Creative Financing In The NBA

If you Google the term '"creative financing" otis smith', you'll find quite a few hits. It's long been a favoured phrase for Orlando Magic general manager Otis Smith, and his most famous usage of the phrase came in the run-up to the 2007 offseason. Smith used the term "creative financing" to describe how the Magic were going to handle having maximum cap room, juggling signing other team's free agents with retaining Darko Milicic. It was a fairly generic term that said something without really saying anything. And it only gained its resonance after Smith used all his money to give Rashard Lewis a ridiculously, amazingly, biblically terrible contract

You'll also, slightly depressingly, find this website fourth in those search results. There's a reason for that. "Creative financing" is something that I've harped on about for a while. The financial side of the NBA gives me a jolly; watching and learning how the NBA teams manage (or mismanage) their salary cap space, the luxury tax threshold and all their exceptions gets me off in ways that it really shouldn't. I don't know why it's fun, I only know that it is. I think you agree.

Therefore, there follows a list of some of the better examples of creative financing in the NBA today, some of the ways in which executives and cap experts have manipulated the system, staved off the shackles of oppression, and beaten the terrorists.


- The Bulls set a precedent by signing four players to descending contracts at the same time. At one point, the contracts of all four of Kirk Hinrich, Andres Nocioni, Smiling Joe and Sulking Ben had contracts that shrunk on a year-by-year basis. The idea of this was to maintain future salary flexibility to allow them to retain Ben Gordon, Luol Deng and Tyrus Thomas down the road as well. It didn't work, though; even though they paid them backwards, the Bulls overpaid all four, then overpaid Deng as well, and those combined with a staggeringly powerful fear of the luxury tax unbecoming of a team with such hefty profits (and an irrational hatred of the man) led to Gordon leaving as an unrestricted free agent this summer. Which sucked. Still, it could be worse. They may well have maximum cap room in 2010. (Yay! Because cap space went so well for us last time.)

- The Hawks are currently trying something similar. In the last six weeks, they've re-signed all three of Marvin Williams, Mike Bibby and Zaza Pachulia, all to pretty decent value contracts. All three also have contracts that dip in value in the 2010/11 season, a crucial offseason for the Hawks if they are to be able to pay to keep their star player, Joe Johnson. Knowing this to be true, GM Rick Sund has tried to set himself up to be able to pay all four players without going into the luxury tax. It's a good idea, in a way. But the downside of it is that this means the Hawks are going to be grazing their balls against the powerful stone grinding wheel that is the luxury tax threshold, and all they'll have done is retaining a good yet inadequate core. Of course, they would have had some financial flexibility, but they decided to use it all on Jamal Crawford, instead of re-signing the thoroughly comparable Ronald Murray for a third of the price. It's a strange decision.

- Quite a few players have taken second year dips in multi year contracts. The Magic (the creative financing GENIUSES that they are) once did it with Tony Battie, a move which enabled them to give Lewis even more completely unnecessary money than before. The Raptors have done it with Jarrett Jack, as they'll be struggling to stay under the tax next season. Others to have signed contracts that either descend or that have the occasional dip in them include Kris Humphries, Devin Harris, Speedy Claxton, Jarron Collins and Marcus Camby. But it's not common.

- Contract guarantees can be fun, too. There's way more leeway to them than there is often considered to be. Most unguaranteed or partially guaranteed contracts are guaranteed against lack of skill; that is to say, 'if we don't think you're good enough, we're cutting you.' Furthermore, any of those include dates on which the contract will become guaranteed if the player is still on the roster. But you can get way more creative than that if you want to. One such example is that of Matt Harpring; the Jazz re-signed Harpring to an oversized 4 year $25 million contract, but with conditional guarantees on the fourth year. Harpring were to only be guaranteed $4.5 million if he either:

a) missed 47 games combined during the 2006-07, 2007-08 and 2008-09 seasons due to injuries to his right knee, or
b) missed 35 games in the 2008-09 season only due to injuries to his right knee.

Neither of these happened. Harpring gutted out the injury, as well as a concurrent serious injury to his ankle, and saw through all three seasons. It came at a cost, though; he's now about to retire. What a trooper, though.

- Leon Powe had something similar but different going on with his first contract from the Boston Celtics. Powe signed a three year minimum salary deal with the first year guaranteed, but with performance-related guarantees on the other two years. His second year salary became guaranteed if Powe either made the 2006/07 rookie team, or if his point, rebound and assist averages added together to total more than 14.0 in more than 41 games played. His third year had a similar guarantee, but with the threshold raised to 16.0. It turns out that this was quite a good idea, as Powe became a valued contributor while playing for the cheapest possible price. Shame about the latest knee injury.

