9:31pm: Al Iannazzone of Newsday tweets that the Knicks have confirmed to him that they will not match Houston's offer sheet to Jeremy Lin. Yahoo's Marc J. Spears also reiterated (via Twitter) the same report from a Knicks spokesman and says that Lin is now a member of the Rockets.
5:41pm: Beck tweeted that he's been assured that the Knicks will not reverse their decision.
3:29pm: In his piece for the Times, Howard Beck notes that there is an "incredibly small" chance the Knicks change their minds before tonight, but that as of now, the decision is considered final. The team is expected to announce its decision later tonight.
3:11pm: The Knicks are done deliberating and have decided not to match the Rockets' offer sheet to Jeremy Lin, according to Howard Beck of the New York Times (via Twitter). The decision, which had been due by midnight tonight, means that Lin will become a Houston Rocket, signing a three-year, $25.1MM deal with the club.
After publicly giving every indication early in the offseason that they'd be bringing Lin back, the Knicks balked when the Rockets re-negotiated the point guard's offer sheet to include a $14.9MM third-year salary. Under the Gilbert Arenas provision, the Rockets are allowed to spread Lin's cap hit evenly over the three years of the deal (about $8.3MM annually), but if the Knicks had matched, they would have to pay $5MM in year one, $5.225MM in year two, and $14.898MM in year three. That third year would have come in 2014/15, when a number of Knicks players, including Amare Stoudemire, Carmelo Anthony, and Tyson Chandler, are set to make max or near-max money.
Still, with relatively small salaries in the first two seasons of the deal, and two years to figure out their approach for year three, it's rather surprising to see New York decide not to match. Even if Lin turned out to be no more than a bench player, his $14.9MM expiring contract in 2014/15 could have been used as a trade chip, or waived using the stretch provision, reducing the team's cap and tax hit.
For the Rockets, the news is good — had the Knicks matched the offer sheet, Houston would have been left looking at a free agent market featuring point guards such as Jonny Flynn, Derek Fisher, and Delonte West. With New York electing to let Lin walk, Linsanity will head south to Houston, back to the team that waived him in December.