The Cavs and the salary cap

[nikolajz1]

In the article below it states the Cavs will apparently have a record $200M+ payroll due to a $90M+ luxury tax for exceeding the cap (and possibly up to $300M payroll). A staggering amount. Is this correct, and do you really think Gilbert will do that for a 'small market' team valued at around $1B this past year?

How the Cavaliers’ run can lead to a record $200M payroll
http://nypost.com/2015/06/12/how-the-cavaliers-run-can-lead-to-a-record-200m-payroll/

Yeah I'm not sure how Gilbert and his partners can afford that. They'd be taking a 150 mil + loss a year for the next 4-5 years.

This isn't even the repeat offender tax yet which will be way way worse.

Still don't get why we paid Andy so much money. He pretty much is gonna be costing Gilbert 20 million a year taking into account tax. All that for 30 games a season at most.

 

[col63onel]

How does this apply to multi-year contracts?

Suppose... uhm... just making this up here, suppose Tiago Splitter is on a 3-year contract with a salary breakdown like this:
'15-'16: $5M
'16-'17: $18M
'17-'18: $18M

And now suppose Haywood's salary looked like this:
'15-'16: $10M
'16-'17: $5M

For the 125% thing, can we still make the trade, even though Tiago's salary in the final two years of the contract exceed 125% of Haywood's contract? i.e. does the "125% rule" only apply to the current year's contracts of all of the players involved?

Also, speaking of the 125% thing -- sorry if this is getting pedantic -- but does that mean that teams can continuously flip players around?

e.g. (again, fake salaries here)
Cavs: Haywood - $10M
Spurs: Splitter - $12M
Warriors: Klay - $15M
Lakers: Kobe - $18M

Could the Cavs hypothetically exploit the 125% cushion by continuously flipping players?
Cavs trade Haywood to SAS for Splitter (125% of Haywood's $10M is $12.5M)
Cavs trade Splitter to GSW for Klay (125% of Splitters $12M is $15M)
Cavs trade Klay to LAL for Kobe (125% of Klay's $15M is $18.75M)
...etc...

The 125% rule only applies to current salary. So even another player's contract "exploded" after the trade, he only has to be within 125% at the time of the trade.

Also, yes you can flip players. For example, in the Mozgoz trade, we used a trade exception that we got from Keith Bogans, which was the result of about 3 different trades during the offseason.

 

[artimusprime]

Haywood's contract is not guaranteed, so teams looking to clear cap space and sign a free agent can trade for Haywood and effectively clear space. This gives him value.

The flip side is that the NBPA has stated they will not tolerate any cap smoothing, which means we will almost assuredly see massive cap increases over the next several years with the 2016-17 cap likely to exceed $85M.

Every team in the league is preparing for the new cap structure, so this negates some of Haywood's perceived value.

Windy, on the radio, said that he heard a future 1st might be available for Haywood's contract. Dunno if I buy that, but it's interesting.

 

[col63onel]

In the article below it states the Cavs will apparently have a record $200M+ payroll due to a $90M+ luxury tax for exceeding the cap (and possibly up to $300M payroll). A staggering amount. Is this correct, and do you really think Gilbert will do that for a 'small market' team valued at around $1B this past year?

How the Cavaliers’ run can lead to a record $200M payroll
http://nypost.com/2015/06/12/how-the-cavaliers-run-can-lead-to-a-record-200m-payroll/

I get closer to like $270 when I just did the arithmetic, but potentially it could get that high.

As far as Gilbert's willingness to pay it, only he can answer that. Do remember that the Cavs gained about $400 mil in value after LeBron signed. That doesn't count extra playoff revenues, extra Casino revenues, the RNC in 2016, etc.

 

[Birdy89]

Do remember that the Cavs gained about $400 mil in value after LeBron signed.

That value is realized only if he sells the team. Not to mention that when Lebron leaves/retires down the road it reverts back to the norm as we saw when he left the first time and the franchise value fell sharply.

Almost makes you wonder if Dan would cash out after winning a title knowing that the team is likely to run at a large loss well into the future and that the franchise value would come back to earth in a post Lebron world.

 

[wuck]

Posters who think they know a lot about this salary cap stuff
wuck
col63onel
Dr. Gymbo
Caf

Wait, don't let @Douglar off the hook.

Great thread.

 

[wuck]

How does this apply to multi-year contracts?

Suppose... uhm... just making this up here, suppose Tiago Splitter is on a 3-year contract with a salary breakdown like this:
'15-'16: $5M
'16-'17: $18M
'17-'18: $18M
...

