Group 4: Bye-bye cap room
Charlotte Hornets, Detroit Pistons, Miami Heat, Phoenix Suns
Charlotte – While this is notable in theory, I doubt it matters in practice. I didn’t see Charlotte as an aggressor for top-tier free agents this summer even when it looked like the Hornets could have nearly max room. I certainly don’t with the Hornets downgraded to $21 million in space. Look for Charlotte to split its money on value propositions or accept salary dumps that yield draft picks, while the Hornets spend another year building their young talent and waiting for Nic Batum’s contract to expire.
Detroit – The Pistons would go down to $30 million in cap room if the cap shrinks to $109.14 million, which quite possibly will have no impact at all.
However, it could matter a lot in one particular instance. That scenario is if the Pistons want to a) re-sign Christian Wood, b) sign a free agent for $20 million a year or more, and c) Wood commands more than $10 million a year on his own.
That third figure is key because the Pistons have “Early Bird” Rights on Wood, which allow them to pay him up to the league average salary (an estimated $10 million a year, with the exact amount determined by the league at the start of free agency) while his “cap hold” only counts $1,707,576 against the Pistons’ books.
In that case, the Pistons would have to make a choice – sign Wood at a number above $10 million a year and a lesser free agent for less than $20 million, or sign the $20 million free agent, let Wood walk and fill his spot with a less expensive player.
As for that $20 million player? The Pistons have a glaring hole at point guard and employ the former coach of the Toronto Raptors, who knows Fred Van Vleet happens to be an unrestricted free agent.
Miami – This one stings, but I think in the end the Heat will still be OK. A drop in the cap to $109.14 million would take Miami down to $21 million in cap room, which could hurt its pursuit of key free-agent targets – most notably Thunder forward Gallinari, whom they nearly acquired at the trade deadline.
However, it’s not entirely clear that it takes Miami out of the running for him, or other quality 4s (notably Denver’s Paul Millsap, who could fit their plans perfectly on a one-year deal). Miami is the only realistic contender with meaningful cap room, so Gallinari would have to engineer a sign-and-trade to end up someplace else. Returning to the Thunder is also a possibility (see above), but they aren’t exactly in win-now mode either.
Finally, the Heat have some means of regenerating cap space. Most notably, they could either trade big man Kelly Olynyk for a less expensive player (assuming he opts into his $12,598,243 contact for next season) or, less appealingly, use the stretch provision on him. The Heat could also find a few extra coins in their couch by trading back in the draft, or by trading either Chris Silva or KZ Okpala for a late second-round pick.
Phoenix – Phoenix might be impacted as much as any other team in the league by a drop in the salary cap. The Suns projected to have $24 million in a cap room if they declined options on Frank Kaminsky and Cheick Diallo, renounced Dario Saric and Aron Baynes, and waived the non-guaranteed Elie Okobo. Now they project to only have $19 million; getting any more room would likely require cutting into bone.
At $24 million, the Suns were in pretty good shape to land a starting-caliber 4 like Gallinari or Millsap in free agency. Even if the Suns weren’t the first choice of these players, their cash would talk. At $19 million? I’m not so sure. Now it seems like the Suns would be better off targeting guard help with their mid-level exception, re-signing Saric and Baynes, and hanging onto Diallo and Kaminsky – all of which they could do without threatening the luxury tax.
Group 5: Luxury tax woes
Boston Celtics, Brooklyn Nets, Golden State Warriors, Houston Rockets, Los Angeles Clippers, Philadelphia 76ers
Boston – A somewhat manageable $7.3 million into the tax becomes an unwieldy $13.3 million if the cap level declines to $132 million. Boston would also be limited on using its mid-level exception, but that hardly matters – the Celtics already are looking at having 17 players under contract next season if they use all three of their first-round picks. (My scenario includes waiving the non-guaranteed money of Javonte Green and Semi Ojeleye).
Boston likely priced in a year in the tax when it committed to Kemba Walker this past summer, but perhaps not this deep an incursion – one that could result in cutting a $26 million check to the league.
One key variable is the player options held by Gordan Hayward and Enes Kanter. Hayward is due $34,187,085 – no way he turns that down. But Boston will cross its fingers that Kanter opts out of the final year of this contract at $5,005,350, which would save the team nearly $17 million in salary and tax payments.
Brooklyn – We’re going to find out pretty quickly how deep new majority owner Joe Tsai’s pockets are. The Nets had already planned on being a tax team in 2019-20, but perhaps not this deeply.
