2016 NBA Trade Deadline Primer Part 1: The Minimum Salary Floor & Cap Space Teams

Part 1 of the Trade Deadline Primer focuses on simplistic in theory yet complex and nuanced minimum salary floor in application, and how teams can and might use a loophole in the CBA to extract monetary value (as well as acquire assets) being under the floor at the deadline. Section 1 below is explanatory describing the salary floor and how it can be utilized to create value via trades and waiver claims. Section 2 focuses extensively on the Portland Trail Blazers options at the deadline positioned with the most “floor” space, including targeting taxpaying teams for salary relief opportunities. Section 3 does the same less extensively for the Sixers and Section 4 even less so for the Jazz. Finally, Section 5 touches briefly on other potential teams with cap room, not room under the floor, with Orlando and Denver. It should be noted that the Jazz, Magic and Nuggets will be touched on extensively in following parts of the primer. First, the details and value creation of the minimum salary floor will be explored.

I.What is the Minimum Salary Floor & Creating Value in a Loophole of the CBA

Outlined in Article VII Section 2 b (1) of the CBA, the minimum salary floor in the 2015/16 and 2016/17 seasons is set at 90% of the salary cap, up from 85% in 2012/13 under the current CBA.  This season, the salary cap is $70,000,000, and correspondingly the salary floor is $63,000,000.

B(2) of the same section controls the most common misconception of the salary floor: the necessity to actually reach the floor. To be clear, the salary floor is not an absolute requirement. Instead, if a team falls short of the salary floor, the shortfall is distributed by the team pro rata (proportionally based on contract amount) to each player on the roster OR as Union sees fit. The policy here is obviously to require owners to meet a certain threshold on player salaries and eliminate what could potentially be “extreme money ball” but there is no real penalty.

Team salary for salary floor purposes is calculated the same as team salary against the cap, with the addition of B(4) salary amounts owed to amnestied players and players waived due to the career ending injury. Exceptions also do not count towards the floor, and the floor, similar to the luxury tax, is taken as a “snap shot” on a team’s final day of the regular season.

Herein lies the loophole: the salary floor is determined by team SALARY, not team PAYROLL, on the final day of the regular season, which makes trades and waiver claims for teams below the floor as close to the deadline and end of the year respectively as possible a financial asset to those teams.

Trade Value

To illustrate, let’s say a team is hypothetically $9,000,000 below the salary floor with an open roster spot at the trade deadline. There are 55 days in the league year following the deadline out of 170 total days, roughly 1/3 of the season. If a team receives a $9,000,000 player, $9,000,000 will count towards team salary for that receiving team, because as Article VII Section 2 (c) denotes, all contracts once assigned are included in the entirety for that season and all remaining seasons. However, team payroll operates differently (A player, assuming a contract signed in the current CBA, has a standard 24 paycheck structure over a calendar year, but can modify to either a 12 paycheck over 6 month structure or 36 check over 18 months structure. These details aren’t divulged to the public, and I’ll just use a simple proration of the contract here for illustrative purposes). If the receiving team obtains a player at the deadline, that team is only responsible for paying the player’s remaining salary, in this case for the remaining 1/3 of the season. Thus, in essence, the team takes on $9,000,000 in “team salary” but only has to pay $3,000,000 to the player in actual money, creating a monetary savings of $6,000,000.

Overall, it is best to look at the minimum salary floor as a non-punitive amount of money that will be spent regardless, but a team can actually save money by this vehicle by waiting until the trade deadline to make a trade, taking a player on to “team salary” but in reality paying the least amount of remaining salary that year to a player on payroll as possible. Neat.

Waiver Value

You will also see teams claim a player off waivers as late as possible if under the floor to gain savings. We saw this last year with Denver claiming and waiving Shavlik Randolph within a four day period. Take a 2 year veteran minimum salary player for example at $947,276. On January 10th all contracts become guaranteed for that season, so any waived salary after 5:00 pm EST on January 7th are fully guaranteed. If a team waives a fully guaranteed $947,276 contract on April 7th, a team can submit a waiver claim and acquire that player on April 10th (Submitting a $1,000 waiver fee to the league) and proceed to waive that player by 5:00pm that day so the player clears waivers by the last day of the regular season this year (April 13th). Thus, the claiming team would only be responsible for a prorated 4 days of the 170 day season at $22,289. Meanwhile, the full $947,276 counts as team salary (if the player is unclaimed after being waived) towards the salary floor, meaning the team saved $923,987 (factoring in the waiver fee) just by claiming and waiving a player.

