Memphis Grizzlies Seeking Possible Trade For Luol Deng

January 8th, 2015 No comments
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The Memphis Grizzlies, aiming to bolster their scoring and playmaking options on the wing in the increasingly competitive Western Conference, are having discussions about trading for the Miami Heat’s Luol Deng or the Boston Celtics’ Jeff Green in advance of the Feb. 19 trade deadline.

Any Grizzlies offer for Deng or Green is likely to feature the $7.7 million expiring contract of Tayshaun Prince, as well as the promise of future draft compensation to serve as an enticement to complete the trade.

It is not immediately clear how willing Miami would be to trade Deng, who is not even halfway through the first of a two-year, $19.9 million contract he signed with the Heat in the wake of LeBron James’ return to the Cleveland Cavaliers via free agency this past summer.

After James departed, Heat president Pat Riley said “I want this team to be as competitive as it’s ever been.” But he spoke of pursuing two distinct and simultaneous courses of action: trying to stay in the playoff race for the following two seasons – even while the Heat’s 2015 first round pick is owed to the Philadelphia 76ers if it is outside the top 10 – but with a clear focus on maintaining flexibility for the expected availability of several top free agents in the summer of 2016.

With the Heat already at 15-20 as it begins a challenging five-game road trip out west, it is unclear as to how willing Riley might be to sacrifice the former for the benefit of the latter.

Trading Deng could, among other things, damage the Heat’s ability to make the playoffs this season as well as put at risk its ability to clear its first round pick obligation off the books this summer. The pick is top-10 protected for this season and next, and becomes fully unprotected if not previously conveyed.

But trading Deng could also provide the Heat with a far better pick — a top 10 pick — in what is presently considered to be a deep draft this summer as well as with the additional draft pick compensation to be received in the trade. That could set the Heat up quite well for the summer of 2016.

All trade proposals should surely be considered even if not ultimately pursued.

But trade scenarios are complicated.

Deng is earning $9.7 million this season, and he has a player option that would pay him $10.2 million for next season if he exercises it in June. But he also has a trade bonus which, by rule, he cannot waive, in whole or in part, except to make a potential trade legal.

Deng’s trade bonus would be valued at 15 percent of his remaining salary for the season, the amount of which would depend upon the exact day he is traded. If Deng were to be traded today, his bonus would be $840K; if he were traded at the trade deadline, it would be $480K. The amount of the trade bonus, if any, would be allocated entirely to this season.

A straight up trade of Deng for Prince would be legal, but only if Deng were to agree to surrender the vast majority of his trade bonus (all but $20K). Deng would therefore effectively hold veto power over such trade discussions.  Read more…

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Miami Heat Receive Josh McRoberts Disabled Player Exception

December 26th, 2014 No comments
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The Miami Heat lost Josh McRoberts for the rest of the season after he underwent surgery to repair the torn lateral meniscus in his right knee last Monday. As a result, the league office has granted the Heat a disabled player exception equal to half his salary, or $2.65 million.

The Heat can use the exception to acquire one player to replace him:

  • The Heat can sign a free agent to a contract for the rest of the season only, with a salary of up to $2.65 million.
  • The Heat can trade for a player in the last season of his contract only (including any option years), who is making no more than $2.75 million.
  • The Heat can claim a player on waivers who is in the last season of his contract only (including any option years), who is making no more than $2.75 million.

McRoberts’ status with the team will not be affected. He will continue to count as one of the NBA-maximum 15 players on the roster. He can return to the active roster before season’s end if he is able to do so (and any replacement player would not be affected). He can be traded while injured. However, if he does return or is traded before the Heat has used the exception, the team would lose it. Otherwise, it expires on March 10.

The Heat had hoped to use the exception to lure free agent forward Josh Smith to Miami. The Detroit Pistons made an abrupt and shocking move to release Smith last Monday, despite $36 million in guaranteed money still to be paid on his contract. Players that good who are owed that much money virtually never hit the open market in such fashion. Smith, however, chose to sign with the Houston Rockets.

The Heat must now look elsewhere in its search for a player who can replace the injured McRoberts and help improve a thin power rotation. Potential targets are both intriguing and problematic.  Read more…

Heat Apply for Disabled Player Exception, Set Sights on Josh Smith

December 22nd, 2014 No comments
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The Miami Heat formally applied to the league office for a disabled player exception on Monday, shortly after Josh McRoberts had season-ending surgery to repair the torn lateral meniscus in his right knee, in a move they hope will help them land soon-to-be free agent Josh Smith.

The Detroit Pistons made an abrupt and stunning move to release Smith earlier in the day, despite $36.0 million in guaranteed money still to be paid on his contract. His contract has an additional $9.0 million still to be paid on his $13.5 million salary for this season, and calls for salaries of $13.5 million in each of the following two seasons as well.

