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Los Angeles Clippers: Salary Cap Maneuvering In Action

August 11th, 2014 2 comments

Every so often, I uncover an intricate salary cap situation that I find interesting enough to write about, even though it does not involve the Miami Heat. Last year, I wrote about the Chicago Bulls – and how they maneuvered, at times I feel incorrectly, around luxury tax issues. This year, the most fascinating story could revolve around the Los Angeles Clippers – and how they maneuver around a hard cap. This post is quite involved and technical, so my apologies for that in advance. 

The concept behind the NBA’s salary cap is actually quite simple: It’s a soft cap. Teams can spend freely within the confines of it. But, in order to exceed the cap, teams must utilize exceptions.

The rules that underlie this basic concept, however, can be quite complex – so complex, in fact, that when the league adds new rules in any new CBA, they sometimes conflict with other rules and, as a result, create unintended consequences that need to be subsequently rectified.

The latest CBA contains one such new rule: the implementation of an “apron” that is slotted $4 million above the tax line, which for the upcoming season is set at $76.829 million. That puts the “apron” at $80.829 million. Teams are banned from exceeding the apron, even by a single penny, if they engage in certain transactions after July 1. On that list: using the full midlevel exception, using the bi-annual exception, and accepting another team’s free agent by means of a sign-and-trade.

If a team engages in such activity, the apron becomes a hammer – a hard cap which cannot be exceeded under any circumstance. Merely approach it, and it becomes increasingly difficult to make trades that bring in more salary than they send out, or even sign minimum-salary players when injuries strike. It is a constant menace floating in the distance.

The Los Angeles Clippers are well aware of the restrictions imposed by the apron. They became hard-capped at the apron after using the full mid-level exception on Spencer Hawes and the bi-annual exception on Jordan Farmar, each on July 10 of this year. As a result, they need to operate within the confines of the apron for the rest of the 2014-15 NBA season.  Read more…

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Chicago Bulls: Salary Cap Maneuvering in Action

February 7th, 2014 3 comments

Update (June 7): The Bulls didn’t follow my advice. They did waive Erik Murphy as I speculated. But they added more players too quickly, and ended up rolling the dice with regard to the bonuses of Joakim Noah and Taj Gibson. Noah made All-NBA First Team, and earned his $500,000 bonus. Gibson didn’t make the All Defensive First or Second Teams. As a result, the Bulls missed the tax by just $291,164. 

This post has nothing to do with the Miami Heat but I, as a salary cap person, love intricate luxury tax maneuvering. The situation described herein is about as fascinating as it gets for me. It should be noted that the idea for this post was not my own. It stemmed from an incorrect post I read elsewhere, for which I happily provided the correction, and then decided to write a unique version for myself, with my own story line, and drawing my own conclusions. This post is long and it’s tedious, but the end result is utterly spectacular (well… spectacular for people who are amazed by how teams maneuver around luxury tax issues).

Most of us assumed that when the Chicago Bulls acquired the contract of the unremarkable Andrew Bynum in trade last month, it was to drop them below the luxury tax.

It was. But the process has been far more complicated than most of us, apparently including Bulls management themselves, realized.

For a long time, it appeared as if Bynum would be shipped off to Los Angeles, so that the Lakers could capitalize on his unintendedly valuable contract.

The nature of Bynum’s contract essentially meant that he was auditioning for the Cleveland Cavaliers from the date he was signed on July 19 all the way through the guarantee deadline on January 7, an audition he failed. Bynum’s deal called for a $12.25 million salary this season, of which only $6.0 million was guaranteed. Next season’s salary of $12.54 million was fully unguaranteed. Therefore, a two year contract was really just a six month commitment. But it also meant that any team which acquired his $12.25 million salary in trade could immediately thereafter terminate his contract, thus reducing his salary and resulting cap charge from $12.25 million to $6.0 million.

The Lakers have been luxury tax payers for six straight seasons. They were in position to leverage that $6.25 million delta to sneak below the tax for this season, producing huge up-front savings. And because they are unlikely to be taxpayers next year as they tear down their roster and rebuild, two consecutive years below the tax would have had an added benefit – no “repeater taxes,” which are paid by taxpaying teams that were also taxpayers in at least three of the previous four seasons, for the Lakers for the entire life of the current CBA, which will almost certainly be terminated after the 2016-17 season.

It was a potentially massive financial windfall for the Lakers at a cost of just the expiring contract of Pau Gasol (and another irrelevant throw-in to make the math work).

The Cavs had been after Gasol since this past summer, when they had extensive discussions with the Lakers, and were more than eager to make the swap. But the Lakers were demanding more for Gasol than just the massive financial savings. The Cavs refused.

That’s when the Bulls swooped in.  Read more…

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