Trade Kicker + Stretch Provsion (’16 Varejao )

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The intersection of trade bonus allocation and the stretch provision with partial/non-guaranteed years on a multi-year contract can present a complex scenario.  The following attempts to suss out the specifics on Anderson Varejao’s recent trade to the Blazers from a trade kicker and ultimate stretch procedure perspective.

*The following assumes there was no buyout between Portland and Varejao, and instead just a pure waiver.  If there was, this will be updated accordingly.  Similarly, there could be set-off amount in the future (likely not this season).

Trade Kicker Calculation and Team Salary Application

For starters, Varejao has a 5% trade kicker in his contract that applies to his remaining guaranteed salary over the duration of his contract.  The CBA dictates that remaining salary if traded after the start of the regular season is prorated for that year.  Since Varejao was traded at the deadline, there are 56 days remaining in the regular season, and his  $9,638,554 guaranteed salary is thus prorated to a remaining  $3,175,053.08 (this figure is also the amount Portland owes Varejao in actual payroll this year, pending AV’s precise payment schedule).

Furthermore, the CBA dictates that trade bonuses are only reflective of guaranteed salary from a remaining salary standpoint.   Varejao is owed  $9,361,446 guaranteed in 2016/17 with no guarantee date, and is fully non-guaranteed in 2017/18 if waived by an August guarantee date.  Thus, his only remaining guaranteed salary after this season is $9,361,446, and coupled with the $3,175,053.08 remaining salary this year, creates a cumulative $12,536,499  remaining salary figure.

Now that we have that remaining salary figure, Varejao is owed 5% of that remaining salary, or a $626,824.95 overall bonus payable by Cleveland as Varejao’s extension was signed in the current CBA.

The trade bonus calculation gets significantly more complex with the application to team salary with non/partially-guaranteed years involved.  Trade bonuses are applied to team salary based on the percentage of guaranteed money in that specific cap year, NOT based on actual salary.

In Varejao’s case, his salary is 100% guaranteed this season, 90% guaranteed in 2016/17 ( $10,361,446 base salary w/ $9,361,446 guaranteed) and 0% guaranteed in2017/18 if waived by an August guarantee date.  Thus, Varejao’s $626,824.95 trade bonus is applied 53% this season, or $329,907.87  and 47% in 2016/17, or $296,917.08, based on that 90% guarantee percentage. Since none of AV’s salary in 2017/18 was guaranteed, it is not allocated to that season.

With the trade bonus allocation, Varejao’s salary as reflected in team salary on Portland’s cap looks like the following:

2015/16:   $9,968,461.87

2016/17:  $9,658,363.08

Cleveland in this deal created a $9,638,554 trade exception that expires 2/18/2017, for the CBA stipulates that Varejao’s pre-trade kicker salary is used for trade exception purposes as outgoing salary (his incoming salary in the trade for Portland was the post-kicker $9,968,461.87 ).

*Also, Varejao can’t re-sign with the Cavs until 2/18/2017, the earlier of the completion of all aspects of the trade or July 1st following the last year of the contract (Varejao’s original contract ran through 2017/18).

Stretch Provision Interplay

As if that calculation wasn’t complex enough, post-trade the Blazers immediately stretched and waived Varejao to create a roster spot to acquire Brian Roberts, having the following cap implications.

If waived post August 31 in any cap year, the stretch provision dictates that a player’s salary in terms of payroll (in the current CBA) is paid out as planned in that season, and the same goes for the stretch provision if a team elects to stretch salary. Thus, Varejao’s  $9,968,461.87 salary post kicker counts as just that as team salary on Portland’s books this season.

The remaining years of payroll (and as team salary with Portland electing to stretch it) is spread out over 2 x the remaining years + 1.

This presents the confusion of what comprises “remaining years” when there are 100% non-guaranteed seasons involved.  Remaining years are interpreted to to encompass even completely non-guaranteed years, so in Varejao’s case, even though his 2017/18 season is completely non-guaranteed, he is considered to have 2 remaining years on his contract after this year.

Varejao’s $9,658,363.08 post kicker salary in 16/17 would thus be stretched over 5 years (including his non-guaranteed salary year), for a yearly cap charge of   $1,931,672.62.

That $1,931,672.62 charge will appear on the Blazers’ books through the 2020/21 season in terms of team salary.  With the cap spike, this could actually help Portland reach the minimum salary floor and save money, a loophole in the CBA I explained in a previous post.  This was a clever way to acquire a loosely protected 2018 first from Cleveland (top 10 protected in ’18 and ’19, becoming the less favorable of LA’s and Minn’s 2019 2nd), again showing the value of having cap space as a value-creating mechanism.