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Friday, August 28, 2009

More Creative Financing In The NBA

Here's a longer list of things that were not included in the original Creative Financing post, either because I forgot to include them, or (in one instance) because the sweet prince who called our hotline with the information had not yet come forward. Remember; all calls are anonymous and you could receive a cash reward for information.

(Wait, no you couldn't. That's the slogan they use on Crimewatch. Ignore that.)


- As a part of the new scheme of turning this website's salary information from a static exhibit into a working reconstruction of life in First World War France, there now exists a page that lists all remaining salary cap exceptions for every NBA team. Of note on this list is the curious case of Channing Frye, the former Blazers and Knicks forward whose transformation from the next Dirk Nowitzki to the next Malik Allen is almost complete. The Suns signed Frye last month to a 2 year, $4,139,200 contract; not coincidentally, that is the same amount as the full value of the Bi-Annual Exception. However, the Suns didn't actually use their Bi-Annual Exception to sign him. Knowing that they wouldn't be using the full MLE to sign somebody due to their payroll concerns, the Suns cleverly (and creatively) used an equivalent chunk of their mid level exception instead. As the name would suggest, you get to use the Bi-Annual Exception a maximum of once every two years, so if the Suns used it this year, they wouldn't get it next year. But if they roll it over, they do. It's pretty shrewd, when you think about it.

(Teams that should have done this but didn't include Washington - who used their BAE on Fabricio Oberto, and who won't use their MLE - and Chicago - who used their BAE on Jannero Pargo and who also won't use their MLE; however, if their plan for 2010 cap space comes off, it won't matter.)


- Less shrewd is the fact that the Suns appear to have used most of the rest of their MLE on re-signing Grant Hill. The fact that he got only an 8% raise in the second year of his contract backs this up. Why would the Suns do this? They had Early Bird rights on him, meaning that they could re-sign him to a contract beginning at the value of the mid level exception, without using the actual mid level exception to do so. They would also have been able to give Hill a 10.5% increase from the first year to the second. But, as I've said above, they didn't. Indeed, it appears they used their MLE to re-sign him. So either the document I'm looking at is wrong, the Suns renounced Hill at some point for no reason whatsoever, or the Suns just used their MLE when they completely and totally didn't need to.

If you're a Suns executive, feel free to set me straight on this.


- The Blazers' offer sheet to restricted Jazz free agent Paul Millsap was oft described as "toxic". The four year offer sheet started at $7,692,932 - which represents every last dollar that Portland had under the salary cap - before dipping to an even $7,600,000 in the second year. The final two years were for $8,103,435 and $8,603,633 respectively, bringing the contract's total worth to an even $32 million.

Furthermore, the Blazers did something fairly rare when they included a maximum 17.5% signing bonus into the contract; put simply, this means that Millsap receives 17.5% ($5.6 million) of the entire value of the contract up front. They did this so that it might deter the Jazz (pressed financially this season) not to match it. But ballsily, they did so. And doing so will work in their favour in the long run; for the next three seasons of his deal, whichever team owns Millsap will have $1.4 million less in obligations to pay him than his listed salary will indicate. If ever they decide to trade him, this will be a welcome reprive for the recipient team.

You probably knew all that, but there it is again anyway.


- What you may not have known is a strange thang that happened afterwards. The Blazers had to go on a hell of a renouncing binge in order to be able to make that offer sheet, and they purged some of the game's all time greats from their salary cap in order to do so. [Note: for a fuller explanation of renouncing and cap holds and stuff, go here.] Finally cleans from Portland's page of the salary report were the seminal names of Chris Dudley, Channing Frye, Raef LaFrentz, Voshon Lenard, Shavlik Randolph, Michael Ruffin, Luke Schenscher and Detlef Schrempf, some of whom had been out of the league for years, and none of whom meant anything to the Blazers.

However, after the Jazz matched the offer sheet, the Blazers unrenounced Shavlik Randolph. [You're allowed to unrenounce people in only one circumstance; when your enounced them in order to sign a RFA to an offer sheet, which then gets matched.] This meant that Randolph was now put back onto their salary figure, once again available to be signed and traded, but most significantly eating into their cap space.

Why is this important? It isn't. It might have been had it meant that they couldn't then afford to sign Andre Miller, but they could, and thus the Randolph unrenouncement made no impact on anything ever. All it means is that, if they decide to re-sign Randolph, they now have non-Bird rights on him as opposed to no rights at all. This means next to nothing, though, since Non-Bird rights are about as much use as a paper condom. Randolph's previous salary was the minimum salary, and all the non-Bird rights allow is for the Blazers to re-sign him for 120% of next year's minimum salary, something which they aren't going to do. If they're going to bring back Randolph, it's going to be for the minimum, and since the internet currently contains unsubstantiated rumours which state that the Blazers will be bringing Juwan Howard to training camp this year, it doesn't sound like they're even going to bring Shavlik back for that.