Smith will now spend 48 hours on waivers, during which time any team with the necessary cap space or a qualifying exception large enough to absorb his $13.5 million salary cap hit can make a claim to pick up the remainder of his contract. The only such team is the Philadelphia 76ers, which is not about to do so.

At 5 p.m. on Wednesday, Smith will clear waivers and become an unrestricted free agent, free to sign with the team of his choosing. Players this good who are owed this much money virtually never hit the open market in this fashion.

A number of teams have expressed an interest in signing Smith once he clears waivers, including the Heat, Houston Rockets, Dallas Mavericks, Sacramento Kings, Los Angeles Clippers and Memphis Grizzlies.  Read more…

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The Curious Case of Greg Monroe

December 18th, 2014 No comments
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According to NBA rules, Pistons center Greg Monroe is now eligible to be traded. According to the Sporting News, he wants that, badly. The Heat have reportedly made an initial inquiry.

But, according to the Sporting News, teams seeking Monroe will need to cough up a first-round pick, and that’s a serious sticking point. It’s a rich asking price for a player who will become an unrestricted free agent at the end of the season, at which point any team can sign him without sacrificing anything in return.

Under normal circumstances, that’d be ok. Because the audience would be different. In free agency, the audience for a player would be limited to teams with the necessary cap room to sign him. The audience for a player in potential trade scenarios might include a handful of teams which don’t project to have the cap space to sign him the following summer, and might be willing to pay a hefty price to gain access to the Bird rights which give them the opportunity to do so. Bird rights are what allow a player’s prior team to exceed the salary cap to re-sign him, for up to as much as a maximum salary. Under normal circumstances, Bird rights tag along with a player in trade.

But Monroe’s predicament is anything but normal.

Monroe, selected by the Pistons with the seventh overall pick in the 2010 NBA draft, completed the fourth and final season of his rookie-scale contract last year. Players coming off rookie-scale contracts can be made restricted free agents – a more restrictive form of free agency whereby the player’s prior team gains a right of first refusal to match a contract he signs with any other team – but only if they first issue a qualifying offer. The qualifying offer is a standing offer for a one-year guaranteed contract, which becomes a regular contact if the player decides to sign it. This ensures that the team does not gain the right of first refusal without offering a contract itself.

Monroe’s representatives steered other teams away from presenting Monroe with any offers last summer because they didn’t want the Pistons to match, and keep Monroe for another four seasons. Instead, Monroe accepted his $5.5 million qualifying offer. Now, after playing out his one-year contract, Monroe will have the freedom to pick his new team in July, and that’s what he wanted: control of his future.  Read more…

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Josh McRoberts Tears Right Lateral Meniscus, Possibly Out for Season

December 15th, 2014 No comments
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Update (12/22/14): Josh McRoberts had the torn lateral meniscus in his right knee repaired (versus partially removed). A repair approach has a significantly longer recovery time, but much better long-term prognosis. The surgery will be season-ending. The Heat has applied for a $2.65 million disabled player exception. 

The Miami Heat announced that Josh McRoberts has torn the lateral meniscus in his right knee.

McRoberts injured the knee late in the fourth quarter of the Heat’s win in Phoenix last Tuesday when he fell awkwardly to the court while pursuing a loose ball. He is scheduled to undergo surgery this week, and could miss the rest of the season.

“This will not be a short-term thing,” head coach Erik Spoelstra said. “He’ll be out a while, if he even does make it back this season.”

Injury Overview

Each knee has two menisci, which are C-shaped wedges of fibro-cartilage positioned between the femur (thighbone) and the tibia (shinbone), one on the medial (inside) compartment of the knee and the other on the lateral (outside) compartment of the knee.

The mensci serve several functions:

  • They safely transmit loads across the knee, the most weight-bearing joint in the human body. The forces across the joint can reach up to two to four times your body weight while walking and up to six to eight times your body weight while running. The lateral meniscus bears more of the load than the medial meniscus.
  • They act as shock absorbers that protect the femur and tibia from constantly pounding into each other, thus maintaining the health of the articular cartilage that resides at the ends of both of these bones. Articular cartilage is what prevents bone-on-bone interaction as the knee is flexed and extended, called osteoarthritis, which can be excruciatingly painful.
  • They act as secondary stabilizers for the knee (in conjunction with the ligaments which connect the tibia and femur), protecting it from abnormal front-to-back motion.

Proper treatment of a meniscal tear is therefore vital, in order to maintain the structural integrity of the knee and to preserve the health of the articular cartilage.

There are two recognized surgical treatments for meniscal tear: repair and removal (i.e., meniscectomy).  Read more…

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A History of Tax Sheltering For Sports Team Ownership

November 24th, 2014 No comments
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It all traces back to a September 1934 court ruling that settled a battle between the Pittsburgh Pirates and the IRS.

