A Fun (But Serious) Look into the Golden State Warriors Future

Update (7/5/17):

Each of the Golden State Warriors’ critical free agents this summer has agreed to return.

Stephen Curry will sign the full 5-year, $201M designated player max contract for which he qualifies. Andre Iguodala will sign a guaranteed three-year, $48M contract. Shaun Livingston will sign a three-year, $24M contract (with a $2M guaranteed third season). The latter two contracts were made possible by Kevin Durant agreeing to accept less than the $34.7M max salary that he obviously deserves. But, in a widely unexpected development, he’ll apparently sacrifice far more than he needed to.

Durant only needed to reduce his salary to $31.8M — the highest salary the Non-Bird exception would allow, which is just $2.8M below his max — to make the Iguodala and Livingston signings possible. Instead, he is reportedly taking $25.0M (with a player option for 2018-19 worth $26.3M). That’s a whopping $9.7M less than the max which he rightly deserves, and $6.8M less than he needed to take for the Warriors to keep Iguodala and Livingston. Taking that extra $6.8M reduction will end up saving owner Joe Lacob about $30M in salary and luxury taxes this season.

Durant has little incentive to take such a massive discount next summer. Which means he’ll surely decline his $26.3M player option and seek out a higher payout. But he’ll only have Early-Bird rights next summer, which essentially means he can’t sign a 5-year contract until the summer of 2019. That, in turn, gives him two primary options for next summer:

  • He can sign a one-year deal for up to $30.0M (with a player option for up to $31.5M in 2018-19), positioning him to sign an estimated 5-year, $220M contract in the summer of 2019. If Durant chooses this option, then the sacrifice he just made will actually be larger than it currently appears. He’s already sacrificed $9.7M this season. But since Early-Bird contracts are limited to 2-4 years (excluding option seasons), he’d have to renounce his Early-Bird rights in favor of Non-Bird rights in order to get his one-year deal. And since starting salaries in Non-Bird contracts are limited to 120% of a player’s previous salary — which for Durant would be $30.0M (120% of his $25.0M 2017-18 salary), versus a potential $35.7M max (35% of a projected $102M salary cap) — he’d be sacrificing another $5.7M for 2018-19, and a further $7.1M on the player option for 2019-20 (in the unlikely event he will have accepted it). That would be a total sacrifice of between $15.4M (without the option) and $22.4M (with the option). However, in my humble opinion, Durant isn’t likely to choose this option. 
  • He can sign a longer-term contract for up to the max. At a $102M projected salary cap, his starting salary would come to $35.7M. He could choose between a two-year deal with a player option for a third year (which would work out to $74M excluding the option, and $116M total), or a three-year deal with a player option for a fourth year (which would work out to $116M excluding the option, and $160M total). I believe Durant will choose the latter structure(1).

Durant’s sacrifice was intriguing in that it saved his owner a bunch of money this season, but it likely had no longer-term financial benefits. If I were negotiating on behalf of the Warriors this summer, I might have suggested a different path — one that could have had far greater long-term benefits, helping to ensure the survival of this team well into the future.

I wrote the original post below to show (with a splash of levity) just how expensive it could be to keep this Golden State Warriors construct together, as well as to emphasize just how critical creative salary cap management will be to mitigate as much of that expense as possible.

My secret plan to mitigate a massive chunk of future cost? Try like hell to avoid the luxury tax this year!

That was the plan, anyway… To execute upon it, however, would’ve required some tough decisions and significant sacrifices… The salary cap coming in at $99.1M, nearly $2M below the projection from when I came up with the idea, didn’t help at all… But, in my humble opinion, it could still have been doable.

The goal would’ve been to compile a team salary of $119.2M or less (fractions below the $119.3M luxury tax threshold, which would enable some end of season maneuvering if need be). To make that happen would’ve required Durant to take the significant sacrifice he ultimately did take(1), as well as the Warriors to reduce their currently projected team salary (to 14 players) by another $14.6M or so through some combination of the following: requesting that Stephen Curry and/or Andre Iguodala take small discounts (or possibly parting ways with Iguodala, which by itself would’ve gotten them almost all the way there), parting ways with Shaun Livingston (who ultimately got his 3-year, $24M deal), not utilizing the $5.2M mid-level exception (which was ultimately used on Nick Young), bypassing an offer above the $2.3M minimum for Zaza Pachulia (who ultimately got the Non-Bird exception of $3.5M) and/or a relatively minor in-season trade.

The result would perhaps have been a slightly weakened team for next season. But my logic was two-fold: (i) the slightly weakened team would still have been the overwhelming favorite to win the title, and (ii) the long-term financial benefits would’ve been huge.

How huge?