So then, why did they do it? Well, why not, I say. I got a blog post out of it. Everyone's a winner.


- Would you like an example of how trade bonuses (kickers) work? Hope so, because you're about to get one. Feel free to skip it if you're easily bored.

The following is how John Salmons' trade bonus was calculated after his trade from Sacramento to Chicago back in February.

Salmons' 2008/09 salary before the trade was for $5,104,000, followed by $5,456,000 in 2009/10, and finally an extra season in 2011/12 for $5,808,000 that Salmons had an early termination option on. He was traded on February 18th, the 114th day of the season. Including the day of the trade, there were 57 days remaining in the season.

There are 170 days in an NBA regular season. If you don't believe me, count them yourself; since this is dull and boring to do, I implore you to believe me. As 113 days of the season gone, so had 113/170ths of Salmons' salary for that season; therefore, only 57/170ths of that season's salary was still "remaining".

Therefore, the amount of Salmons' remaining salary (including the option year) was for $12,975,341. That total breaks down as following:

Remaining salary, 2010/11 - $5,808,000
Remaining salary, 2009/10 - $5,456,000
Remaining salary, 2008/09 - $1,711,341 ($5,104,000 divided by 170, times 57)

(Note: salary that falls under option years is not normally to be included in "remaining salary" when calculating trade bonuses; however, Early Termination Option years are the exception.)

Salmons had a 15% trade kicker, the maximum allowed under the CBA. This means that, in the event that he was traded, he'd get an extra 15% of his remaining salary as a bonus, in order to ease the pain of having to move from one luxury privileged job to another. 15% of his remaining salary was $1,946,301; this was the amount of his trade kicker.

That trade bonus is spread across the cap evenly amongst the remaining amount of guaranteed years of the contract. Option years are NOT included, and the trade kicker is NOT prorated like the amount of remaining salary was above. Therefore, Salmons' $1,946,301 bonus was to be split evenly between the two remaining guaranteed non-option seasons of his contract; 2008/09 and 2009/10; $973,151 for each season.

As a result, Salmons' new salary numbers became $6,077,151 (2008/09), $6,429,151 (2009/10) and $5,808,000 (2010/11, ETO).

Just trust me that that was more boring to type than it was to read.



- Eddy Curry does not have conditional guarantees in his contract relating to his weight. Nor does Glen Davis. Nor does Jerome James. But perhaps they all should do, because it's entirely possible. Two such contracts have been signed this summer; the Grizzlies' contract of Marcus Williams is for the minimum salary of $855,189 ($825,497 on the Grizz's cap), with guaranteed compensation of $500,000. The remaining $355,189 becomes guaranteed in 15 different stages; on 15 separate dates throughout the season, Williams has to turn up weighing equal to or less than 207 pounds, and a body fat amount of less than 10%. Each time he does so, he's guaranteed an extra $23,679. Similarly, the Kings signed Sean May to a one year minimum salary contract of $884,881 ($825,497 on their cap); however, only $784,881 of it is guaranteed. The other $100,000 becomes guaranteed if May weighs equal to or less than 265 pounds on September 30th OR October 27th.

(The word "or" is an interesting qualifier there. It's not mine.)


- Ever since Kiki Vanderweghe cemented their future with the Kenyon Martin contract, his replacement Mark Warkentein has had to work very hard to avoid the luxury tax. When you commit a near-9 figure contract to a guy worth less than half of it, cap management becomes all the more important, particularly when you have a genuine max player to pay as well, and an owner who owns a brilliant football team,but who isn't too keen on the idea of tax.

Warkentein didn't start well, paying Nene $60 million that he hadn't earned on the premise that he might do one day, and giving Reggie Evans a completely unnecessary 5 year contract to be the backup to the backup. But since then, he and the Nuggets have turned it around. Nene has lived up to his presumptuous salary, and Denver was able to take advantage of the always generous Billy King when they dumped off Evans's salary for that of Steven Hunter, a slightly smaller one that was also one year shorter. They've since been able to move that deal onto the Grizzlies, for the cost of some cash and a first round pick, completely absolving themselves of the deal. They made a similar deal towards the deadline last year, when they were able to move Chucky Atkins' salary to Oklahoma City in exchange for Johan Petro's smaller deal. They gave up a first round pick to do so, but they received a second round pick in the deal too. (The first rounder they gave up was the 26th pick in last year's draft, and the pick they got back was the 34th; let it be known that I'd rather have an unsigned Sergio Llull than a signed Taj Gibson.) Warkentien also managed to create the fine Allen Iverson deal, where the Nuggets got the better player and saved a boatload of short term salary in doing so. The Nuggets have managed the rare but special feat of being able to save money and improve their basketball product at the same time, not letting the bad Martin deal cripple their short and long term improvements. We should look up to that.

Unfortunately, they're going to struggle to dodge the tax again. Even after the Hunter dump, the Nuggets are still awkwardly in the tax territory and with less than a full roster to speak of. It's already cost them Linas Kleiza, and they don't have any more basketball assets that they can really lose. As such, they've had to get creative. And that's where Ty Lawson comes in.