Now that the explanatory aspect of the floor has been covered, the following will touch on teams who could use this mechanism at this year’s trade deadline.

I.Portland Trail Blazers

Amount Under Minimum Salary Floor: $13,951,929 

Cap Room: $16,876,429 (+$100,000)

*Clerical: $20,951,929 in room if Dorell Wright’s $4,075,500 Cap Hold is Renounced

Roster Spots: 15

*Cap Note: The $13,951,929 figure under the floor assumes the Blazers did not waive their right to set-off when waiving Mike Miller. Miller agreed to a $200,000 buyout from his $3,283,181 salary with the Blazers this offseason (post 15% trade kicker escalating the final year of his contract), rendering the cap charge to Portland $3,083,181. However, Miller signed a 1 year minimum contract with Denver, where his actual salary having accrued 15 years service is $1,499,187 (but the amount above the 2 yr vet min of $947,276 will be reimbursed to the Nuggets). Thus, the Blazers are entitled to set-off, which takes the form of Miller’s new contract amount minus the minimum salary for a veteran of 1 year service accrued divided by 2 ($1,499,187- $845,059/2), and that $327,064 in salary is deducted from his previous $3,083,181 cap charge for a new cap hit of $2,756,117. Similar to the salary floor and luxury tax, set-off amounts aren’t actually determined until the final day of the regular season, but they are applied retroactively. I asked Eric Pincus definitively about whether this set-off occurred, but these details are difficult to uncover.

Anyways, the Blazers are currently in the 8th seed in the playoffs with a now healthy Utah 1 game ahead in the loss column right on their heels. The Blazers have a plethora of waivable roster fodder in Tim Frazier (expiring), Cliff Alexander (next years salary is fully non-guaranteed if waived on or by 6/30) and Luis Montero (guarantee amout next year is unknown). They also have a recently debited lottery protected first in ’16 and ’17 out to Denver, and well as 2nd rounders to Chicago and Houston in ’16 and ’17 respectively (they’d be out a 2nd rounder in 2018 which is currently a pick swap as well if they don’t convey their first to Denver), creating a potential desire t restore the cupboard. Enter the possibilities that follow, targeting the most obvious teams motivated by payroll reduction: projected taxpayers.

Option A: Miami: $5,619,191 over the luxury tax

*Luxury Tax Note: Miami is $5,619,191 over the tax in terms of luxury tax team salary as currently constituted when you deduct $12,328.60 for Gerald Green’s 2 game suspension (His base salary of $1,356,146/110/2 x 2 games).

Miami’s Angle

Miami is in rare territory as a projected repeater taxpayer, the first of its kind. Miami paid the tax in 3 of the previous 4 years: 2011/12, 2012/13 and 2013/14, thus if they eclipse the tax threshold again this season they’ll be the first mover on the repeater front. What that entails is paying $2.50 per dollar for the first $5M over the tax, a dollar increase over the standard $1.50 incremental rate. They would then pay for the remaining $619,191 $2.75 per dollar compared to $1.75. Miami would therefore be a tier 2 repeat taxpayer, paying $12.5M for the first $5,000,000 and $1,702,775 ($2.75 per dollar) for the remaining amount, for a total tax payment of $14,202,775.

This would likely be a one year payment without 2016/17 season ramifications, given that Wade’s albatross maximum cap hold (projected $29,281,000) will not be used as a cap hold to go up to the cap and then signed to a greater amount (because it can’t), and Whiteside only has Early Qualifying Rights and if retained will have to be done with cap space. Therefore, with the Heat not paying the tax in 2014/2015 and likely not again in 2016/2017, there is no obvious tax threat down the road as a taxpayer in 3 of the 4 previous years.

But tax money is still tax money, and while the Heat have picked it up over the last 4 games, they are still only 4 games from being out of the playoffs in the loss column.

