Practical Implications of the NBA Salary Cap

From time to time, we delve into the esoterica of the salary cap here at Clips Nation.  The danger is that I'm not really an expert on it by any means - I can read Larry Coon's FAQ like anybody else, and I probably spend more time doing so than a sane person should, but this is complex stuff and there's no guarantee that I'm not missing some important nuances.  Still, invariably it's covered at only the most superficial level in the national press (understandably, I suppose), and what is the point of having a blog if you're not going to go off on a long tangent from time to time?  The Clippers spent some time sniffing around the edges of the cap last season, looking for any extra money and/or players lying around, so it's somewhat apropos that we understand the way this stuff works.

Let's start with last season.  Back in January and February, the Clippers executed three separate trades for fringe NBA players - Cheikh Samb, Hassan Adams and Alex Acker.  In each of these trades, the Clippers gave up nothing (or as close as you can actually come to nothing - a conditional second round draft pick where the conditions are highly restrictive).  And in each, the Clippers got something else in addition to the aforementioned warm bodies - either cash or a future second round pick in the case of Acker.  What did Denver, Toronto and Detroit get in return?  Well, they got rid of a salary, and in so doing, they got under the luxury tax threshold.  (Note that I can't say with 100% certainty that it was these transacations that got them under the threshold - they might have squeaked under without the Clippers' help.  But clearly they believed at the time that these transactions did the trick or they never would have made these trades.)

At the time, I pointed out that by helping other teams get under the cap, the Clippers were actually increasing the number of teams who would participate in the luxury tax distribution at the end of the season.  My back of the envelope calculations after the Samb trade was that about $100M in luxury taxes would be distributed 20 ways, for a $5M bonus to the teams under the cap.  In retrospect, I was more than a little off on those guesses.  The seven eventual tax payers, according to the league memo obtained by ESPN, paid in a little over $87M.  That number was then reduced by about $20M, "headed for the NBA's Revenue Assistance Plan, which distributes money to low-revenue teams" (which is not something I knew about before).  So the smaller pie, not to mention more slices which the Clippers themselves helped facilitate, means that about $67M is being distributed 23 ways - for a little more than $2.9M each.

Now that we know some real numbers, we can also assign some real opportunity costs to some of these dubious deals.  For instance, assuming Detroit would have been a tax-payer instead of a distribution recipient without the Acker trade, the pie would have been distributed to 22 teams instead of 23 - so that's a little over $100K that the Clippers cost themselves (and 22 other teams) by making that trade.  No big deal perhaps, but one more consideration.

On the other side of the ledger, Adams was cut immediately and Samb played 10 games as a Clipper before being waived.  In the end, only Acker finished the season on the team, and he only managed 18 games and won't be back next season (he's on the Knicks summer league roster).  Of course the team knew all along that these guys were long shots to help the team, but it goes without saying that none of them actually paid off.

In a similar vein, let's re-examine the Darius Miles affair.  Memphis ended up signing Miles for the rest of the season, and in so doing put Portland back into tax territory.  Portland's tax bill come out at $5,899,356.  Divided 23 ways, each non tax-paying team received about $259K, over a quarter of a million dollars, of Paul Allen's Microsofty money because of Memphis' actions.  So Donald Sterling should be sending a 'Thank You' card to Michael Heisley.  Oh, and that signing may have also cost the Blazers Hedo Turkoglu.

Moving into the present, I want to point out that there are still many things I don't understand about these calculations.  For instance, according to the leaked NBA memo, projections have basketball related income (BRI) decreasing between 2.5% and 5% next season resulting in a salary cap of somewhere between $53.6M and $50.4M, down from $57.7M this season.  My math-y brain says "What a minute.  Why does a 2.5% decrease in BRI result in a 7% decrease in the cap?  Why does a 5% decrease end up as a decrease of almost 13%?"  The short answer is, "I don't know".  It has something to do with adjustments for BRI projections from years past, which are clearly being missed.  But it seems extremely strange that these projections should be impacting the cap so severely two years down the road.  Clearly the calculations the NBA used were highly dependent on assumptions of year over year growth - and the salary cap is taking a disproportionate hit now that reality is upon us.

A $50.4M cap would be extremely bad news for a lot of teams, the Clippers among them.  The timing here is really interesting.  The Zach Randolph for Quentin Richardson trade supposedly made the Clippers max money players in the 2010 free agent market.  But before that trade is even official, we find out that maybe it's not enough after all. 

Here's the math.  I've got the Clippers current 2010 salary commitment at $37M.  Now bear in mind, that's very optimistic.  It could conceivably be lower (if they can work a trade for a big salary), but more likely it will be higher, as they will no doubt sign someone.  But we'll use the optimistic $37M figure for now.  A cap of $53.6M leaves them with $16.6M, in a scenario where a max deal would be a tick over $16M (30% of $53.6M) - phew, just enough if nothing else changes.  (NOTE:  As I explain in a comment below, the 30% number applies in general, but LeBron and Wade and Bosh are already in the $17M range, and would not have to take a pay cut even if the cap is contracting.  So those guys are priced out of the Clippers range already.)  If the cap comes in at $50.4M, the Clippers would theoretically have $13.4M to spend and a max deal would be $15M - and the Clippers dreams of LeBron are over before they began. 

Having said that, fiscal responsibility is a good thing, regardless of the specific targets and amounts.  So while the Randolph for Richardson trade might not in reality fuel a megastar pipe dream, it's still going to get the Clippers under the cap (barring other moves).  After all, Elton Brand is the only free agent in the last two years to actually sign for more than $13M - so the Clippers can remain in the running for a major addition (or two), just not for one named LeBron or Wade or even Bosh. 

On the other hand, as the cap goes down, it makes all of those OTHER Clipper assets comparatively more valuable.  The Z-Bo trade exception, the expiring contracts for Camby and Richardson and Ricky Davis - the value of these things just went through the roof.  Because there are about ten other teams (at least) who were entertaining cap space in 2010 fantasies, and that space is melting away with a simple memo from the league office.  What will Quentin Richardson's $9M expiring contract be worth to his former team the Knicks in February?  What would the Nets part with to get some delicious cap space?

In the end, the Clippers' current salary situation is advantageous on many levels, not just because they have cap space in 2010.  If these projections are to be believed, the Clippers would be wise to take advantage of the current climate by using their trade exception and expiring contracts to stockpile assets now.

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