A Chris Andersen Decision to Opt Out Could Have Mutual Benefits

Tweet about this on TwitterShare on FacebookEmail this to someone

Update (07/18/14): The Heat utilized the strategy I described below to give Chris Andersen a much-deserved raise. But the amount he received was, in my humble opinion, too much. The 36-year-old was signed to a two-year, $10.4 million fully guaranteed contract. The contract was presumably designed to be as much a reward for Andersen playing under contracts that undervalued his production for the last two years as it was a true reflection of his projected value for the next two years. Heat president Pat Riley presumably figured he could give Andersen such a multi-year reward because the contract doesn’t figure to reduce the Heat’s flexibility for either of the next two years, at least as things stand right now, but the basic rule of good management is that you must prepare for a future you cannot predict. This contract could prove costly as things materialize over the next couple of years.

Chris Andersen is impossible to ignore. The sometimes-bearded, sometimes-Mohawked 6-foot-10 forward/center has his nearly luminous skin filled in technicolor artwork to mask the body of a man who is part enigma, part cult hero, part unlikely role model.

Andersen’s popularity stems from some cosmic combination of hops, hustle, hair and history. His boundless energy speaks volumes about a life predicated on endurance.

If you’ve followed the story of his life, you might wonder how it’s possible that he’s been able to endure. Or where along his path you might have quit. The “Birdman” never has – not after impossible childhood circumstances, not after tragic personal relationships, not after the drugs that forced a mandatory two-year suspension from the league, and certainly not after the most bizarre of stories destroyed his reputation.

In May of 2012, detectives in the Internet Crimes Against Children unit of the Douglas County, Colorado came to his door – confiscating both his computers and his dignity, causing widespread rumors and whispers of hard drives and the age of consent, and forcing him to live under the worst kind of suspicion. He was amnestied by the Denver Nuggets two months later. Nobody would touch him. Serious talent wasting away. He kept quiet while his life was falling apart. Six months passed by. Nothing. His lawyer finally spoke up, proclaiming his client’s innocence. Within a week, Miami had signed him.

The next phase of his life story couldn’t be scripted much better. It’s a story of equal parts success and sacrifice.

A championship. A new two-year contract. Minimum salary. He was eligible for more. We all wanted to give it to him. He deserved it. But he sacrificed for team, his owner and his fans. Then, last September, complete vindication. It was revealed that he’d been the target of an elaborate online extortion plot engineered by a woman in rural Manitoba, Shelly Lynn Chartier. The case was so complex that even he didn’t know exactly what happened. He’s moved on. He even has a TV show in the works, called “Urban Outdoorsmen.”

The question now, for Heat fans, is how his journey will continue. Has a decision to make. He has one year left on his minimum salary contract if he wants it. Or he can opt out. It would appear he’s made it. It would appear he intends to opt out. 

Is this the end of Andersen in South Florida? The thought alone brings a sort of physical pain. The Bird is beloved. The stands are sprinkled with small children wearing headbands and spiked hair, men dressed in yellow feathers, and people of all ages wearing “Birdman” T-shirts or the hot-selling No. 11 jersey.

But this could be the last chance for the nearly 36-year-old can to earn substantial dollars. Or maybe that time has already passed him by. When all you’re guaranteed is the minimum, why not check? He’s worth at least that much anyway. He’ll get a new contract. Maybe for more, but certainly not for less. You can’t make less than the minimum. By definition.

Andersen has never had that break-the-bank contract on which to fall back. He’d made just over $30 million thus far into his career. His absence from the sport cost himself an extra $10 million in voided salary.

He wants to return to Miami. The Heat would love to have him back. But will the math work?

For the Heat, nothing yet is clear. LeBron James, Dwyane Wade and Chris Bosh all still need to make their decisions. They all need to shape their own futures. As Birdman puts it: “Big money goes first.”

***

By now, you undoubtedly know that Andersen intends to decline his player option. You probably also realize that, technically, it actually helps the Heat because it clears his salary off the books. You may also realize that it could help Andersen as well, in his search for a larger contract. What you may not realize is that it could do both, and that such a scenario doesn’t necessarily portend a departure by the Birdman from the Heat. The Heat may be able to retain Andersen, with the larger contract he seeks, and without threatening its own cap space in giving it to him.

First, the baseline: Andersen is entitled to make $1,448,490 next season in the second year of a two-year minimum salary contract he signed back in July 2013, if he chooses to exercise his option to do so. The assumption is that he will decline this right, and become an unrestricted free agent as of July 1.

How that decision will impact both himself and the Heat will depend upon how the Heat plan to approach the summer ahead – whether they plan to operate above the tax level, or instead plan to utilize cap space. Most of us are hypothesizing about scenarios whereby the Heat leverage cap space to attract a big name free agent. Maybe that’s Kyle Lowry. Or Marcin Gortat. Or Pau Gasol. Or Carmelo Anthony. Or whomever.

It seems destined that the Heat will pursue this path.

In this scenario, Andersen choosing to decline his option would help the Heat in a rather obvious way – it clears his salary off the books. How much it helps, though, depends upon which of two alternatives the Heat takes with Andersen after he’s opted out:

Alternative 1: Renounce Andersen

You may know that when a free agent completes his latest contract with his prior team, his team incurs a “cap hold.”

Cap holds are placeholder charges against team salary for a team’s own free agents. The amount of the cap hold depends upon several factors, including the player’s previous salary and what kind of free agent he is. Cap holds for two-plus-year veterans who have just completed minimum salary contracts are equal to the minimum salary for a two-year veteran the upcoming season, but for most other players are generally between 120% and 250% of their previous salary (not to exceed the maximum salary).