FYI, Haywood's contract is rare, possibly unique (because of how his contract was reconfigured during the amnesty process).

Let's say the Cavs wanted to sign JR Smith to a 5-year contract (let's just say it for now). One idea would be to give him 4 flat-salary-years (let's say $6M for each year) and then a one-year balloon payment (let's say $15M). If you make that 5th year a team option, then it could turn into something resembling Haywood's contract. It all sounds great -- you just can't do that under the current CBA. During the length of a contract offered to your own free agent, salaries can go up relatively slowly, they can stay flat, or they can down very slowly. Salaries that jump around and balloon payments given to your own free agents are not allowed.

There is a contract exception called a "poison pill" contract that applies to a very small set of players (including, a few years ago, Jeremy Lin and Omer Asik). Lin's contract counted as $8.3M for each of 3 years for the signing team (Houston signed him). However, if the Knicks had matched the contract offer, the Knicks would have had to pay Lin $5M the first year, $5M the second year, and $15M the third year (counted toward the salary cap and the luxury tax). Since the Knicks didn't match the contract, Lin ended up with a typical (if overpriced) contract but not one with a balloon payment. There might be a small number of NBA players out there with "poison pill" contracts (with a balloon payment), but it's not a strategy that a Cavs GM would have any control of in terms of signing Cavs free agents. It hardly applies to anyone, and I doubt there are "poison pill" contracts where the final year is a team option. They're not like the Haywood contract.

Long way of saying that Haywood's contract is very rare -- maybe the last or almost the last of its kind during this CBA. The contract Bynum signed with the Cavs was similarly distinctive.

 

[col63onel]

The Cavs and Other team's Free Agents
While NBA loves to make it easy to keep you own free agents, the natural flipside is that it is harder to pry other teams free agents. There are 3 main vehicles to get other teams free agents. Unfortunately, 2 of them are closed to the Cavs.

Cap space
This is the easiest way to sign other team's free agent. If you are under the salary cap, which will be about 66.3mil next season, you can spend that money any way you see fit. It also allows you more flexibility in trades (more on that later). We used cap space to sign LeBron, as well as do trades like the Leuer deal that brought in one of the 1sts from the Mozgov deal.

The Cavs do not have any cap space, and likely will not for a while.

Sign and Trade
There is a mechanism called a Sign and Trade (henceforth S&T) that allows you to acquire another team's free agent even if you don't have the cap space to do so. The details of this type of transaction are here. Even though they had the cap space in 2010, this is how the Heat acquired LeBron and Bosh.

Unfortunately, if you are $4mil above the luxury tax, called the apron, you cannot do a sign and trade. The apron is going to be about $85 mil this season, which we won't be able to reach without losing a lot of guys. So, for now, S&T are out. Depending on many variables, S&T could become viable in the future.

Exceptions
One of my favorite salary cap topics is exceptions. The NFL has a hard cap, which states you cannot go above the cap number. The NBA has a soft cap. You can go above the cap as much as you want (most teams operate above the cap), but only in specific ways.

Mid Level Exception - The MLE is a way to go above the tax to sign any player. There used to be one MLE available to everyone, which was designed to be worth an "average players" salary. Now, the size of the MLE available to you depends on if you are above or below the cap number or the luxury tax. All the details are here. The Cavs will have the taxpayer's MLE, and probably will have that for the foreseeable future.

Per the link, the taxpayer MLE starts at about $3.4mil this season. The Cavs could sign 1 player, or multiple players with this, as long as the total 1st year salary isn't above the $3.4mil mark. For reasons that will be expounded below, it doesn't make sense for the Cavs to split it up this year.

If we give the full the full MLE to one player and give him maximum years and raises, the total contract comes to 3 yr, $11mil. I put it in bold because that is most we can sign any free agent to this summer. If a player is a free agent this offseason, and would require more than 3yr/11mil to sign, we cannot acquire them this offseason. That is immutable.

Bi-Annual Exception - This is similar to the MLE, but worth less money. It is also only available to teams under the apron, so the Cavs won't be able to use it this offseason. Maybe in the future.

Veteran Minimum - Like all sports, there is a minimum amount of money each player must make. You can sign any player to minimum salary at any time. No cap space is required. The minimum amount depends on how many years of NBA service you have, with longer tenured players having a higher minimum. The amounts are here.

As you may notice from the link, most vet mins are over 1mil and top out around 1.5mil. This is why I feel it wouldn't make sense to split up the MLE. If you gave a player a portion of the MLE, it won't be worth much than the minimum salary. You can sign as many vet mins as you want, so no reason to waste the one time MLE when you could use the re-usable vet min.