It's never really mentioned, because it's never really important, but most rookie scale contracts contain performance incentives. So widespread is it, in fact, that every first rounder signed this season has them except for Tyreke Evans, Jonny Flynn, Austin Daye, Eric Maynor, Darren Collison and Wayne Ellington. (Yes, even Blake Griffin has them.) Lawson has them, too, and his case gives us a fine example of quite what these incentives can be. To earn the full 120% of his rookie contract that he signed for, Lawson has got to make five promotional appearances for the Nuggets, play in summer league, play in another two week summer skills and conditioning program, and play 900 minutes next season. As well as do all that suitcase carrying and doughnut fetching that's considered mandatory for a rookie in the NBA. (Although the contract doesn't stipulate the suitcase and doughnuts bit.)

In signing Lawson to a deal like this, the Nuggets may have given themselves a small saving this season, which gets them one step closer to breaking even. Since all money saved by the Nuggets is all money that can potentially be spent by Arsenal, I'm all for this.


- And finally, another example of how not to creatively finance. Does it involve Otis Smith? Oh yes. Yes it does.

In the weeks leading up to the start of last season, the Magic decided they needed a third string point guard. They were right. They did. They only had two, and one of them was Anthony Johnson. One injury to Jameer Nelson, and Ol' Fatneck would suddenly become their only option. At that point, they might as well just fold the franchise. (Or trade for Rafer Alston. Same sort of thing.)

They hunt around, and eventually pick a good one. They decide upon signing Mike Wilks, a career journeyman who puts the journeyman into journeyman. Since leaving Rice University in 2001, Wilks has spent various amounts of time with the Kings, Bucks, Hawks, Timberwolves, Rockets, Bulls, Spurs, Cavaliers, Sonics, Nuggets and the Wizards. He has appeared in 229 games over parts of six seasons, and there's a reason he's been getting all these look-ins; he's all right. Wilks will always be disadvantaged by his 5'10 frame, but he's not bad.

With that in mind, the Magic signed Wilks to an unguaranteed contract for training camp, somewhat expecting him to make the team but absolving themselves of all liability if something better came along. However, during a preseason game on October 16th, Wilks tore his knee up. Badly. He completely tore his ACL, slightly tore his MCL, and badly sprained his meniscus, knocking him out for the season. Because he was under contract to the Magic at the time, the Magic were now liable for his salary until he returned to full health.(That's the rule. Same as any job, really.) And this meant his contract became guaranteed.

This is why the Magic kept Wilks on the roster for half a season, despite him not playing any games; they were stuck with paying him anyway, so they might as well keep him around. They only shifted him from the roster when they were able to include him as salary filler in the Alston trade, sending him to the Grizzies, with whom he stayed on the roster until the end of the year. That was Mike Wilks's year in a nutshell - two teams, 7 months, 1 injury, 0 minutes played, over a million dollars earned. Could have been worse, I suppose.

The same thing happened to the Heat. Always willing to play the training camp game, Miami obliged us once again last year by bringing in the full compliment of 20, even when most of the extra signings (Omar Barlett, Tre Kelley, Eddie Basden, Matt Walsh, David Padgett) had no real chance of making the team. Along with Padgett, they signed former Davidson point guard Jason Richards right after summer league, to a contract that had only $50,000 guaranteed. However, Richards too blew out his knee, and so the Heat were liable for his salary until the day he recovered. And that saw them have to pay him for the full season.

The worst part about it all was that Richards's now-guaranteed salary meant that the Heat were now going to be taxpayers, when previously they'd budgeted to be just under it. As a result, they had to salary dump Shaun Livingston, now the Thunder's premier backup. Bad times.

The lesson here; if you're a decent basketball player, but of only a fringe NBA talent, do your damndest to get a training camp gig somewhere. Accept $0 guaranteed money if you have to. Just sign the contract. And then take a dive. It's a particularly good idea if you're broke. Antoine Walker, take note.

(This isn't just an excuse to take cheap shots at Orlando, by the way. Wilks was a good signing, an NBA calibre third string point guard, with whom they just happened to get highly unlucky. They did nothing wrong; these things just happen sometimes. It is, however, an eye opener. These are things that you don't really consider a possibility until they happen. Dallas had better find an Erick Dampier-sized straight jacket next summer.)

5 comments:

  1. Wow. An entire Sham post on creative financing with no bad moves by Otis Smith? Sure, you name-checked him, but the signing itself was sound.

    Man, it's a good day to be a Magic fan.

    ReplyDelete
  2. Your article got linked from rotoworld, a new highpoint.

    ReplyDelete
  3. It's the banner, I tell you. Gives it a bit of class.

    ReplyDelete
  4. Nice job Sham, I didn't read the entire post because I'm easily bored but I can recognize good work when I see it.

    ReplyDelete

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