In those days, MLB contracts had a one-year term with a standard renewal option (called a “reverse clause”). The reverse clause gave the player’s team the right to renew the contract each year upon expiration at a salary to be negotiated between the parties. If they were unable to agree on a salary, the team could, within certain limitations, fix the player’s salary. Although the team could not force the player to accept the renewal, it did hold the exclusive right to his services and could prevent him from playing for any other team. The player was, in effect, bound to his team for his entire professional career. For teams exercising their renewal options, players effectively had two choices: accept or retire from the game of baseball.

Player contracts were therefore valuable assets, which were bought and sold for cash amongst MLB teams. For tax purposes, the Pirates expensed the cost of the contracts they bought in the year incurred.

The IRS disagreed. Its position was that the Pirates were purchasing not only the right to use the services of the player for a year, but also the right, at its option, to continue to use his services for the entirety of his career. Therefore, the cost of the contracts should not be deducted in full in the year of purchase, but rather capitalized onto the balance sheet and then depreciated over the length of his projected career (contracts at the time had an average life of three years).

The court sided with the Pirates on the grounds that there was no guarantee that the purchasing team would be able to utilize its renewal rights, as nothing could prevent the player from quitting pro baseball(1).

More than a decade later, the ruling would give flamboyant baseball entrepreneur Bill Veeck an idea that would forever change the economics of team ownership, not just in baseball, but in all team sports. He would employ the ruling to fabricate a tax shelter designed exclusively for sports team owners, and then utilize specious logic to convince the IRS of its legality.  Read more…

Salary Cap Smoothing Is As Complicated As It Is Necessary

November 17th, 2014 No comments
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Update 2 (3/11/15): The National Basketball Players Association informed the NBA that it will not agree to “smoothing” in the increases in the salary cap that will result from the new national media agreements beginning in the 2016-17 season. It is not difficult to understand their logic. Expect a big spike in the 2016-17 salary cap.

————-

Update (2/13/15): The National Basketball Players Association officially rejected the NBA’s salary cap “smoothing” proposal on Friday. NBPA executive director Michele Roberts said the union hired two forensic economic teams to evaluate the league’s proposal and both recommended the union not accept it.

The league’s proposal apparently contained some elements of artificially suppressing the salary cap (the second scenario described below) and increasing the salaries in all existing contracts (the third scenario described below). The union is opposed to artificially suppressing the salary cap.

The league and union can still negotiate, but time is running increasingly short.

————-

“At first glance, [it] is not that attractive, I won’t lie. But we’re studying it to figure out if there really is some advantage for players.”

That was NBA players’ union executive director Michele Roberts last week, describing her aversion to salary cap “smoothing” in the wake of the league’s massive new national TV rights deals.

The new deals with Disney and Turner will pay out $23.4 billion over nine seasons, starting with 2016-17 and running through 2024-25, an average of $2.6 billion per year. That’s a huge increase from the current deals, which pay out $7.44 billion over eight seasons, an average of $930 million per year.

The new deals escalate over time, starting at $2.1 billion and climbing to $3.1 billion. The current deals will pay out just over $1.0 billion in their final season in 2015-16, which means the league’s national TV revenue will jump by nearly $1.1 billion in 2016-17.

The salary cap is tied directly to league revenues, and this will be the largest injection of revenues in NBA history. It alone will cause a $16 million spike, above and beyond any increases from sources other than national TV money.  Read more…

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NBA Strikes Partnership Deal With Daily Fantasy Sports Operator FanDuel

November 13th, 2014 No comments
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Fantasy sports is a huge business – 41.5 million people in the U.S. and Canada spend $3.6 billion on fantasy league and related fees each year.

A relatively small(1) but fast-growing sub-segment of the industry is daily fantasy sports. As that part has grown, sports leagues are taking notice and looking to get in on the trend. With that in mind, the NBA announced yesterday that it has signed a four-year strategic partnership with venture-backed FanDuel, the largest player in the space with an estimated 75 percent market share, to promote the one-day fantasy sports website.

The agreement establishes FanDuel as the NBA’s official daily fantasy basketball outlet. FanDuel will unveil the first “Official One-Day Fantasy Basketball Game of the NBA,” that will be free to all fans on NBA.com and FanDuel.com, the prizes for which will include regular-season tickets, unique NBA experiences, NBA merchandise and memorabilia. While the NBA and its properties will only promote the site’s free fantasy games, FanDuel retains the right to have pay-to-play versions of such free games as well, with cash prize payouts. Other fantasy sports websites will still be able to offer fantasy basketball to customers, but FanDuel will be the only such company featured on the league’s digital properties, including its official website and mobile apps.