If the Warriors would have been able to avoid the luxury tax, it would’ve increased the savings for this season from about $30M to about $80M. By default, the salary structure for next season would’ve had to have fallen by more than $10M, which, when including the tax, equates to about $50M in savings for 2018-19. And, most importantly of all, the strategy would’ve pushed back the repeater tax clock two full years (from 2019-20 to 2021-22), which could’ve equated to at least $70M in savings for each of those two seasons(2).

That’s approaching (or even exceeding(2)) $300M in total potential savings over the next four years — 10x the savings they wound up getting!

Which may have been enough not only to keep this team together well into the future, but also enough to redeploy a portion of each season’s savings to keep re-tooling year after year. That could become increasingly critical as the years go by, and age and motivation become increasingly bigger factors.

It was a strategy that revolved around making small sacrifices in the short-term in exchange for massive gains over the long-term.

The ability for general manager Bob Myers to eloquently explain to his players that avoiding the tax for the upcoming season could potentially guarantee the continuity of, and continuous improvement for, what could be the most talented team in NBA history might just have been compelling enough to make it work!

That was my plan anyway. 😊

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Original Post (5/20/17):

The Brooklyn Nets paid an all-time NBA record $193M in payroll and luxury taxes in the 2013-14 season.

The Cleveland Cavaliers have inched close to that record recently, having paid $165M in 2015-16 and a projected $154M this season. They could perhaps approach or even break it in either or each of the next two seasons.

You think that’s a lot?

It’s chump change compared to what could happen elsewhere in the years to come!

But back to that story in a second.

This week was all about the announcement of the league’s All-NBA teams.

The announcement had far-reaching implications throughout the NBA. Several highly-publicized players secured tons of money for themselves, thanks to the league’s new “designated veteran player” rules. Several other highly-publicized players lost out on tons of money.

But it also quietly had ramifications for a couple of players nobody seems to be talking about. Friends. Brothers in arms. Teammates. Klay Thompson and Draymond Green.

In the NBA, all max salaries aren’t built equal. There are three levels based on a player’s tenure: those with 0-6 years of experience are eligible for up to 25% of the salary cap (a Tier 1 max salary), those with 7-9 years of experience are eligible for up to 30% of the salary cap (a Tier 2 max salary), and those with 10+ years of experience are eligible for up to 35% of the salary cap (a Tier 3 max salary).

The designated veteran player rules allow players who qualify to sign Tier 3 “super-max” contracts (that can start at anywhere above 30%, but not greater than 35%, of the salary cap), even though they don’t meet the league’s tenure-based eligibility requirements for it. Such contracts can only be signed with the player’s prior team, must generally be for a full five years, and can contain annual increases or decreases of up to 8.0% of the first-year salary.

At current salary cap levels, that can add up to an extra $6M or so per year.

To qualify for it, a player must be entering his eighth or ninth season in the NBA (in the case of extensions) or have just completed his eighth or ninth season in the NBA (in the case of free agent signings), and must meet one of the performance criteria. Included on the list: Making one of the three All-NBA teams in either the previous season or the prior two, winning Defensive Player of the Year in either the previous season or the prior two, or winning MVP in any one of the previous three seasons.

In addition, the player must have never changed teams as a free agent, he can have only been traded during his first four years in the league, and he must be a free agent (in the case of a free agent signing) or have just one or two years remaining on his contract (in the case of an extension). And if it is an extension, a couple more rules apply. First, three years must have passed since the player signed his prior contract or extension. Second, if he has one year remaining on his contract at the time his extension is signed, it must cover five new seasons; if he has two years remaining on his contract at the time the extension is signed, it must (and can only) cover four new seasons.

The first wave of players who qualify, and don’t qualify, was confirmed with the announcement of the three All-NBA teams on Thursday.

Four players are now qualified for a designated veteran player deal this summer: Oklahoma City’s Russell Westbrook, Houston’s James Harden, Washington’s John Wall, and Golden State’s Stephen Curry.

Harden and Westbrook, even if they sign designated veteran player extensions, wouldn’t actually get any more money than they could otherwise get when they ultimately become free agents (in each case as a 10-year veteran). For them, the designated veteran player rules are really just about locking in payouts for which they’d otherwise be eligible anyway. So… blah.

Wall, even if he signs a designated veteran player extension, probably isn’t going to create a powerhouse in D.C. So… who cares?

Curry snagged (First Team) All-NBA honors, but he didn’t actually need it. By virtue of having won the MVP award in each of the last two seasons, he already qualified for a designated veteran player contract. He’ll surely get it. It’ll take him from having the biggest bargain salary in the NBA this past season to what could be the highest salary in NBA history next season: $35.4M (35% of next season’s projected $101M salary cap). A five-year super-max contract starting at $35.4M would total up to $205M! But we’ve been talking about a Curry super-max forever. So… whatever.

The most intriguing designated veteran player storylines came from those who didn’t qualify for it.