- There's not much flexibility for creativity with rookie scale contracts. They follow a strict formula - two guaranteed years, two option years - and even though players and teams can negotiate the contract's value to between 80% and 120% of the scale amount, almost everyone gets the 120%. (The only ones I can think of that haven't are Ian Mahinmi, George Hill and Sergio Rodriguez.) However, this season, the Indiana Pacers found a new way to make things interesting. When signing Tyler Hansbrough, they gave him the customary 120%, but with an interesting caveat; all four seasons of the contract are only 80% guaranteed. (Note: that's all that rookie scale contracts have to be guaranteed.) The purpose of this isn't entirely obvious; if Hansbrough really sucks or dies or something, the option years won't be exercised anyway, so having a partial guarantee on them doesn't make much of a difference. But it's interesting because it's creative. And, dammit, that's what we're after.

- Speaking of creative, check out Brandon Roy's guarantee conditions. Intense.

- It might be the Mavericks, not the Magic, that are the kings of creative financing. (A cynic would say that they need to be, considering that they overpay almost everyone. That cynic would have a point.) Particular favourites of Donnie Nelson and friends include conditional guarantees based on championship wins (given to Jerry Stackhouse and Greg Buckner) and team based performance incentives (see this). Having unguaranteed final seasons in contracts is a good ploy of theirs; Erick Dampier has an unguaranteed 8 figure final season in 2010/11, with conditions that he's never going to meet, giving the Mavericks a massive trade chip to play with. Buckner's contract - which they initially signed, then gave away, but have now brought back - has only a small percentage of his final two years guaranteed. You probably already know about the last year of Stackhouse's deal, and the uses that had. And you may also have known that the last year of Jason Terry's contract is only $5 million guaranteed as well.

But the Mavericks have saved their best unguaranteed contract trick for last. After the Magic matched the offer sheet that Dallas gave to Marcin Gortat, the Mavericks found themselves with a full MLE again. Rather than use on an MLE calibre player, they instead decided to spend $4.5 million of it on Drew Gooden, a poor player with the worst defense in the NBA and an increasingly bad understanding of offensive continuity. The contract, though, has a caveat; only $1.9 million of the $4.5 million is guaranteed. And there's no guarantee date.

It's fairly normal for players to sign partially guaranteed one year contracts. If it wasn't common practice, training camp would suck. But it's rare for players earning more than the minimum to do it, and it's the first time I've ever seen it on a contract this size. It's actually quite a clever ploy, because it gives the Mavericks quite a trade chip. In a year when so many teams are over the tax, and so many teams need to make instant salary savings, unguaranteed contracts have to be considered even hotter shit than usual. And by signing Gooden to one, the Mavericks give themselves a pretty mean trade chip between December 15th (the first date Drew can be traded) and January 10th (the date all contracts become guaranteed). He was, without a shadow of a doubt, signed with this intent in mind. So expect it to happen.

As for what's in it for Gooden.......well, not a lot. $2 million for three months work is never bad, but for this to have been the best he could get, his other offers must have really sucked.

- And finally, here's an example of how not to creatively finance. Naturally, it involves Otis Smith. And it also involves the man in the opening picture, James Augustine.

Augustine was drafted by the Magic in the 2006 draft, and signed a two year rookie minimum contract with the team. He stayed with the team for the whole two years, barely playing, and was became a restricted free agent. The second year of his first contract was only 25% guaranteed until July 30th, and the rule with qualifying offers is that they have to be at least the same amount of guaranteed money and the same guarantee dates as the final season of the previous contract. So when Orlando tendered him a qualifying offer, Augustine accepted it immediately, and was thus under contract for the 2008/09 season for $972,581 (the amount of the QO = minimum salary + $175,000), of which $243,145 (25%) was guaranteed, with a guarantee date of July 30th 2008. Orlando then waived him before that date, meaning that they essentially paid Augustine a quarter of a million dollars to have him under contract for two weeks in mid-July.

It's definitely financing, no question about it. And it's definitely creative. But it was also really, really thilly.

Otis Smith's job became far easier and far more secure when the Magic's NBA Finals appearance prompted the aptly named Rich DeVos to start stumping up luxury tax dollars. Imagine what would have happened, though, if that hadn't happened. There'd be no Marcin Gortat. There'd be no Brandon Bass. There might not have been any Vince Carter trade, and there might not have been any Matt Barnes signing. The Magic would be relying on the man who coined the term "creative financing" to do that exact thing. And it's hardly something he's renowned for.

I commend the Magic's offseason. They've done pretty much everything right. Even the little things, such as the inclusion of Ryan Anderson into the Carter trade, were done correctly. Otis Smith has had a good summer. But Magic fans should be very, very grateful to ownership. Spending is easier without a budget.

