There's been a lot of speculation today about what Josh Smith meant when talking about how this season will be hard on him and his family, which has been already covered on this site here (hint it's not about money). But let's talk about money for a minute. Josh Smith took less than he is worth on the open market by coming to the Clippers on a minimum deal. Even Houston, another Western conference contender, was willing to pay him more than the minimum. So why did Smith ultimately take less?
There are a couple of reasons that likely went into his thought process. Smith is being paid $5.4 million by Detroit for the next five years after having been stretched last season. Los Angeles offered him a more defined role and likely greater playing time by being the first big off the bench than whatever Houston could've promised. Finally, by way of the NBA's rule regarding the right of set off, the amount of money Smith would make with the Clippers v. Rockets isn't as much at it appears.
But what is the right of set off? The right of set off is the ability for a team to reduce the amount of money owed to a player they waived based on a new contract that player signs with a professional basketball team. So in this instance, Detroit waived Smith and now owe him $5.4 million dollars over the next five years. Since Smith is a free agent, he could sign with a new team for a new contract and earn money from two teams at the same time. However, Detroit is entitled to reduce or "set off" the amount they owe according to some specific calculations.
Conventionally people think the right of set off calculation goes as follows: subtract 50 percent of the money over the minimum salary. So for Detroit, if Smith signed with the Clippers at the minimum for $1.5 million, they receive no set off amount and Smith takes home 5.4 + 1.5, or $6.9 million. If Smith would have signed with the Rockets at $2.49 million, he would be about $1 million over the minimum, and thus lose $500,000, as Detroit gains the ability to subtract that amount from their bill by right of set off.
However, this is not how the right of set off actually works (see pg. 293, Article XXVII of the CBA if you want to read if for yourself). When calculating the right of set off, the rule subtract 50% of the money over the minimum salary is correct, but it is not a generic minimum salary that applies to whatever Salary Cap year the new contract is signed. The minimum salary that is used is very specific: it is the minimum salary for a 1-Year player during the year the contract was terminated. Since Smith's salary was waived last year, the minimum salary for a 1-Year player was $816,482. This is the minimum number that is used in the set off calculation for every subsequent salary cap year; it doesn't ever change.
Thus, the idea that Detroit receives no amount of set off from Smith this year is incorrect, and it also changes how much money Smith sacrificed to be a Clipper. This year Smith will make $1,499,187 million. So we take 1,499,187 - 816,482 = 682,705 (the amount over the minimum Smith is making). 50% of 682,705 is 341,352.5. Thus, Detroit gains a set off amount of $341,352.5 to be reduced from their team salary at the end of the year right? Interestingly, that set off amount is actually stretched over the course of Smith's remaining years, meaning the Pistons actually receive $68,270.5 in set off relief over the next five years.
How much money did Smith lose in choosing the Clippers over Houston? By going with Lob City, Smith will be slated to make $6,557,834.5 million this year. With Houston Smith would've earned a total of $7,053,241 for this year. Thus, Smith gave up only about $495,406.5 in order to have a bigger role on a stronger team.
The larger point of this dive into CBA minutiae is an understanding that right of set off will almost always apply to any contract that is waived. Since minimum salaries for NBA players increase every single year as listed in the CBA, that means that the minimum for one year is always greater than the previous year. Thus, the 1-Year player minimum will always be less than the next year's minimum for a waived player, therefore they will always have a positive amount to take 50% of in set off calculations. For any team that waives a player and owes them salary, if that player signs with another NBA team next year, you will always have the right to a little bit of set off. (Set off applies to any professional basketball team, so if a player signed internationally for under the 1-Year player minimum salary then a team may not receive any set off).
This applies to the Clippers in that currently they have 3 stretched player salaries acting as dead weight on their cap in Carlos Delfino, Jordan Farmar, and Miroslav Raduljica. If any of these players were to sign a minimum contract for an NBA team in the next 3 years, the Clippers would gain a little bit of cap relief through set off, which likely means a slightly lower tax bill. The really interesting question regarding the right of set off would be if the Clippers brought back any of these players. The stretch provision is new, and there's been no instance where this has happened so far, but it's a fascinating hypothetical if you're a CBA nerd like me.
Wow, that was nearly 1000 words about a very specific part of the salary cap. I hope I didn't bore anyone.