Heat’s True Cap Space: Understanding the Charges
A lot of columnists have been focusing on all the roster charges and holds that reduce the maximum available cap space for teams like the Heat, which will have significant room to work with to sign free agents in the offseason. However, many of these columnists – even the most experienced cap gurus – have been making big mistakes in their analyses.
When a team elects to use its cap space in the offseason, it has four primary non-cash charges to worry about: cap holds, exceptions, roster charges for carrying fewer than 12 players, and the scale amount for unsigned first round draft picks:
1. Cap Holds. Most of us understand by now, assuming you’ve been reading my posts, that when players become free agents they have cap holds attached to them which count against their current team’s cap. To release such cap holds and free up the cap space, a team only has to renounce its free agents. That’s easy enough to do. Therefore, cap holds do not reduce the calculation of maximum available cap space. (The one exception, of course, is if the team intends to re-sign one of its free agents – at which point the lesser of (i) the cap hold or (ii) the amount for which the team intends to re-sign him should be incorporated.)
2. Exceptions. If a team ever falls below the salary cap, it automatically loses any of its unutilized Mid-Level, Bi-Annual, Disabled Player and Trade Exceptions. Exceptions are meant as a means for teams to operate above the cap; if a team is below the cap, they wouldn’t be applicable. Once a team loses its exceptions, it can never get them back – even if the team eventually gets above the salary cap. Therefore, exceptions do not reduce the calculation of maximum available cap space.
3. Roster Charges. The purpose of a roster charge is to ensure that teams with cap room can fill out its regular season roster within the confines of the salary cap (though, in practice, they rarely do; they often instead utilize exceptions to exceed the cap). A roster charge applies during the offseason if a team has fewer than 12 total players with active contracts, subject to contracts offers, or with active Birds rights. Such charges temporarily reduce a team’s available cap room. The amount of the charge is the absolute minimum a team can sign a player for ($473,604 next season), for every player fewer than 12. These charges get removed when the team builds back up to 12 players. Since a team must carry a minimum of 13 players on the roster to start the regular season, no teams can ever exit the offseason with roster charges remaining. Therefore, these charges only affect the allocation of available cap space allocated between a team’s players; they do reduce the calculation of maximum available cap space.
4. Scale Amount for First Round Draft Picks. There’s a strict salary scale for first round draft picks and their first contracts. The league does this because it was previously common for rookies to hold out, not signing with their team until they got the contract they wanted. Unsigned first round picks are included in team salary immediately upon their selection in the draft, at their scale amount. Naturally, this reduces a team’s available cap room. That’s why you see so many writers factoring these amounts into their calculations.
However, a team can always renounce its unsigned first round draft picks in favor of the additional cap space. Of course, this means the team would lose the player. The point, though, is that first round draft picks only add flexibility – not obligations.
Let’s take a closer look at what this actually means. A team can always draft the player it wants and then dangle him the entire offseason while it searches for better uses for the money. If it finds a better use, the team can renounce the draft pick. If it doesn’t, the team can elect to sign the draft pick. Now, this isn’t good business practice; it might create ill-will towards the team. But it’s allowed under the rules. Therefore, scale amount for first round draft picks do not reduce the calculation of maximum available cap space.
Some of these explanations are confusing. What does it all mean?
To calculate a team’s maximum available cap space, all you need to do is subtract a team’s committed salaries from the value of the salary cap. That’s it. Nothing else. For the Miami Heat, that number as of right now is $53,000,000 (the low end of current projections) – $26,442,125 (committed salaries, assuming Wade re-signs) = $26,557,875.
But be careful. Just because a team has cap space doesn’t mean the team can use it all on one player. This is a difficult concept – one the leading cap gurus in the world (yes, the domestic league is now truly an international game!) often mess up – and is a topic for another post.