The vet min is how the Cavs acquired Marion, Jones and Perkins this past season. Any "ring chasing" vet who has made their money and wants one last Finals run is perfect for this exception.

 

[gourimoko]

Windy, on the radio, said that he heard a future 1st might be available for Haywood's contract. Dunno if I buy that, but it's interesting.

I could buy it.. Happens a lot. Spurs would probably fork over a first for Haywood (but this largely depends on what happens with their other players and the direction).

 

[MDJ]

I did my own calculation of a potential roster that had us re-signing all of our "desirable" players and those already under contract (James, Kyrie, Love, Tristan, Shump, Smith, Mozgov, Andy, Delly, Miller) using Haywood's contract to acquire Splitter and Mills, acquiring someone for the MLE, and filling out the roster with someone like Harris and a miscellaneous veteran minimum. Conservatively I calculate our salary to be $120M, with a corresponding $127M luxury tax. Incredible. While I expect Gilbert/Griffin to be ultra aggressive, I don't foresee doing everything above.

Of note, at this level of salary we end up paying a luxury tax of ~$5 for every $1 of salary. Thus using the MLE of $3.4 would result in a tax hit of ~$17M. Do we want to pay $20M for a MLE type player?

 

[westsidebob]

The Cavs and Other team's Free Agents
While NBA loves to make it easy to keep you own free agents, the natural flipside is that it is harder to pry other teams free agents. There are 3 main vehicles to get other teams free agents. Unfortunately, 2 of them are closed to the Cavs.

Cap space
This is the easiest way to sign other team's free agent. If you are under the salary cap, which will be about 66.3mil next season, you can spend that money any way you see fit. It also allows you more flexibility in trades (more on that later). We used cap space to sign LeBron, as well as do trades like the Leuer deal that brought in one of the 1sts from the Mozgov deal.

The Cavs do not have any cap space, and likely will not for a while.

Sign and Trade
There is a mechanism called a Sign and Trade (henceforth S&T) that allows you to acquire another team's free agent even if you don't have the cap space to do so. The details of this type of transaction are here. Even though they had the cap space in 2010, this is how the Heat acquired LeBron and Bosh.

Unfortunately, if you are $4mil above the luxury tax, called the apron, you cannot do a sign and trade. The apron is going to be about $85 mil this season, which we won't be able to reach without losing a lot of guys. So, for now, S&T are out. Depending on many variables, S&T could become viable in the future.

Exceptions
One of my favorite salary cap topics is exceptions. The NFL has a hard cap, which states you cannot go above the cap number. The NBA has a soft cap. You can go above the cap as much as you want (most teams operate above the cap), but only in specific ways.

Mid Level Exception - The MLE is a way to go above the tax to sign any player. There used to be one MLE available to everyone, which was designed to be worth an "average players" salary. Now, the size of the MLE available to you depends on if you are above or below the cap number or the luxury tax. All the details are here. The Cavs will have the taxpayer's MLE, and probably will have that for the foreseeable future.

Per the link, the taxpayer MLE starts at about $3.4mil this season. The Cavs could sign 1 player, or multiple players with this, as long as the total 1st year salary isn't above the $3.4mil mark. For reasons that will be expounded below, it doesn't make sense for the Cavs to split it up this year.

If we give the full the full MLE to one player and give him maximum years and raises, the total contract comes to 3 yr, $11mil. I put it in bold because that is most we can sign any free agent to this summer. If a player is a free agent this offseason, and would require more than 3yr/11mil to sign, we cannot acquire them this offseason. That is immutable.

Bi-Annual Exception - This is similar to the MLE, but worth less money. It is also only available to teams under the apron, so the Cavs won't be able to use it this offseason. Maybe in the future.

Veteran Minimum - Like all sports, there is a minimum amount of money each player must make. You can sign any player to minimum salary at any time. No cap space is required. The minimum amount depends on how many years of NBA service you have, with longer tenured players having a higher minimum. The amounts are here.

As you may notice from the link, most vet mins are over 1mil and top out around 1.5mil. This is why I feel it wouldn't make sense to split up the MLE. If you gave a player a portion of the MLE, it won't be worth much than the minimum salary. You can sign as many vet mins as you want, so no reason to waste the one time MLE when you could use the re-usable vet min.

The vet min is how the Cavs acquired Marion, Jones and Perkins this past season. Any "ring chasing" vet who has made their money and wants one last Finals run is perfect for this exception.

