s future, so the Nuggets should be proactive. In fact, he might be the top shooting guard on the market when you look at his blend of offense, defense, team play, age and experience. He’s a legitimate starter in the NBA and could even be considered in the top half of starters at his position. How much is that worth?

If the Nuggets sit back and allow the market to determine Afflalo’s value they may find themselves with him signing an offer sheet from another team in the $10 million range. Instead, his agent needs to be their first call when free agency officially opens and they should see if a deal starting in the $8 million range to start on a five-year deal. Unless Afflalo’s camp demands a starting amount exceeding $10 million, Denver needs to make it happen.

Trade Andre Miller

Raise your hand if you think Miller is going to get a fair shot to be Denver’s starting point guard. Anyone? No? Me neither. Ty Lawson is this team’s starter and it’s his team. With Afflalo back in the fold Miller won’t be starting in the backcourt and he won’t be happy coming off the bench. If the point guard position were a truly open battle in training camp and he lost then maybe, but it’s not. Miller is absolutely still a starting point guard in this league and plenty of teams need one of those. And at $7.8 million for one season, Miller shouldn’t be too hard to move. The question is where.

How about Miami? Center Joel Anthony and veteran guard Eddie House would get that deal done, allowing the HEAT to focus on finding a big man in free agency. Or how about the L.A. Clippers? Once they re-sign DeAndre Jordan then Chris Kaman becomes expendable. Miller played a season there once before, but the idea of him throwing alley-oops to Blake Griffin is exciting. Or maybe even the Lakers? Steve Blake perhaps as a backup to Lawson? There are plenty of options and plenty of ways for Miller to make the Nuggets better.

Wait on Wilson Chandler

Chandler will return in the spring and he will immediately draw interest around the league as a restricted free agent. Denver will retain the ability to sign him (or sign-and-trade him) and should keep him. Whether or not he starts at the small forward position (with Danilo Gallinari at the four) or comes off the bench as the first wing behind Afflalo and Gallinari, he’s an excellent defender and capable scorer. He makes Denver better.

His contract in China keeping him overseas until March actually plays into Denver’s favor. Very few, if any, teams will have cap space to make an offer to Chandler at that time and the Nuggets may have no one competing against them on a multi-year offer. That’s not an excuse to be insulting – Chandler could still sign the Qualifying Offer and become an unrestricted free agent in July – but is an excuse to be conservative. Maybe an offer just over the Mid-Level Exception for five years? Plus, he could play the final month of this season and be part of a push for a playoff spot.

Cut Ties With the Past

The Nuggets have turned over almost their entire roster in a very short time. They traded Carmelo Anthony and Chauncey Billups to New York last February and, if they are smart, pass on paying Nene now. The team has become a much younger, smarter team led by the likes of Lawson, Afflalo and Gallinari, and there doesn’t seem to be a place here anymore for the other veterans of their playoff runs, namely Martin and Smith.

Both had good runs in Denver, but when their contracts are up in China in March and they return to the NBA, it’s best for them to look for situations that are better fits. Assuming the Nuggets retain Afflalo, Forbes (which they should) and Chandler, there isn’t a spot in the rotation for Smith anyway, and with Gallinari, Chris Andersen, and rookies Faried and Hamilton, Martin’s minutes have dried up as well. Both Smith and Martin are still NBA players – just not in Denver.

Save Some Money for the Future

Assuming the Nuggets follow this general guideline they will have almost a full roster and still about $10 million in cap space, some of which they have to spend to get to the minimum spending level of 85% of the cap. Should Denver spend it all? Should they use whatever is left to make a run at a restricted free agent like the Clippers’ DeAndre Jordan?

A better option may be to just fill in with a couple minimum or otherwise cheap deals and roll the money over. This allows them to save money for when Chandler comes back, plus for the future. Next summer Gallinari will be a restricted free agent (so will Kosta Koufos), plus they will have a chance to offer an early extension to Lawson (in fact, as of right now the Nuggets have only $19.5 million in commitments for 2012-13, though that will change). And, of course, the summer of 2012 is already being called the best in NBA free agency as far as depth since, well, 2010.

Denver also has the amnesty clause they could use at some point on Chris Andersen or Al Harrington, though they currently aren’t likely to do so. The key is to maintain flexibility going forward.

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It’s a pivotal time for the Denver Nuggets, but with good planning they could come out of this offseason – and the next – with a fantastic young core that could become one of the best teams in the Western Conference.

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