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 5-year, $201M designated player max contract for which he qualifies; Andre Iguodala will sign a three-year, $48M contract; and that Shaun Livingston will sign a three-year, $24M contract (with a $2M guaranteed third season). That latter two contracts were made possible by Kevin Durant agreeing to accept the $31.8M starting salary that his Non-Bird rights would allow, about $2.8M less than the $34.7M max salary that he obviously deserves. But, in an unexpected development, he’ll apparently sacrifice more than just that.

Durant is reportedly taking $25.0M (with a $26.3M player option for 2018-19). That’s $9.7M less than the max which he rightly deserves, and $6.8M less than he had to take for the Warriors to keep Iguodala and Livingston. Taking that extra $6.8M reduction will end up saving owner Joe Lacob around $30M in salary and luxury taxes this season.

Durant’s contract will provide him three primary options for next summer:

  • He can exercise his $26.3M player option. He’d have full Bird rights rights when it was over, enabling him to sign an estimated 5-year, $220M contract in the summer of 2019.
  • He can decline his player option, renounce his Early-Bird rights (in favor Non-Bird rights), and sign a one-year contract at up to $30.0M (with an up to $32.4M player option). He’d have full Bird rights rights when it was over, enabling him to sign an estimated 5-year, $220M contract in the summer of 2019.
  • He can decline his player option, and leverage his Early Bird rights to sign for the max. At a $102M projected salary cap, it comes to $35.7M. But Early Bird contracts can only only be signed for between 2-4 years. So… that’s up to 4-years, $160M.

Durant’s sacrifice was intriguing in that, while it saved his owner a bunch of money this season, it had no other near-term or long-term benefits. But, had the Warriors pursued a different path this summer, such a sacrifice could have helped to ensure the survival of this team, as constructed, well into the future.

I wrote the original post below below in order to show how expensive it could be to keep this Golden State Warriors construct together (and improving year after year), and to show 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 amount of future cost? Try like hell to avoid the luxury tax this year!

If the Warriors would have been able to avoid the luxury tax, it would not only have saved gigantic money for the upcoming season but would have also pushed back the repeater tax clock two full years (to 2021-22). The combined savings could’ve pushed beyond $100M and even approached $200M!

To do that would’ve required some significant sacrifice by several players.

My plan revolved around Durant taking a significant sacrifice (which he ultimately did), the Warriors parting ways with Shaun Livingston and bypassing an offer above the minimum for Zaza Pachulia, not utilizing the mid-level exception (which would’ve meant sacrificing Nick Young) and, if necessary, asking Stephen Curry or Andre Iguadala to take a slight discount. The result would’ve been only a slightly weakened team for next season. But my logic was two-fold: (i) the slightly weakened team for next season would still have been the overwhelming favorite to win the title, and (ii) the long-term benefits associated with the massive savings would’ve not only made keeping the team together over the long-term far more affordable but also allowed the team to redeploy a portion of the savings to keep re-tooling year after year after the upcoming season. It was a story about sacrifice in the short-term in exchange for a massive gains in the long-term.

The ability for general manager Bob Myers to explain to his players that avoiding the tax for the upcoming season could essentially guarantee continuity and continuous improvement for the team in future seasons might’ve been compelling enough to make it work! That was my plan anyway. 😊


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, 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, which, because his Non-Bird rights would only allow for a starting salary of $31.8M (a 20% raise from his current $26.5M salary), would be useless. The Warriors would need to create cap space to fit it. And 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 the $31.8M, perhaps on another one-year deal (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 for his sacrifice 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 will push to extend out just two seasons). Golden State executes some combination of re-signing Ian Clark for up to the $7.8M his Early-Bird rights would allow (which they don’t do), re-signing Zaza Pachulia for up to the $3.5M his Non-Bird rights would allow (which they may or may not do), utilizing the $5.2M  Taxpayer Mid-level Exception (which they may or may not do, perhaps dependent upon what Pachulia decides), and rounding out the roster with minimum salaries. That could cause the 2017-18 Warriors to shatter the Brooklyn Nets record for highest single-season payroll plus luxury tax ever, blasting way past the $200M mark (reality is probably closer to around a still eye-popping $175M)!

But even that’s just the starting point for what could happen over the next several 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. That contract could pay him $44M in the 2020-21 season alone!

Durant has numerous ways to structure his future deals with the Warriors, but he’ll surely be on 35% maxes after next season. Assuming he takes the $31.8M this summer (for the benefit of Iguodala and Livingston), he could then lock in another $160M or so over the following four years as a free agent next summer. If he takes $31.8M this summer and another one-year deal next summer (around $35.7M), he could top it off in 2019-20 with a five-year deal that would pay out an estimated $217M. Any which way, he would earn at least $41M in the 2020-21 season alone!

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. Which could pay the two a combined $75M or so in the 2020-21 season alone!

The Warriors, in the 2020-21 season alone, could theoretically have three guys on 35% maxes (Durant, Curry, and either Green or Thompson) and another on a 30% max (Thompson or Green). That’s $160M just for those four players!

From there, is it really all that hard to picture the other 10 to 11 guys earning at least another $30M combined?

Even veterans making the league minimum that season will require cap hit of a around $1.7M, and even that’s only if they agree to one-year deals. Throw in some combination of first-round draft in each of the next three drafts (which, at the very bottom of the round, are each likely to produce cap hits in the $2M+ range that season), mid-level signings (which, if utilized, would each cost around $6M by then), and Bird rights to aging (e.g., Iguodala/Livingston, who aren’t likely to be around that far out) and younger (e.g., Patrick McCaw/Kevon Looney/Jordan Bell, who would each be eligible to earn up to a max salary by then) veterans, combine it all with obvious needs at center and on the bench, and you could be looking at a payroll that easily breaks $190M in 2020-21. And that’s before luxury taxes!

With such a construct, the Warriors would be paying the luxury tax not just this coming season but every season thereafter. Which would make them repeater taxpayers starting in 2019-20. Repeater rates add $1 in taxes for ever dollar by which a team is over the luxury tax threshold. That’s when things could start getting insanely expensive!

Slap repeater taxes onto a $190M payroll?

At an assumed 2020-21 salary cap of $112M (my current projection for that season), the luxury tax line would come in around $136M. That’s $54M over. Which equates to – get this – another $310M or so in repeater taxes!

So that’s: $190M in salaries + $310M in luxury taxes = $500M total!

Could we be looking at the world’s first ever $500M basketball team by 2020-21?

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 to create what could very easily be a $350M+ payroll. Look for the Warriors to keep that in mind in their negotiations with Iguodala and Livingston in just over a month.)

(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. 

Leave a Reply

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

Time limit is exhausted. Please reload CAPTCHA.