The Rockets hold a $960,000 option on the fourth and final year of Parsons' contract for the 2014-'15 season, but want to avoid letting Parsons, 25, become an unrestricted free agent next summer. As a restricted free agent in July, the Rockets can match an offer sheet and retain Parsons on a long-term contract.
The Rockets have until June 30 to formally decline the option.
For the Rockets, there are two distinct advantages to letting Parsons into restricted free agency now. First, Houston is determined to clear the necessary salary cap space this summer to chase a third maximum contract free agent to join Dwight Howard and James Harden, league sources tell Yahoo Sports.
Houston plans to pursue the major stars who could be available upon opting out of deals, including Miami's LeBron James and Chris Bosh, and New York's Carmelo Anthony, league sources said. Dallas' Dirk Nowitzki is expected to be a target too.
The Rockets are pursuing Minnesota's Kevin Love in trade talks too, and Parsons could hold sign-and-trade possibilities.
In one scenario, Houston could secure three max-out players – including Howard, Harden and a potential star free agent – and then re-sign Parsons to an extension below the max-level range. Parsons could command in the $12 million to $13 million annual range, league executives tell Yahoo Sports.
For Houston too, there's little motivation to let agent Dan Fegan get Parsons into the summer of 2015 as an unrestricted free agent. Rockets officials fear Fegan's ability to score Parsons a monster contract on the open market. This way, Houston declines the team option now, clearing the way for Parsons to get a bigger payday a year sooner than scheduled. Ultimately, this could be a better climate for Houston to negotiate an extension with Parsons.
Parsons has been one of the NBA's most underpaid players in his current deal, which was signed after Houston drafted him in the second round of the 2011 NBA draft. Parsons averaged 16.6 points and 5.5 rebounds for the Rockets this past season.
He played a significant part in the recruitment of Howard to the Rockets and has expressed a strong desire to remain with the franchise.