TUESDAY, 6:08pm: Smith officially declined his player option for 2012-13 and will become a free agent on July 1st.
MONDAY, 4:15pm: Smith will likely opt out to re-sign with the Knicks for a 20% raise, tweets Marc Berman of the New York Post. As I wrote below, that would mean the Knicks would use the Non-Bird exception on Smith, and could retain their mid-level exception to use on another player. Smith would be eligible for a contract of up to about $12MM over four years.
3:57pm: J.R. Smith will not exercise his player option and will become an unrestricted free agent, according to Howard Beck of the New York Times (via Twitter). Beck adds, however, that Smith will opt out with the intention of re-signing a longer-term deal with New York.
In order to join the Knicks midway through the season, after having returned from China, Smith had to sign for the team's mini mid-level exception. As such, his second-year option was only worth about $2.44MM. He should probably be able to find a multiyear deal with a larger annual salary on the open market, so it's no surprise that he'll decline the option, but it's a bit surprising that he intends to re-sign with the Knicks.
Even if the NBPA's Bird Rights victory stands, Smith won't be affected as much by the ruling as teammates Jeremy Lin and Steve Novak. The Knicks could only offer Smith a deal starting at about $2.8MM with his Non-Bird rights, or $3MM with their mid-level exception. Presumably, the team would much prefer the former option, leaving the mid-level to use on an outside free agent.
An ESPNNewYork.com report last month indicated that Smith's father Earl would try to convince his son to stay in New York, but that "it's very clear money is the biggest factor with him." Smith will likely receive slightly larger offers than the Knicks could afford, so if the 26-year-old does re-sign in New York, the money may not be the deciding factor after all.