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Did the Brooklyn Nets Structure the Andrea Bargnani Buyout Correctly?

February 24th, 2016 3 comments
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This is a temporary post which I may remove because it has nothing to do with the Miami Heat. I just found it interesting enough about which to write. However, it is such a minute issue that it may well be interesting to nobody else.

On July 17, 2015, Andrea Bargnani signed a two-year minimum salary contract with the Brooklyn Nets. The contract called for a payout for this season of $1,362,897, and for next season, which was subject to a player option, $1,551,659 if the option were to have been exercised.

Unfortunately, things didn’t go as planned. Bargnani proved to be something of a disappointment in Brooklyn, averaging just 6.6 points in 13.8 minutes per game over his 46 games.

On Saturday, the Nets waived Bargnani under the terms of a buyout.

A buyout is an agreement between a player and his team wherein the team agrees to terminate the player’s contract, granting the player his freedom, in exchange for a reduction in the remaining guaranteed salary he is owed.

Technically, a buyout constitutes an amendment to an existing player contract in which: (i) the team will request waivers on the player, and (ii) if the player clears waivers, the remaining portion of his guaranteed salary will be reduced or eliminated. If the player is claimed off waivers, the buyout does not take effect; the player is awarded to the claiming team, along with his existing contract.

When Bargnani cleared waivers on Monday, the buyout took effect. According to Eric Pincus, Bargnani’s salary cap hits for this and next season after applying the buyout will be $1,039,298 and $323,599, respectively.

Subtract those figures from his original salary payouts and you get this: Bargnani agreed to give up $1,551,659.

That’s not a random figure. Look up the page. You will notice that Bargnani essentially sacrificed the exact amount of his would-be salary for next season.

But if Bargnani agreed to give up his salary in full for next season, why did the Nets incur a dead-money cap charge for that season?

According to salary cap rules, the amount of the buyout is allocated to team salary pro rata over the then-current and each remaining season covered by his contract on the basis of the remaining salary to be paid in each such season.

On the day he cleared waivers, Bargnani was still owed $408,869 (30 percent) of his salary for this season and the full $1,551,659 for next season.

The prorated amount of the buyout applicable to next season was therefore: $1,551,659 (buyout amount) x $1,551,659 (salary for next season) / ($408,869 + $1,551,659) = $1,228,060.

The dead-money cap charge for next season was therefore: $1,551,659 (salary for next season) – $1,228,060 (buyout allocation) = $323,599.  Read more…

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