If you use an exception, you're hard capped. I don't see the Cavs using an exception to sign a free agent. They're pretty much locked into Haywood as their only avenue for acquiring new talent other than ring chasers playing for the minimum.

 

[col63onel]

If you use an exception, you're hard capped. I don't see the Cavs using an exception to sign a free agent. They're pretty much locked into Haywood as their only avenue for acquiring new talent other than ring chasers playing for the minimum.

This is true if we used the Non-Taxpayer MLE, which is worth more than the taxpayer MLE I outlined (nontax MLE is 5.4mil). We are not hardcapped if we use the Taxpayer MLE, per Conn FAQ Q25.

 

[westsidebob]

This is true if we used the Non-Taxpayer MLE, which is worth more than the taxpayer MLE I outlined (nontax MLE is 5.4mil). We are not hardcapped if we use the Taxpayer MLE, per Conn FAQ Q25.

True, but still means they're pot committed. They need to keep the guys they have, tax be dammed. Gilbert's gotta be praying that the repeater tax goes away in the next CBA.

 

[col63onel]

The Cavs and trades
Many would argue or at least acknowledge that the Smith-Shumpert-Mozgov deals really helped turn the season around. As I mentioned in a previous post, our ability to sign impact free agents is severely limited. If we want to acquire someone of note, either LeBron needs to convince them to take a massive paycut, or we need a trade.

Teams under the cap can make any trade they want as long as they stay under the cap after the trade. I.E. if the Cavs were under the cap, they could trade a 2mil player and take back a 10mil player.

Teams over the cap cannot do the above trade. If you are above the cap, you can only take back a certain percentage of you send out. If you are under the tax, you take back more money than if you are a tax team. The specifics are here. The bottom line for the Cavs - if they make a trade, they can't take back more than 125% + 100k of what they send out. For example, if they traded away a player making 5mil, 125% +100k of 5mil is $6.35mil. So we could trade a 5mil player a a player or players who total current salary is no more than $6.35mil.

You can add player's salaries together (called "aggregation"). If we traded a 5mil and a 3mil player, that's a total of 8mil outgoing. 125%+100k of 8mil is 10.1mil. So we could trade those 2 players for one player making 10.1mil (or less) or a combination of players who in total are making 10.1mil (or less).

Which is why Brendan Haywood is all of a sudden important. His contract for next season is 10.5mil, meaning we could trade him for 13.225mil in salary by himself. That number would obviously go up if we added any more players along with Haywood. Haywood could also be waived immediately and his contract is off the books (as @wuck stated). So a team could wipe up to 13.225 off their books instantly by trading for Haywood. As @gourimoko pointed out, the fact that the cap will raise a lot next year makes saving money this year not as valuable. But it still has some value.

We'll get into what we can/can't do with Haywood's contract as more rumors start to fly in. @Ben mentioned the Spurs as a candidate. They need to clear a little more cap space to be able to sign Marc Gasol or Lamarcus Aldridge this offseason, so this makes sense.

Finally, there are these things called "trade exceptions". They are explained here. Basically, sometimes you can trade a player, not receive any salary back, and be given a "credit" for the salary that went out. Last year, in 3 separate deals, the Cavs turned Carrick Felix into a trade exception that they used to trade for Mozgov. As of now, the Cavs don't have any useful trade exceptions. If they do get one, we'll discuss it here.

 

[col63onel]

I did my own calculation of a potential roster that had us re-signing all of our "desirable" players and those already under contract (James, Kyrie, Love, Tristan, Shump, Smith, Mozgov, Andy, Delly, Miller) using Haywood's contract to acquire Splitter and Mills, acquiring someone for the MLE, and filling out the roster with someone like Harris and a miscellaneous veteran minimum. Conservatively I calculate our salary to be $120M, with a corresponding $127M luxury tax. Incredible. While I expect Gilbert/Griffin to be ultra aggressive, I don't foresee doing everything above.

Of note, at this level of salary we end up paying a luxury tax of ~$5 for every $1 of salary. Thus using the MLE of $3.4 would result in a tax hit of ~$17M. Do we want to pay $20M for a MLE type player?

Do keep in mind that the 20mil is not cap space, but luxury tax dollars. It doesn't prohibit us from signing or trading anyone else in the future that we wouldn't already be able to acquire. It's just extra money out of Gilbert's coffers.

The question of how much luxury tax Gilbert is willing to spend is a fair one, and only he can answer it. I tend to think he'll go very deep into the luxury tax, but then again it isn't my millions that I'm spending.