Indiana’s Paul George and Utah’s Gordon Hayward were the headline losers, missing out on potentially huge Tier 3 designated veteran player super-max extensions this summer.

But they weren’t the only ones who missed out. Klay Thompson did too!

Thompson would have qualified to sign a designated veteran player extension with the Warriors next summer if he had made an All-NBA team this season. The extension would have kicked in for the 2019-20 season, with an estimated starting salary of $37.5M (35% of the 2019-20 salary cap) and total payout of $217M over five years.

It’s not all bad for Thompson though. Unlike George and Hayward, he still has time to earn his super-max deal. He’ll qualify for it (starting in the same year, and having the same payout) if he makes All-NBA in either of the next two seasons.

His teammate Draymond Green snagged (Third Team) All-NBA honors, but his making it as a forward didn’t impact Thompson not making it as a guard. So, no worries there… It did, however, take a spot away from George and Hayward. And it also had interesting implications for himself.

Green won’t be eligible for a designated veteran player deal until 2019. But, by making Third Team All-NBA this season, he took a step closer. He’s now just one step away – if he makes All-NBA again in either of the next two seasons, he’ll be eligible to sign a super-max extension in the summer of 2019. It would kick in with the 2020-21 season, have a starting salary of somewhere around $39M (35% of the 2021-21 salary cap) and pay out up to around $225M over five years.

How good has the Warriors scouting been over the past several years?

They’ve drafted three players – Curry, Thompson and Green – who have each earned All-NBA honors at least once in their young careers, and could each qualify for super-max designated veteran player deals if they make it again.

But they won’t each get one.

NBA teams are only allowed to have two of its players on designated veteran player deals at any given time. Curry will surely get one. Which leaves just one left for Thompson or Green.

That could set off one of the more hilarious battles in the years to come!

But that’s just one of the numerous storylines that should produce worlds of fun and intrigue for Warriors fans in the years ahead(1).

Kevin Durant is at the core of an entirely different one.

Durant holds the futures of Andre Iguodala and Shaun Livingston in Golden State squarely in his hands.

He’ll surely opt out of the final season of the two-year deal he signed last July, exactly as he’s always planned. And he’ll surely re-sign with the Warriors this summer, exactly as he’s always planned. And he’s probably even decided the type of contract he’ll sign with the Warriors this summer. But we don’t know what he’s thinking. Which creates drama.

Durant doesn’t need (or qualify for) a designated veteran player contract. As a 10-year veteran, he is automatically eligible to sign a 35% max contract. He could seek that max, about $35.4M, for next season. He’d obviously deserve it if he does. But because the Warriors only have his Non-Bird rights, they’d need to create cap space to fit it. They’d need to shed a ton of salary to do that, which would surely include renouncing both Iguodala and Livingston. But if Durant is willing to take $31.8M, the maximum 20% raise from his current $26.5M salary that his Non-Bird rights would allow (with a player option for a second season), the Warriors wouldn’t need to fit him into cap space. They could not only re-sign Durant but also leverage the full Bird rights of Iguodala and Livingston to re-sign them both as well… despite blasting past the salary cap. Golden State could then pay Durant back by maxing him out next summer.

Durant’s generosity could keep the current Warriors core intact for several more years – a scary proposition for its Western Conference competitors, and the league as a whole!

But thinking about what that could do to Golden State’s payroll is just about the most fun a cap nerd can possibly have.

Nobody’s talking about it yet. But they will. It’s too juicy not to.

Picture this:

Curry gets his $35.4M. Durant gets his $31.8M. Iguodala and Livingston get substantial salaries to return (which the Warriors should push to extend out just two seasons if at all possible). The Warriors do some combination of the following: re-sign Ian Clark for up to the $7.8M his Early-Bird rights would allow, re-sign Zaza Pachulia for up to the $3.5M his Non-Bird rights would allow, utilize the $5.2M Taxpayer Mid-level Exception, and round out the roster with minimum salaries. That could easily cause the 2017-18 Warriors to blast past $200M in total salary-related obligations, shattering the Nets’ all-time record… Realistically speaking, though, we’re probably looking at closer to $175M. Not a sexy all-time record, but still huge!

But that’s just the starting point for what could happen over the following three years.

Get this:

Curry is about to sign what could be a five-year designated player 35% max deal, that could start at up to $35.4M next season and pay out up to $205M over the next five years.

Durant has numerous ways to structure his future deals with the Warriors, but he’ll surely deserve to be on 35% maxes after next season. If he takes the $31.8M this summer (for the benefit of Iguodala and Livingston), he could then sign for the $35.7M max next summer, as part of a four year deal which would pay out as much as $160M.

Thompson would qualify for a designated veteran player 35% max if he makes All-NBA in either of the next two seasons, which would start in 2019-20 and pay out up to around $217M over the following five years.