The cap holds can be released in order to free up the cap space. To release such cap holds, a team can either re-sign the free agent, at which point his cap hold is replaced with his new salary, or renounce him.

By renouncing Andersen, the Heat would no longer incur any cap hold. The entire amount of Andersen’s forgone salary, $1,448,490, would equate to cap savings.

But there’s a catch. When a team carries fewer than 12 players on the roster – including players under contract, unsigned first round draft picks, and free agents included in team salary because of cap holds – at any time during the offseason, a roster charge is automatically added. Such charges temporarily reduce a team’s available cap room. The amount of the charge is equal to the rookie minimum salary – $507,336 for next season – for each player fewer than 12.

The 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. (For example, a team with only two players on the roster gets assessed 10 roster charges; after the team signs its next player one of the charges gets removed, leaving nine remaining, and so on until they are all removed).

If the Heat plan to utilize cap space this summer, they’ll by default need to start the process with vastly fewer than 12 players on the roster. Therefore, by renouncing Andersen, while the Heat will recognize the entire salary cap savings on Andersen’s $1,448,490 contract, they’ll also simultaneously incur one added $507,336 roster charge. That’s a net cap savings of $941,154.

That’s real cap savings. It’s real money that could be deployed elsewhere, whether to the Big Three, to any outside free agents or both.

The Heat could still ultimately choose to re-sign Andersen after all of its cap space is used up by leveraging the minimum player salary exception (or by re-signing him with the MLE for Room Teams, but that’s unlikely), perhaps to a replacement one-year contract identical to the one from which he will have opted out.

When a player has been in the NBA for three or more seasons, and is playing under a one-year minimum salary contract, the league reimburses the team for part of his salary – any amount above the minimum salary level for a two-year veteran. In 2014-15, the minimum salary for a two-year veteran is $915,243, so for a twelve-year veteran like Andersen, with a minimum salary of $1,448,490, the league would reimburse the team $533,247. They do this so teams won’t shy away from signing older veterans simply because they are more expensive than younger veterans.

This alternative would certainly help the Heat, while leaving Andersen unharmed. So:

Total Benefit to the Heat: $941,154 in Additional Cap Space + $533,247 in Salary Savings to Andersen

Total Benefit to Andersen: None

Alternative 2: Retain Andersen’s Early Bird Rights

A player’s cap hold can be renounced to free up the cap space, but it comes at a cost. By renouncing a player, a team gives up its right to use “the Larry Bird Exception” to re-sign that player.

The basic rule of the NBA’s salary cap is that a team can’t sign a player or make a trade that leaves the team’s team salary above the cap, unless the team is using an exception. In a system with a soft cap, exceptions are the mechanisms that allow teams to function while above the cap. The cost common exception teams leverage is the Larry Bird exception, which enables a team to exceed the cap to re-sign its own players.

The concept of cap holds and the Larry Bird Exception therefore work in tandem. Cap holds are designed to protect against a team manipulating the timing of the signing of free agents, enabling it to circumvent the salary cap rules to its benefit by first using all of its cap space to sign outside free agents and then circling back to its own free agents utilizing their “Bird rights.”

Since cap holds are generally between 120% and 250% of a player’s previous salary – typically far in excess of what the player is likely to earn in any new contract – teams often must deal with its own free agents before turning their attention to outside free agents.

But, as noted above, there is a loophole for two-plus-year NBA veterans coming off of minimum salary contracts. The cap holds for such players is the minimum salary for a two-year veteran for the upcoming season.

Therefore, if Andersen were to choose to decline his player option, his $1,448,490 salary would be replaced with a $915,243 cap hold. That’s a net cap savings of $533,247 which could be redeployed by the Heat to outside free agents – not quite as much as the $941,154 from Alternative 1 above, but close.

The benefit? In this alternative, the Heat would still be recovering additional cap space as a consequence of Andersen’s decision to terminate his contract. But they wouldn’t be renouncing him in doing so. They’d retain his Bird rights.

But here’s the best part. After the Heat were to utilize all of its cap space (again, factoring in Andersen’s $915,243 cap hold rather than his $1,448,490 salary), the team could then circle back to Andersen, leveraging his Bird rights to replace his cap hold with an actual salary.

The Larry Bird exception has three sub-components to it, which apply to players on the basis of how many years they’ve been with their prior teams (one, two, or three-plus). Andersen has been with the Heat for two years, and therefore qualifies for “Early Bird” status.

The Early Bird exception allows teams to exceed the salary cap to re-sign their own free agents. To qualify for this exception, the player must play for two seasons without clearing waivers or changing teams as a free agent. A team may use the Early Bird exception to re-sign its own free agent for up to 175% of his salary in the previous season or 104.5% of the average salary in the previous season, whichever is larger. Early Bird contracts must be for between two years and four years in length (though only the first year needs to be guaranteed), with raises of up to 7.5% of the salary in the first season of the contract.

At current projections, which will be finalized next week, the Early Bird exception would allow for a contract with a starting salary of up to approximately $5.6 million. The Heat could therefore reward Andersen for taking less this past season with one final larger contract for next season, a season during which the Heat would have no luxury tax obligations to endure. So:

Total Benefit to the Heat: $533,247 in Additional Cap Space

Total Benefit to Andersen: A Salary of Up To Approximately $5.6 Million

***

Andersen highlights have been flickering on the video boards at AmericanAirlines arena for two years. Throughout the arena, people flap their arms. Andersen, too, flaps his.

Because he has apparently chosen to opt out of his contract, don’t expect this to be the end. Once again, things could just be taking off. Perhaps with some extra pocket change.

Leave a Reply

Your email address will not be published. Required fields are marked *

Time limit is exhausted. Please reload CAPTCHA.