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Los Angeles Clippers: Salary Cap Maneuvering In Action

August 11th, 2014 4 comments

Update (08/29): The Clippers followed my advice. They traded Jared Dudley to create breathing room below the hard cap. But how they went about it could certainly be questioned. The trade was rather costly, and their actions thereafter were rather surprising.

The Clippers traded Dudley and a protected 2017 first round pick to the Milwaukee Bucks in exchange for Carlos Delfino, Miroslav Raduljica and a protected 2015 second round pick.

The 2017 first round pick the Clippers sent to the Bucks is lottery protected through 2019, otherwise it becomes a pair of second round picks in 2020 and 2021. With the Clippers all but certain to make the playoffs in 2017, the pick will surely be conveyed to the Bucks in 2017.

The 2015 second round pick the Clippers received was actually the Clippers’ own pick, which was previously traded to the Bucks if it falls within the 31-50 range, to the LA Lakers if it falls within the 51-55 range, and to the Denver Nuggets if it falls within in the 56-60 range. Now it stays with the Clippers if it falls within the 31-50 range. But since the Clippers will surely be a top 10 team this year, it will surely go to the Lakers or Nuggets, rendering the return of the second round pick in the Dudley trade worthless to the Clippers.

The trade therefore effectively becomes Jared Dudley and the Clippers’ 2017 first round pick to the Milwaukee Bucks in exchange for Carlos Delfino and Miroslav Raduljica.

The combined salaries of Delfino and Raduljica ($4.75M) were actually more than Dudley’s salary ($4.25M), but the trade produced a couple of hidden benefits. First, it added a 13th player, enabling the Clippers to meet their minimum roster requirements, at a net cost of no more than $500K. Second, it freed the Clippers from having to deal with up to $250K of potential bonus money to Dudley. In other words, as a result of the trade, the Clippers met the 13-player minimum roster requirement with a team salary of $80.2 million and with no imminent hard cap issues. They were even in a position to add a 14th player on or after December 17.

Rather than take this approach, the Clippers instead waived both Delfino and Raduljica, and utilized the stretch provision to re-attribute their remaining $4.75M in combined salary obligations over a five-year period, resulting in an enduring cap hit to their waived players of $950K that will last through the 2018-19 NBA season. The Clippers are now left with 11 players under contract, and a team salary of $76.38M. That leaves them $4.45M below the hard cap, room enough to add up to as many as the regular season maximum of four additional players with plenty to spare for mid-season trade and/or signing scenarios. The Clippers reportedly have interest in free agents Ray Allen, Chris Douglas Roberts, Ekpe Udoh and Elton Brand.

This decision to waive and stretch both players came as something of a shock, considering the wealth of available alternatives. The Clippers could have, for example, waived and stretched only the less expensive Raduljica and reduced the enduring five-year dead-money charge to just $300K. Doing so would have created $1.84M of room below the hard cap, room enough for two additional players, bringing the roster to as many as 14. It would have also allowed the Clippers to evaluate whether Delfino, once healthy, could actually contribute. And, if not, it is difficult to believe his $3.25M expiring contract could not be moved to a team with the necessary room at the trade deadline, if need be, at which point the Clippers could have offered up to $3.3M in cash to offset his remaining $1.1M in salary obligations. For that matter, perhaps the Clippers could have also used some of that $3.3M in cash to exclude Raduljica from the original trade, creating even more room below the hard cap and eliminating the need for a dead-money charge altogether. 

If you’re wondering why the Clippers didn’t just utilize the stretch provision on Dudley, bypassing the trade scenario, they couldn’t. The stretch provision only applies to contracts signed or extended under the current CBA. Dudley signed his extension under the previous CBA. (They could, however, have waived and stretched any other player on the roster – Matt Barnes, for example – and avoided the entire trade scenario). 

I’m also seeing people get confused about the stretch. When stretching a player’s salary, you re-allocate all of his remaining guaranteed salary over twice the number of seasons remaining on his contract plus one. Delfino and Raduljica have a combined $4.75M in remaining guaranteed money, and each has two seasons remaining on his contract. The fact that one is non-guaranteed does not matter; it is a season remaining on his contract. So the re-allocation is over five years, not three. Some are calling this a loophole of which the Clippers took advantage. I am not sure why. I see it as the reverse. But you decide. If the stretch were to have been over three years, it would have created $3.17M of additional room for this year (leaving the team $3.82M below the hard cap, enough to sign as many as four additional players) and $1.58M of dead money for two additional years. With the stretch over five years, it has created $3.80M of additional room for this year (leaving the team $4.45M below the hard cap, still only enough for four more players) and $0.95M of dead money for four additional years. The Clippers will surely be an over-the-cap team utilizing exceptions for two additional years anyway. So, which would you have preferred – three or five? 

Let’s summarize… In order to free up an additional $3.30M of room below the hard cap (and as much as $3.55M if Dudley were to have earned his full bonus), the Clippers: (i) traded away their 2017 first round draft pick and (ii) incurred a $950K cap charge for the next five years. In the progressive luxury tax world, that can get quite expensive… and even more-so expensive if ever there is a time over the next five years when the Clippers are caught between utilizing the smaller vs. the larger mid-level exceptions, or aim to utilize cap space. Bear in mind that there isn’t a single player on the Clippers’ roster that has a contract which stretches out five years.

This series of moves makes you wonder: Were the Clippers fully aware of their hard cap issues when they signed Spencer Hawes and Jordan Farmar to the contracts they did? Were they fully aware of their hard cap issues when they gave CJ Wilcox the full 120% of salary scale in his first season (something the Chicago Bulls did not do with Marquis Teague in 2012 when they were facing their own hard cap issues)? Were they fully aware of all their alternatives for managing their team salary below the hard cap? Most important, was doing all of this really worth it?

Here is the ultimate question: If you were deciding for the Clippers, would you rather have: (i) four minimum-salaried players who can be signed at any time, enough flexibility with which to reasonably maneuver below the hard cap throughout the regular season, and a cap-clogging $950K charge that will remain on the books for the next five years or (ii) Jared Dudley, your 2017 first round pick, and a 13th player on a minimum salary contract to be signed three days into the regular season?

That three days into the regular season thing sucks. It means you can’t bring the player into training camp. Or, if you do, you need to sign him on a non-guaranteed contract, waive him prior to the start of the regular season, and hope he clears waivers before re-signing him. But here’s the thing: Being forced to wait three days into the season to sign that 13th player, vs. signing him right now and having him for training camp, could well be the result of mismanagement by your team’s own salary cap expert. The reason why that player can’t be added now is because, when including the potential full Dudley bonus, it would put the team a mere $16,015 above the hard cap. That’s inconsequentially small. It’s so small, in fact, that if your salary cap expert were on top of things, he might have been able to extract it from, for example, the first year of the rookie scale contract of Wilcox (returning Wilcox to the full max 120% of scale in his second year). 

I am admittedly ignorant when it comes to matters of L.A., so I leave it to you to determine for yourselves whether you think the Clippers, given the wealth of alternatives at every point along the way, managed their salary cap situation correctly. 

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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