Three Deals that Make $ense
In the first five days of a wild NBA free agency, there have been several deals that just don’t make sense. Boogie Cousins signed with the Golden State Warriors for peanuts. The Los Angeles Lakers landed the most coveted free agent in LeBronJames , only to surround him with a Bizarro World supporting cast of Lance Stephenson, JaVale McGee, and Rajon Rondo. Nerlens Noel only got a minimum deal, and Clint Capela still hasn’t received any offers. This would be an appropriate time to insert the confused Nick Young meme for the umpteenth time.
On the flip side, there have been a few deals this offseason that make a ton of sense. These aren’t the blockbuster deals that break the Internet but are nonetheless vital in building sustainable franchises. The following discussion analyzes three deals that were driven by salary cap and luxury tax management.
Oklahoma City Thunder – Carmelo Anthony
This hasn’t happened yet, but the Thunder should waive and stretch Melo’s $27.9 million salary.
It’s been well noted that the Thunder are way, way into the luxury tax. As a repeat offender, OKC pays much higher luxury tax rates and is severely penalized by each dollar over the luxury tax threshold. The table on the bottom left shows OKC’s current luxury tax bill of ONE HUNDRED AND FORTY FIVE MILLION DOLLARS!!! That much money for a team that almost missed the playoffs last year…Sweet Christmas.
The table on the bottom right shows OKC’s luxury tax bill if they were to waive and stretch Melo’s contract. Stretching the contract spreads Melo’s salary over three years, reducing the $27.9 million cap hit to $9.3 million per year. OKC’s tax bill would then drop to “only” $50.2 million, a $94.4 million decrease from the current $144.6 million projection. This is a no-brainer, as Melo clearly does not provide an incremental $94.4 million of value to the team.
Side note: in case you were wondering where the luxury tax money goes, up to 50% is distributed to non-tax paying teams and the rest goes towards generic “league purposes.” League purposes covers basically anything the league decides, including funding the revenue sharing program and other distributions to the teams.
Denver Nuggets – Wilson Chandler
In a similar tax cutting move, the Nuggets traded Wilson Chandler, a 2021 second round pick, and the right to swap 2022 second round picks to the Philadelphia 76ers in exchange for cash considerations. In addition to avoiding Chandler’s $12.8 million salary, this trade also reduced the Nuggets’ luxury tax bill by $38.8 million (from $54.6 million to $15.8 million). Chandler was a solid contributor to the Nuggets, but again its hard to justify an incremental $51.6 million in salary and taxes.
Brooklyn Nets – Dwight Howard
The future is finally looking up for the Nets. In a smart move to free up 2019-2020 cap space, the Nets traded Timofey Mozgov (2 years, $32.7 million remaining) to the Charlotte Hornets for Dwight Howard (1 year, $23.8 million remaining). The Nets subsequently bought out Howard’s contract for an undisclosed amount – most likely in the $18-19 million range.
With this trade, the Nets will have $70 million in available cap space next year. They’ll be able to sign two max free agents in a star-studded free agency class that includes the likes of Kyrie Irving, Klay Thompson, Kawhi Leonard, and Kevin Durant. Adding two stars to their young core of D’Angelo Russell, Jarrett Allen, Caris LeVert and Spencer Dinwiddie, the Nets could soon become Eastern Conference contenders.
I’m not entirely sure why the Hornets agreed to this deal, as they added on longer term salary with Mozgov. The only benefit is that the Hornets reduced this year’s salaries by $7.8 million, which is the difference in Howard’s and Mozgov’s salaries. This reduction provides a little more flexibility in that they can sign a free agent with the full Mid-Level Exception without going into luxury tax.