Thursday, December 16, 2010

Finances of the Terrence Williams/Sergei Lishouk trade

The only picture of Joe Smith ever taken in which he is not smiling broadly.

Yesterday, a three way trade went down between the L.A. Lakers, Houston Rockets and New Jersey Nets that saw four picks, three players and one set of redundant draft rights get rehomed just in time for Christmas.

- Houston dealt: Lottery protected first round draft pick to New Jersey; draft rights to Sergei Lishouk to L.A.
- Houston received: Terrence Williams from New Jersey.

- L.A. Lakers dealt: Sasha Vujacic and their 2011 first round draft pick to New Jersey.
- L.A. Lakers received: Joe Smith, New Jersey's 2011 second round pick and Chicago's 2012 second round pick from New Jersey; the rights to Sergei Lishouk from Houston.

- New Jersey dealt: Terrence Williams to Houston; Joe Smith and the two second rounders to L.A.
- New Jersey received: Sasha Vujacic and the two first rounders.

All teams arguably profit from the move, which is how trades should be. The Lakers saved money, and somehow snagged two second round picks in the bargain when they probably would still have been quite happy to do the deal without them. Houston gained a player probably better than the one they would have drafted with that pick, and New Jersey freed themselves of a problematic backup while piling on two first round picks, which they can now either use as trade bait or use to acquire yet more backups. Everyone was a winner, except for Vujacic.

Many people have questioned, however, how the move was legal under the terms of the soon-to-be-obliterated Collective Bargaining Agreement. Trade calculations are a confusing process at the best of time, and even more so when talking about three team deals involving mismatched salaries. But because of the inclusion of Smith, the finances just about work.

And I do mean just about.

Going into the deal, the Rockets and Lakers were over the salary cap. Indeed, they're way over the tax threshold as well. Conversely, New Jersey were over it, too, but only by $321,303. And included in their cap number was the cap hold to Jarvis Hayes, worth $2,681,640. By renouncing that, they became $2,360,337 under it.

The reason New Jersey were $2.36 million under the cap, and not $1.86 million as reported elsewhere (including, unfortunately, this own site's salary page) was because of Keyon Dooling. Dooling was waived at the start of the summer because, if done before a certain date, his contract was only guaranteed for $500,000. This happened, and Dooling was thus on the Nets' cap number for that amount this season, which was the amount reflected on the site's salary pages.

That cap hit no longer exists, however, due to the right of set-off that teams have on waived players. After being waived, Dooling signed a two year contract with the Milwaukee Bucks that started at $2,080,000 in the first year. With the right to set-off, New Jersey were able to remove from their cap number an amount equal to half of the difference between the player's new salary and the second year player's minimum. The second year player minimum for the 2010/11 season is $762,195, so the amount New Jersey could set off was $658,902.50 ($2,080,000 - $762,195 / 2). And because this amount is greater than $500,000, the Nets could set-off Dooling's entire cap hit. Dooling still got his money (EDIT: no he didn't), but the Nets got some cap relief.

The reason this was incorrectly listed on the Nets' team salary page is because I forgot. Although it seems as though this should be a commonplace practice, it isn't. Rights to set-off are normally waived when a player negotiates a buyout, and since players rarely have outstanding cap holds when not on the roster for any reason other than a buyout, it just doesn't crop up as much as you might imagine.

At $2,360,337 under, the Nets had enough cap room to make the trade. By sending out the $2,214,480 salary of Williams alongside the $854,389 salary of Smith, New Jersey had opened up $5,429,206 in cap room. This amount is ever so slightly smaller than Vujacic's salary of $5,475,113; however, teams under the cap are able to make trades that take them up to $100,000 over the cap. And this trade just about fits within that limit, to the tune of a $54,093 margin for error. By NBA standards, a negligible amount, yet an amount in this instance of vital importane. The trade is therefore just about legal for the Nets perspective; they started $2,360,337 under, traded a further $3,068,869 away, received $5,475,113 in return, and ended up $45,907 over.

All it cost them was Jarvis Hayes's early Bird rights.

From the Rockets perspective; they gave out no salary, and received Williams's $2,214,480, yet they were able to do so using their $2,500,000 trade exception, originally created in the David Andersen trade. And from the Lakers perspective, things are even easier; they gave out a more salary than they took on, so they didn't need to match salary.

Incidentally, Smith, if he plays for the Lakers, will be playing for his twelfth different NBA franchise. This would tie him for the all-time record along with Chucky Brown, Tony Massenburg and Jim Jackson.

Additionally, it is incredibly likely that he is dealt again, for he is surplus to requirements in LA and is nought but an expensive cheerleader, costing the team about $1.5 million when luxury tax payments are included. Smith earns the minimum and thus will be easy to salary dump; the Bulls 2012 second rounder, obtained in this trade, could be used as incentive for any recipient team, as could good old fashioned cash. If Smith plays for the Lakers, is traded somewhere else later on, and winds up playing for them as well, he will be the new record holder. However, to do this, he'll have to be traded to either Boston, Charlotte, Dallas, Houston, Indiana, L.A. Clippers, Memphis, Miami, New Orleans, New York, Orlando, Phoenix, Portland, Sacramento, San Antonio, Toronto, Utah or Washington. There's also a good chance that he doesn't even play for the Lakers and sticks at 11. Start hoping, though.

(For all your Sergei Lishouk information, go here.)

The CBA information in this post, as ever, was supplied both directly and indirectly by Larry Coon. If I know it, he probably told me.

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