DENVER — Peyton Watson and the Denver Nuggets did not reach a contract agreement before Monday’s deadline for 2022 first-round draft picks to sign their rookie extensions, league sources told The Denver Post.

Watson, 23, is now set to become a restricted free agent next offseason. This traditionally favors the incumbent team, as the process of joining a new team would require Watson to sign an offer sheet, the terms of which Denver would have an opportunity to match and retain him.

Alternatively, Watson will have the option to sign a qualifying offer from the Nuggets, play out the 2026-27 season under the terms of that offer, then enter unrestricted free agency in the summer of 2027. The two parties could also negotiate a sign-and-trade next offseason or a new contract independent of the qualifying offer.

Watson will make $4.4 million this season, the last of his rookie deal, which begins Thursday when the Nuggets take on the Golden State Warriors.

The extension deadline for Watson and his draft class was 6 p.m. ET Monday. Both sides expressed interest in getting a deal done in recent weeks, according to league sources, but Watson’s situation was complicated by adjacent contract negotiations between the Nuggets and Christian Braun, who was selected 21st overall the same year and was seen as a higher priority for a team up against the second apron of the salary cap.

Braun agreed to a $125 million contract a few hours before the deadline. If the Nuggets had also signed Watson for more than $7 million annually, they would have been projected as a second-apron team for 2026-27 with three more open roster spots to eventually fill. Between the tax implications and roster-building restrictions, team ownership has been unwilling to cross that payroll threshold in recent years.

Watson expressed a desire to stay in Denver long-term and a willingness to negotiate reasonably this preseason.

“I was telling (team executive Jon Wallace) not too long ago, I’ve got everything that I’ve ever needed and wanted,” he said going into training camp. “I’ve got more money than I ever thought that I would ever make. So I’m not one of those guys who’s only playing basketball for the money. I’ve always played it for the enjoyment and the love of the game. And it’s put me in a position where I’m gonna have the opportunity to make some money here in this league. But I’m young. I’ve got a lot of time. I know that I’ll make a lot of money in this game.”

With those comments as a backdrop, Watson had one of the most impressive preseasons on the team. He shouldered more ball-handling responsibility with Denver’s second unit and averaged 16.3 points, 7.3 rebounds and 3.5 assists per 36 minutes — all substantial increases on his career per-36 numbers coming off the bench.

Watson only appeared in 23 games as a rookie when the Nuggets won their first NBA title, but he established himself as an everyday rotation player in his second and third years. One of the best shot-blocking wings in the league and a tenacious perimeter defender, his offensive development is the main basketball variable standing in the way of a lucrative second contract.

Playing mostly off the ball under former coach Michael Malone, Watson shot 44.7% on corner 3s last season but struggled above the break. If he continues to initiate offense at an increased rate this year, that discrepancy will come into play as opposing defenses may feel inclined to go under ball screens on the perimeter. Watson will also want to clean up his turnovers after committing six in Denver’s preseason finale against Oklahoma City.

The 6-foot-7 forward averaged 8.1 points, 3.4 rebounds and 1.4 blocks per game last year, shooting 47.7% from the floor and 35.3% outside the arc.

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