Update (04/06/14): The Bulls subsequently signed Jimmer Fredette to a rest-of-season contract costing $239,279 on 03/02/14, putting the team at risk of exceeding the tax level if Taj Gibson received First Team All Defense honors. To counteract this unlikely but possible scenario from allowing the Bulls to exceed the tax, they subsequently waived Erik Murphy, believing that he would be claimed on waivers, which he was, on 04/06/14, thus removing his entire $490,180 cap hit from the Bulls’ tax calculation. The Bulls have now assured themselves of missing the tax, as was always the goal.
This post has nothing to do with the Miami Heat but I, as a salary cap person, love intricate luxury tax maneuvering. And the situation described herein is particularly entertaining to 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 an accurate version for myself, in my own words, with my own emphasis, and using my own storyline. It’s 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 Paul 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…