Chad Ford, previewing the 2008 free agent class, says this about Gilbert Arenas:
Arenas has turned himself into a max player the past few years, and despite recent knee troubles, will likely opt out of his contract to cash in on his newfound celebrity status. While he continues to maintain publicly that his first choice is to re-sign with Washington, it's not inconceivable that, given his eccentricity, he could change his mind. The biggest issue for Arenas is the same that plagues all the other free agents: Who else really has the money to pay him?
I'd like to see Agent Zero stay in Washington, but I hope the team drives a hard bargain. A "max player" is, in my, a player who somebody wants to offer a max deal to. As Ford notes, the only two teams likely to have significant cap space are Philadelphia and Memphis. He reports that "Grizzlies GM Chris Wallace has sent signals that the team might not spend its estimated $12 million in cap room this summer" and that "the Sixers will have around $10 million in cap space." Currently, Arenas makes $12 million. By opting out of the last year of his deal, he's made it clear that he wants a raise, but I don't see how he could get one unless the Wizards make an unforced error and pay him more than he can command on an open market.
If I were Ernie Grunfeld, I'd let Gilbert test the market waters to his heart's content and then unless wildly unexpected happens just beat the best offer he gets. The odds of being able to resign him for what he's making now -- or, indeed, somewhat less -- seem pretty good.