The Heat Could trade Chris Anderson’s $5,000,000 expiring contract and Jarnell Stokes’ $845,059 salary (fully non-guaranteed next year if waived on or by 7/15) to duck the tax by $225,868. Tyler Johnson’s recent two-month injury complicates matters, because in that event the Heat would only have 12 active players. However, Miami could work it out in regards to signing 10 day contracts and eventually a rest-of-the-season contract at a time close enough to the end of the regular season (it would be 39 days if no 10 day is signed) to duck the tax. Regardless, Miami definitely has incentive to strike a deal of this nature with two unused players costing more than $14,202,775.

Portland’s Angle

For Portland, they would acquire $5,845,059 in collective team salary between Anderson and Stokes, but (again barring payment schedules) only be on the hook for approximately a third at $1,948,353, saving $3,896,706. They would have to waive two of Alexander, Montero, and Frazier, but there is a definitive likelihood none would be claimed, and could eventually be re-signed to rest-of-the-season contracts or two-year minimum contracts once Anderson and/or Stokes are presumably waived.

Portland would likely not do the deal without more incentive in the way of either pick compensation and/or enhanced monetary compensation. As for the former, all of the Heat’s future first round picks are tied up via the Stepien Rule, and their second round picks are already debited unconditionally in ’16, ’19 and ’20. The Heat could send out a 2021 2nd rounder under the 7 year rule and/or offer 31-40 availability with their ’17 2nd rounder (currently protected 31-40 to Atlanta becoming unprotected in ’18). But is that enough? As for the latter, the Heat only have $721,300 of the $3,400,000 cash available to be dealt in each cap year after the Napier and Zoran Dragic trades, limiting their trade allure.

Best Offer

Overall, the Heat’s best offer to Portland would likely be Anderson, Stokes, a 2021 second rounder and $721,300 in cash to Portland, who would send them a bogus 31-55 protected second rounder back or perhaps the rights to Daniel Diez or Nedzad Sinanovic. Portland would save money via the salary floor, but could this offer be bested?

Option B: Golden State: $9,050,144 Over the Tax

*Luxury Tax Note: The $9,050,144 figure is based on Andrew Bogut’s 2015/16 salary being reduced from $13,800,000 to $12,000,000. Bogut currently has $1.8M in current “likely” bonuses for making 2nd team all defense last year, thus it is includable in team salary. However, I suspect he will not earn that same honor this year (he also needs to play 65 games and can earn it by even less likely league honors such as making an All NBA team), thus his cap charge is reduced here.

Golden State’s Angle

The Warriors are in a different operating level then the Heat obviously as the favorite to win the title, making a $14,587,752 incremental tax bill much easier to swallow with a hefty amount of playoff revenue. There is still one out of place contract value wise on the roster, Jason Thompson, a remnant of the David Lee for Gerald Wallace swap, ultimately being swapped for the aforementioned Wallace, as the Warriors shrewdly downgraded from Lee’s albatross $15M contract to Thompson’s $6,908,685, surrendering only swap rights to their 2016 pick that the Sixers wont exercise.

We know the Warriors will not surrender a 1st round pick to move Thompson, because they would have done that already. They also have unconditional second round picks out for the next 3 years to Utah twice and Denver.

Complicating matters somewhat is Thompson’s partial guarantee of $2,650,000 for next season, becoming fully guaranteed if not waived on or by June 26th. The Warriors do have $2,400,000 remaining of allowable cash to be paid after committing $1M swapping Wallace for Thompson, which almost covers Thompson’s guaranteed salary amount next year.

Overall, trading Thompson to Portland for again either a farce second rounder or draft rights would save the Warriors $11,375,564 against the tax, a significant number. Even if they paid Portland the $2,400,000 in available cash that’s still $8,975,564 in real money savings.

Portland’s Angle

As for Portland, they would only be on the hook for approximately $2,302,895 of Thompson’s salary this season (barring payment schedule), saving them $4,605,790 and slightly less at $4,355,790 if they receive the full $2.4M in cash from the Warriors to pay for Thompson’s partial guarantee next season.