At a lowered tax line, Brooklyn is $2 million into the tax before it spends a dime in free agency – including re-signing sharpshooting wing Joe Harris – or picking up the $5,005,350 option on reserve guard Garrett Temple. Keeping Harris at a $10million-ish number, and then either keeping Temple or using their taxpayer MLE on another player, would put the Nets $17 million over the tax line and result in a $35 million check to the league. The discount version of that strategy – letting Harris walk and keeping Temple and an MLE player – would still put them $12.5 million over the line.
One potential exit strategy: Trading forward Taurean Prince to a team with cap room or a large exception. Prince is due to make $12,250,000 but plays the same position as Kevin Durant and has had a disappointing 2019-20.
Golden State – The Warriors already were looking at eleventy-gazillion dollar tax payments in 2020-21, and now will be eleventy-seven thousand gazillion dollars over the tax line instead.
If the Warriors land in the top four in the draft lottery (fairly likely), utilize the majority of the $17,185,185 Andre Iguodala trade exception, and sign a player with the taxpayer mid-level, they could end up owing the league a jaw-dropping $135 million in tax payments – which is more than all but a handful of teams will owe just for their payroll.
Even for the Warriors, flush with cash after opening the Chase Center, this could be a bit much. If they punt on using the Iguodala exception, or perhaps only use a piece of it, the numbers return to Earth a bit – then we’re looking at “just” $85 million or so in tax payments.
This enormous expense was baked in from the moment the Warriors executed the DeAngelo Russell sign-and-trade, so it will be interesting to see how committed Golden State remains to going down this path in a post-coronavirus economy.
Houston – The Rockets have done backflips to avoid the luxury tax the past two seasons and would have to do more in 2020-21 if the tax dips toward $132 million. Just based on next season’s obligations, the Rockets are on the hook for $131 million to 10 players. Filling out the roster with minimum contracts – not even using any exceptions at all – would leave Houston $5 million in the hole.
Of course, the Rockets can always start the season with a higher payroll and trade themselves out of the tax in-season. Flipping multiple small deals to evade the luxury tax has become Houston’s version of Mardi Gras – an annual local event that I know occurs sometime in February but am never sure exactly when.
However, the Rockets are also running out of things to trade. One possibility would be dealing Eric Gordon, but there is unlikely to be much stomach to acquire a 31-year-old guard on the first season of a four-year, $76 million extension.
One thing seems clear: Without either a major trade or a massive rethink about how they spend, it doesn’t seem possible for the Rockets to use much, if any, of their exception money.
LA Clippers – The Clippers were likely going to be a tax team the second they traded for
Marcus Morris, assuming they wanted to bring him back next season. The scenario just gets more likely if the tax line comes down.
In particular, the Clips could be looking at a huge tax penalty if they keep both Morris and Montrezl Harrell at salaries in the $15-20 million a year range. Those two at that price push the Clippers to $17 million over the tax, give or take, and results in a $35 million check to the league.
I haven’t factored in using their taxpayer mid-level exception at all, and suspect they would only use it if one of Harrell or Morris left. Otherwise, they would already have 14 contracts (including one for a second-round pick) and be facing a de facto $26 million cost to sign a secondary player with the taxpayer MLE.
Signing just one of Harrell or Morris at $17 million and then using the taxpayer MLE to replace the other produces a much gentler penalty of $11 million. If forward JaMychal Green opts out of his $5,005,350 contract for 2020-21, the Clippers could even try to stay below the apron and open up their full MLE for use.
Philadelphia – The Sixers priced in being a luxury taxpayer in 2020-21 during their spending orgy of summer 2019, when they maxed out Tobias Harris and Ben Simmons and nearly paid the max for Al Horford. Philly’s starting lineup alone will cost $129.5 million, which is bad news when the tax line is set at $132 million.
A lower tax line might not change the Sixers’ plans, but it does make them more expensive. Even with minimum contracts filling out the remaining roster spots, the Sixers will be $17 million over the tax line and face a $35 million tax penalty. Using their taxpayer mid-level exception on somebody who can actually shoot would be hugely expensive – the contract would only be $5.7 million but including the increased tax penalty it would cost the Sixers $26 million.
One potential path to easing their bill would be to trade forward Mike Scott, who is owed $5,005,350, and little-used second-year guard Zhaire Smith ($3,204,600).