Green would qualify for a designated veteran player 35% max if he makes All-NBA in either of the next two seasons, which would start in 2020-21 and pay out up to around $225M over the following five years.

Thompson and Green can’t both sign 35% designated player maxes (assuming Curry does), but one can. And the other can always sign a traditional 30% max deal.

The Warriors could theoretically have three guys on 35% maxes (Durant, Curry, and either Green or Thompson) and another on a 30% max (Thompson or Green) within the next four years. That adds up to a combined $110M in 2018-19, $135M in 2019-20, $160M in 2020-21, and $170M in 2021-22. To 4 players!

Now let’s try to build out hypothetical rosters around that.

For 2018-19, you’ve still got Iguodala and Livingston on the books. That’s probably going to cost you $20M or so. Damion Jones and Jordan Bell will be under contract for another $3M combined. Your first-round draft pick will cost you $2M more.

 

And you’ve still got to add 5-6 more players, which could include some combination of potential restricted free agents Kevon Looney and Patrick McCaw, as well as the $6M taxpayer mid-level exception and minimum-salary contracts costing $1.5M+, from which the Warriors will be gunning for 3&D perimeter players and lankly, athletic, rebounding centers. You’re probably pushing $150M in salaries. Tack on another $75M in luxury taxes (at a $123M projected tax line), and you’re at a cool $225M!

You think that’s big?

It’s child’s play compared to what starts to happen in 2019-20, when repeater taxes start to kick in.

For 2019-20, Iguodala and Livingston hopefully fall away, but maybe not. You’ve still got as many as two mid-level exception players at $6M each, Jones at $2M, whoever remains of Looney and McCaw, now restricted free agent Bell, two first-round picks (2018 and 2019) at $2M each, and a bunch of minimum-salary guys at $1.6M+. Even if the cost of your 11 role players has just shrunk from $40M last year to $30M this year, the cost of your Big 4 has rocketed $25M higher. So you’re probably at $165M or so in salaries. Repeater taxes (at a $131M projected tax line) adds a whopping $135M. That’s $300M!

But you’re still not done. Not even close.

By 2020-21, you’ve reached your maximum tolerance for role player pain. You’ve got as many as three mid-level exception guys at $6M each. Jones, Looney, McCaw and Bell each will have gotten new contracts if they’re going to stay. You’ve now got three first-round draft picks at $2M each. You’ve got a bunch a minimum-salary guys making $1.6M+ (assuming they don’t want raises). But there’s no way you’re spending all that. And you’ve finally got a second-round pick to cushion the blow a bit, at <$1M. Let’s just assume that the cost of your 11 role players stays at $30M. You’re still looking at $190M in total salaries. And here’s where you really start to laugh. Your repeater tax bill (at a $136M projected tax line) could fund more every other NBA franchise for two full years: $275M. That’s a ridiculous $465M total!

By 2021-22, you’ve finally made it to the last year of Curry’s contract. It’s perhaps the last year of luxury tax hell. You’ve still got as many as three mid-level exception guys at $6M each, but you’re not using them all. You’ve still got all your first-round picks limited by the rookie-scale, so that helps. You’ve now got slightly more cost effective second-round picks from each of the last two seasons. And you’ve got a bunch of minimum-salary guys at $1.7M+, and anyone else who’s returning. Let’s assume a flat $30M for your 11 role players. That’s still $200M in total salaries!

Slap repeater taxes onto a $200M payroll?

I’m projecting a $141M luxury tax line by then. That’s $59M over. Which equates to – get this – another $315M in repeater taxes!

So that’s: $200M in salaries + $315M in luxury taxes = $515M total!

Could we be looking at the world’s first ever $500M basketball team by 2021-22?

Of course not. But it’s fun to think about.

(And, on a more serious note, it illustrates how critical it will be for the Golden State Warriors to make wise decisions, and cleverly negotiate with its core players, in the years ahead. A key focus for this summer will be on planning for the 2019-20 season. That’s when Klay Thompson becoming a free agent and the Warriors becoming a repeater taxpayer converge. Look for the Warriors to keep that in mind in their negotiations with Iguodala and Livingston in just over a month.)

Notes:
(1) The Warriors have perhaps the most intriguing future in the whole of the NBA. The storylines could go on forever. I have already drafted a six-page post — that I probably won’t publish — on Kevin Durant’s decision alone. Durant holds some unique and powerful tools that could potentially aid his team tremendously this summer, as well as some unique and problematic issues he could potentially face in each of the following two contracts that would presumably close out his career. 

(2) The savings in 2019-20 could easily top $120M if Andre Iguodala is retained for his third year, which pays out $7.7M but is only partially guaranteed for $2.0M. This assumption underlying the $70M baseline is that he is traded or waived and stretched. 

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