Best Offer

The Blazers would still probably demand pick compensation in the form of Golden State’s 2019 second rounder at bare minimum (perhaps their 2020 second, partially protected as well). Getting a second round pick and saving $4,355,790 is a pretty good deal.

I have Miami as option A and the Warriors as option B largely because in my opinion the Warriors are content with where they are, whereas the Heat have greater motivation to duck the tax.

III. Philadelphia 76ers

Amount Under Minimum Salary Floor: $2,302,751

Cap Room: $7,408,199 (+$100,000)

Clerical: $9,302,751 in room if the former player cap holds of Charles Jenkins and Byron Mullens at $947,276 are renounced

Philadelphia’s Angle

The Sixers are much closer to the salary floor this year than last year, but there is precedent for Philadelphia utilizing the cost benefit of the salary floor coupled with the asset collection component with the JaVale McGee trade last year.

The same kind of deals Portland is subject to also apply to the Sixers, outside of Jason Thompson who can’t be reacquired by the franchise until the new league year.

The Sixers have a full roster at 15, but have similar roster fodder to Portland with Kendall Marshall’s salary fully non-guaranteed next year if waived on or by 9/2/2016, and Isaiah Canaan’s expiring contract.

Cleveland: the Unlikely Option

Had the Sixers been lower in terms of salary floor salary I would have seriously considered Philly taking on Anderson Varejao here similar to the McGee trade last year. Shedding Varejao would save Cleveland un ungodly amount in luxury tax, and as exemplified above would hypothetically save Philadelphia money if they were in a position more like Portland. The Cavs owe their first round pick, protected 1-10 in the next 3 years and unprotected in ’19 to Phoenix, which will clearly be conveyed this year and render there no Stepien Rule tie ups at all as soon 2018. I think there’s a good chance the Sixers could have gotten a lightly protected or unprotected 2018 pick from Cleveland for the money they would have saved them. Obviously that pick isn’t as highly regarded as others with LeBron conceivably still there and performing at a sub-elite level, but you never know. Alas, I think Hinkie is too much of a straight-line value dealer to tae Varejao at this price. I also didn’t include the Varejao idea in the Portland section because there is precedent for Portland actually utilizing room in free agency and they’re better than expected.

Overall

I expect Philly will look to rent their cap space as per usual, and an obvious tell will be if they release one of their 15 guaranteed contracts ahead of the deadline. They could also be involved as a third party facilitator for a trade or a claiming option to reach the floor at a later date.

IV.Utah Jazz

Amount Under Minimum Salary Floor: $668,258 

Cap Room: $7,668,258 (+$100,000)

*Clerical: The Jazz could receive set-off for Elijah Millsap (signed w/ Maccabi) if greater than $845,059 (would set-off $362,878 cap charge). I’m unfamiliar with international contract amounts, but it seems HIGHLY unlikely he’d get more than that on a rest-of-the-season contract. Thus, no set-off was retroactively included.

Roster Spots: 15 (1 Day to Erick Green through February 4th)

Utah’s Angle

I will have much more on Utah in the “Buyers” section of the Deadline preview, because I see them as doing more than simply renting cap space or trying to meet salary floor given their roster construction and upside. They are still candidates to act secondarily in claiming a waived player to meet the floor or renting cap room however

V.Ancillary Potential Cap Space Holders

 4.Denver Nuggets

Cap Room: None

Roster Spots: 14

The Nuggets would have $1,735,161 in available cap room but received a $5,224,719 disabled player exception for Wilson Chandler, bringing them above the cap. The disabled player exception can be used to trade for an expiring contract of up to $5,324,719 in salary. Much more will be discussed on Denver in the “Sellers” section to come.

5.Orlando Magic

Cap Room: None

Roster Spots: 15 (Current 2nd 10 Day to Keith Appling through February 7th)

Orlando could get $633,163 under the cap if they renounce the former player cap holds of Willie Green and Jeremy Richardson at $947,276 each.

I expect Orlando will explore potential options in moving Evan Fournier due to roster construction, but I largely expect them to be stagnate at the deadline, and thus they will be discussed in the “Stagnate” section.

 

 

 

 

 

 

Advertisements