The NBA is hoping the partnership will drive more engagement with, and more interest in, the league among its fan base. Fantasy participants spend an average of 8.7 hours per week on fantasy and, after placing a bet, increase their weekly intake of sports TV programming from 17.5 hours to 24 hours. The NBA will also receive an undisclosed ownership stake in FanDuel as part of the deal.  Read more…

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NBA Reaches 9-Year, $24 Billion Media Rights Deal with ESPN/ABC, TNT

October 6th, 2014 No comments
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The central question of the 2011 lockout, endlessly paltered, parsed and probed was whether the league was actually losing money. While it was a key point of negotiation, its importance was somewhat overstated. A new CBA shapes the future of the league; it doesn’t necessarily need to address the past. It must be asked: How much of the lockout, then, was about owners feeling poor in 2011, and how much of it was about owners trying to get rich in 2016?

2016 is when the NBA’s current national TV deals expire – eight-year agreements that promise pro basketball a total of $7.44 billion from Disney (ESPN/ABC) and Turner (TNT) starting with the 2008-09 season and running through 2015-16, an average of $930 million per year. The deals were originally signed in June 2007.

The NBA was cratering back then. New stars had struggled to grow in the darkness of Michael Jordan’s ever-enveloping shadow. The Shaq-Kobe drama had breathed temporary life into the league, but their eventual break up left the NBA to slowly wither in its wake. Big market teams like the Lakers, Knicks, Celtics and Bulls were brands lacking a product, with no signs of future improvement. The Spurs had just pummeled LeBron’s Cavaliers in the finals, a dismal four-game extermination that limped its way into the record books as the lowest-rated series in NBA Finals history. Things were getting ugly.

An eight-year, $930-million-per-year combined deal? Sold!

Then-commissioner David Stern had negotiated for an increase of more than 20% from the previous average of $767 million despite declining viewership (which itself represented a nearly 25% increase over the $614 million per-year deal signed in 2002, then, also, despite declining viewership). The networks were more than willing to comply with what amounted to a modest 2.5% compounded annual growth rate in rights fees in exchange for an atypically long eight-year deal. The preceding six-year 2002 deal had been the longest one Stern had ever signed.

The agreement looked even better for Stern and the league as the economy got even worse. In 2008, credit froze because mortgage insanity stirred by (us) Wall Street evil-doers planted massive hidden debts packaged in complex synthetic financial products throughout the business world. The ensuing global economic meltdown blazed its way into the NBA, spurring widespread layoffs and igniting fears that league revenues could collapse by, as Stern described it, “maybe as much as 10%.” The league seemed fortunate to be able to cling to a $930 million lifeline every year.

Times have certainly changed.  Read more…

When Should Kevin Love Lock In His Long-Term Contract?

September 15th, 2014 No comments
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With the Cleveland Cavaliers on the verge of completing a blockbuster trade for Kevin Love, the Minnesota Timberwolves granted permission for Cavs owner Dan Gilbert to meet with Love. Whatever was discussed at that lengthy July meeting in Los Vegas gave Gilbert enough comfort to finalize what became the biggest trade in franchise history.

The problem Gilbert had to overcome? Uncertainty.

Love has as few as one year remaining on his contract. To trade away a potential future superstar such as Andrew Wiggins in exchange for a man, perennial All-Star though he may be, who could walk away in just one year represents a substantial risk.

Did Love affirm his desire to remain with the Cavs over the long term in that meeting? Maybe. But you’re not going to hear about it. That’s because Love its still under contract. It’s technically against the rules (and among the most serious violations a team can commit) to strike a future deal. But something made both parties comfortable that this was a long-term arrangement. In the news conference to announce his arrival, Cavs general manager David Griffin welcomed Love by saying this was a “long-term relationship.” Moments later, Love himself said he was “committed to this team, committed long term.”

So when will Love lock in the long-term deal that solidifies his commitment? Love’s age, tenure and skill-set have created a perfect storm of interesting – a fascinating story that figures to be unlike any other in the NBA in the years ahead.

Stating the obvious: The higher the starting salary in a long-term contract, the higher the salary can be in all subsequent years of the contract as well. That’s because annual raises in any contract are limited to 7.5% of the starting salary. The maximum length of a contract is five years. In what summer, then, will Love strike the optimal balance for himself between locking in the highest starting salary and locking in a full five-year deal, while taking into account risks associated with such things as his health and inevitable basketball mortality?(1)

It won’t be this summer. That much we know. Why? Because he can’t. NBA rules prevent it.

In January 2012, Love signed a four-year, $60.8 million maximum contract extension(2) with the Wolves in which the last season, the 2016-17 season, was to be a player option. Love will make $15.7 million this season and his option for next season is for $16.7 million.

If Love wanted to sign with the Cavs today, it would therefore need to be an extension of his current contract. Contracts cannot be extended until the three year anniversary of their initial signing. That’s next January.

So if not this summer, which?(3)  Read more…

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