I'm A Sailor Peg, And I've Lost My Leg

I feel obligated to write something about the Bulls/Celtics series. It has been untold drama, brilliant excitement, and well worth the fortnight of 7am finishes. It's been better than Megan Fox's shadow, worse than De Niro's moustache in Cop Land, and awesome to a fault. And I feel inclined to write something that describes it all.

But the truth is, I don't want to. I don't think I can. The series has been so unilaterally brilliant, so unrivalled in its drama and so and flawlessly flawed in its execution, that I'm not capable of writing the words to accurately describe it. I don't think anyone is. It's as though someone decided the Coach Carter series of films should rival Police Academy, wrote seven of the most implausibly cheesy scripts ever written, and nailed them all on the first take in front of an audience of millions. The drama, for lack of a better word, is perfect.

Disregard game three for a minute. (The Bulls forgot to turn up to that one, so it's best we pretend that it didn't happen.) Over the other 5 games, the other 275 minutes, and the 1000 or so possessions, the difference between the two team's aggregate score is 1 freaking point. There have been 7 overtimes in 4 games, and one game that was decided in the final second of regulation. Never before has there even been more than 2 overtime games in a series. And yet we're at 4 already, with one still to play.

It is almost unfathomable how close these two teams are. It will never happen again. It doesn't matter now about the peculiar series of events that made it this way; what we have now, quite possibly, are the two most evenly matched teams in the sport's history. All the planets have aligned, and this is the basketball equinox.

How many plays have there been that, if only minutely different, would have meant the series was over by now? I mean, seriously, how many things only had to go ever so slightly differently for the result to be different? What if Rajon Rondo was called for the goaltend of Kirk Hinrich's layup? What if Eddie House knew where the three point line was? What if Ray Allen hadn't tiptoed it, twice? What if Ben Gordon didn't kick the cooler and get a technical? What if Joakim Noah didn't gamble for that steal? What if he missed it? Does Brian Scalabrine then get his Horry on? What if they called Paul Pierce dragging his pivot foot 6 yards in the first OT? What if this didn't happen;



What if John Salmons doesn't take that airball three at the end of regulation? What if the moving screen on Glen Davis that set up the House two was properly called? What if Hinrich hadn't MISSED THAT FREAKING LAYUP?!?!?? What if Brad Miller had thrown a shot up at the end of OT? What if Pierce hadn't turned down passing to an open Allen? If Joakim Noah misses that gambled steal, does Scalabrine put the Celtics up 126-123? What if Pierce hadn't fouled him?

And those are just from the last 16 minutes of game 5. What about the other 287 in the series?


Everything that has happened in this series has happened in reverse, too. Brad Miller has choked in the clutch and won a game down the stretch. Ben Gordon has almost won games single handedly, and done his best to lose them too. Derrick Rose shows that he's ready for both the big time and bedtime. Kirk Hinrich, one of the worst clutch performer of the decade (a man who shot 14% in the clutch last season) has turned up for the big stage. Ray Allen has been brilliant or non existent. Paul Pierce can gut out a win, but only sometimes. Everyone has been brilliant for stretches and terrible in others, coming (Tyrus Thomas even went a game without sucking. That's rare.) The only consistencies have been bad officiating, worse coaching, John Salmons's relentlessly gormless "my beard is so heavy it's pulling my bottom jaw to the ground" face, and Kevin Garnett's unabashed twatness. Just those and all the overtimes.

And then on top of that, we've had all the bonus drama. Rajon Rondo's carnal desire to hurt someone. Kirk Hinrich's eternal swag. Ray Allen being really, really, really, really good. Joakim Noah showing the world what Bulls fans knew since January. The long overdue debut of Aaron Gray's playoff beard. Doug Collins's fluctuating opinions on how tall Ben Gordon is. Tony Allen's death threat. Kevin Garnett's injury. Ben Gordon's injury. Leon Powe's terrible luck early in the series. The huge plays down the stretch. The terrific individual execution. The knee bucklingly bad coaching. Brad Miller's permanent "tickle me again and I'll throw a paddy right here and now" scowl when things go badly. Vinny Del Negro's palms being welded into his armpits. Stephon Marbury losing games through being afraid to shoot. Brian Scalabrine getting key minutes while sporting a head like an upside-down carrot cake. Danny Ainge's heart attack.

It's brilliant. I just only wish the stage was bigger.



At the end of game 6, I called my friend, finding myself with a desperate need to explain to someone what I'd been watching. They probably didn't appreciate the call at 7.45am on a weekday, but they got it anyway. I tried to explain what I'd been watching, why I was so excited, where this series placed in the all time history of the sport, how there'd been so many if-onlys and impossible shots that even Matthew McConaughey would have turned down the script. She didn't quite understand, or even really try to. But she meant well when she said;

"Congratulations."

Thanks. Go Bulls.