Without a new contract, Karl faces free agency

The Nuggets have yet to offer George Karl more than a one-year extension to his current contract

The Denver Nuggets own the Western Conference's second-best record and have emerged as just one of a handful of teams who look like legitimate championship contenders. They also have a coach who might not have a contract in six months.

NBA sources say Karl turned down a one-year, $3 million extension over the summer in hopes of getting a longer deal and a raise. Karl is currently being paid a $3 million base salary in the final year of his contract and sources said incentives boosted his total pay to $3.8 million last season.

A Nuggets source said the team has had internal discussions about a possible three-year, $12 million extension for Karl, but no offer has been presented. Some officials with Kroenke Sports Enterprises, the team’s parent company, have so far been hesitant to endorse a multiyear offer.

Karl said he wants to stay in Denver, but he's also prepared to become a free agent, even if he isn't excited about the possibility. New Jersey and New Orleans are among the teams who could be looking for new coaches over the summer.

"I can't sit back and say that someone hasn't whispered in my ear," Karl told Yahoo! Sports. "Maybe the best thing for me to do is become a free agent. But I'll also say I really believe this, I do not want to be a businessman in the NBA. It can get ugly, it can get dirty, they look into your past. All that can come into play.

"I love Denver. I will probably make it work in Denver. [But] I have to become a businessman. … It's not my desire and it will make me sad if I had to leave Denver."

In the meantime, Karl said he remains focused on guiding the Nuggets through this season. They entered Tuesday having won eight of their past nine games and lead the Northwest Division. They're also coming off a season in which they reached the West finals for the first time since 1985.

"I wished we would have had something done earlier, before the season started," Karl said. "It was sad that we didn't get anything done. But since the season started there is a bigger purpose to what I want to do. Having a chance to win, that purpose and that drive, is 10 times more important to me than the contract.

"I think I will have a job next year. I want it to be in Denver. I hope it will be in Denver. It will probably be my last contract. I'm probably going to be protective of my future."

With the NBA about to enter Collective Bargaining Agreement talks with the Players Association, commissioner David Stern asked teams over the summer to be more conscious of the contracts given to coaches. Still, while the Sacramento Kings (Paul Westphal) and Detroit Pistons (John Kuester) both made budget hires in the offseason, the Washington Wizards also gave Flip Saunders a four-year, $18 million contract.

Karl is aware of the economic struggles the Nuggets and NBA are facing and said he has a "good relationship" with Nuggets owner Stan Kroenke. While the Nuggets wouldn't comment publicly about negotiations, sources said Kroenke is fond of Karl and the franchise is hopeful an agreement will be reached.

"I respect what Stan has to do with the economy of the league figuring out how to make money in the changing economy," Karl said. " … If [negotiations] would get serious, that would probably excite me. But I don't even want to talk about it if it's going to be what I would view as business negotiations.

"I think business confuses me, and all this is going to be real serious. The best thing for me to do is to look at the next game and look at the purpose at hand of trying to win a championship. … I don't think there needs to be an edict or demand or circumstance. I respect Stan and I think he respects me and it's a good relationship. It's not going to be messed up by a contract. It's going to be messed up if someone beats us in the playoffs."

Since becoming coach on Jan. 27, 2005, Karl has guided Denver to a 241-119 record and taken the team to the playoffs each season. He received some heat following the last of four straight first-round exits in 2008, but management gave him a strong backing following last season's trip to the conference finals.

Karl, 58, has coached for five different teams in a career that began 25 years ago but would like to end it in Denver.

"My whole thing is I want to retire in Denver," he said. "Whatever the second stage of being in the coaching game is being a consultant or personnel director or staying in management, I'd love to do it in Denver. Even if I don't have that job, I think there is a good chance I will have something, a house or a townhouse or a condominium in Denver because I think it's a wonderful city."

Karl has had issues with the Nuggets' star forward, Carmelo Anthony(notes), and other players in the past. But Anthony publicly endorsed him during training camp and the two seem to have a better understanding of each other now.

"Melo is growing," Karl said. "I can't take all the credit for him. I'm the general in duty, but my assistants have done a good job. I think his people have done a great job in the last year of guiding his focus and mental toughness in the right place. But I think the best teacher has been winning in the playoffs. I think he found that juice, that drug that you get from winning in the playoffs.

"It’s very powerful, very exhilarating and very rewarding. The purpose right now at hand is to get back and have that chance to go back to the [conference] finals."