Phantom Cap Room Not a Reason to Make Rudy Wait

October 20th, 2016 | by Dan Clayton
(AP Photo/Julie Jacobson)

(AP Photo/Julie Jacobson)

In five days, the Utah Jazz will be playing basketball. Not exhibition basketball. Not glorified practice games. Real NBA basketball.

But in 11 days, they have to have reached decisions on a contract extension for Rudy Gobert and option years for Dante Exum and Rodney Hood. So, while we wait for Jazz basketball to resume in earnest, indulge us in one more look at the Jazz’s salary cap sheet before we jump back to purely talking hoops1.

Specifically, let’s talk about an oft-discussed component of the Gobert extension decision: the difference between his free agent hold and the amount of his new contract. A popular talking point on this subject is that the Jazz should wait to extend the Stifle Tower so they can take advantage of that difference and have extra cap space.

Here’s the problem with the logic: it looks increasingly likely the Jazz won’t use cap room at all.

Cap holds

To do this math, we first need to talk about cap holds, or what the Collective Bargaining Agreement calls “free agent amounts.”

Because teams can use salary cap exceptions to re-sign their own free agents, the CBA needed a control in place to keep an under-the-cap team from using all of its room and then re-signing its own guys. The solution was to assign each free agent an amount that sits on their previous team’s cap sheet as a hold. It remains there until one of three things happen:

  • The free agent signs a new contract with that team, in which case the cap hold is replaced by the actual salary figure.
  • The free agent signs with a different team, in which case the cap hold comes off.
  • The team renounces its rights to that free agent, clearing the cap hold.

The amount of the hold depends on the type of contract the player was on and the type of free agent rights the team holds. In Gobert’s case, as a player coming off his rookie scale contract at a salary below the league average, his hold is 250% of his 2016-17 salary. If he doesn’t sign a contract extension by October 31, the Jazz will open free agency next July with a $5.303 million hold sitting next to his name.

That’s a substantial cap hold, but it’s nothing compared to what his actual ’17-18 salary will be once he signs. He is sure to make somewhere at least in the $20 million range next season, and it could be as high as his max salary, an estimated $24.02M2.

That’s a big difference — if the Jazz were under the cap, having Gobert on his cap hold as opposed to his new contract could give them as much as an extra $18.7M to play with.

But they won’t be. Why? Because Gobert isn’t the only one with a cap hold we need to factor in.

2017 Jazz free agents

Just as the Jazz have to reserve $5.3M on their cap sheet to keep Gobert’s free agent rights, they’ll start July with similar holds for the rest of their free agents.

Gordon Hayward is widely expected to opt out of his $16.7M salary and cash in on the exploding cap. His cap hold — 150% of his not-unsubstantial current salary — will park a sizeable $24.1M on the Jazz’s cap sheet. George Hill’s cap hold is in the same category: 150% of his salary, or $12M.

Shelvin Mack ($4.6M) and Joe Ingles ($4.1M) will also have cap holds, and whichever minimum-salary guy makes the 2016-17 roster will also have a free agent hold that equals the 2-year vet minimum ($1.0M). All together, the Jazz will have $51 million in free agent holds clogging their cap sheet on July 1.

They will have also made two picks in the 2017 NBA Draft, and there are small holds associated with maintaining the rights to those players.

Based on all of those things, the Jazz will likely start free agency as an over-the-cap team. Even if they decide not to extend Gobert or renegotiate Derrick Favors’ contract, they’ll be $4M over the cap on July 1.

Info compiled from various online sources, most notably Basketball Insiders' trusty salary pages.

Info compiled from various online sources, most notably Basketball Insiders’ trusty salary pages.

They will also have to account for their salary cap exceptions: the midlevel ($5.797M) and the bi-annual exception ($2.269M).

Options

From there, the Jazz will need to decide whether they’d prefer to keep all of their rights and exceptions intact, or act as an under-the-cap team. To create cap space, they’d have to renounce enough free agents and cap exceptions to get under the cap, but that means discarding tools that could be more useful that some nominal cap space.

For example, they could decide that it’s not imperative to keep free agent rights to their deep bench players, or that they’re not likely going to be able to retain Hill at his market figure. Even if they renounced free agent rights to everybody but Hayward and Gobert, that only clears about $17.8M in room. That’s not even a full max slot, in a year when cap space is going to be less of a commodity because so many teams will have it.

Put another way, would you rather go into the offseason with the first set of tools, or the second?:

Clearing '17 cap space means erasing assets

Clearing ’17 cap space means erasing assets

Of course, they can maneuver their way to a bit more room if they need to, whether by trading a pick or waiving the non-guaranteed contracts of Boris Diaw, Raul Neto or Joel Bolomboy3. If they got a young max free agent to say yes, they could quickly waive and renounce their way to around the $24M max for young studs. But it doesn’t look like that’s their starting point, because starting the offseason with cap room requires them to throw away assets. Free agent rights themselves are assets, because even if a player wants to leave, a team can use sign-and-trade rights to bring something back.

If they renegotiate and extend (R&E) Favors’ deal this fall, it becomes even more obvious that the intention, barring a trade, is to operate as a over-the-cap team with exceptions.

Unless…

There’s one giant caveat to this whole conversation… and he wears #20.

All of this is based on the assumption that, no matter what, the Jazz are going to want to have Hayward’s rights (and cap hold). But if their leading scorer walks, that changes everything.

That would be a huge blow for the Jazz in terms of talent, and would put them in a situation where they needed to replace a lot of talent. It would also give them a realistic pathway to clearing major cap room to do just that. If he signed elsewhere, just removing that one cap hold would put the Jazz more than $20M under the cap — again, assuming no extensions for Gobert or Favors. Now you can start to see a scenario where they’d want to clear away free agent rights in an attempt to lure a replacement star. If that happened, they could renounce everybody but Rudy and get to $42M in room — more if they waived non-guaranteed guys. It would be a nice consolation prize, but I’m sure they’d rather keep Hayward than have to start over, even with a boatload of cap space.

So in a lot of ways, the choice to embrace being a cap/exception team next season and lock up Gobert and Favors now requires them to make an educated bet on Hayward’s plan.

Betting now on Rudy means betting on Hayward, at least in part. But it’s a bit of a catch-22, too, because if they don’t extend either big men out of fear that Hayward may not re-sign, that could actually impact the likelihood that he does bolt, because of the resulting impermanence the Jazz star might perceive in the team’s core. It’s a tricky calculus, to be sure.

Back to Rudy

So what does this all mean in relation to the Gobert extension?

Unless they’re scared into hedging against a Hayward departure, the Jazz shouldn’t wait on Gobert just for cap reasons. The difference between his cap hold and his new salary is likely going to be irrelevant unless Hayward signs with another team early in free agency.

The Jazz can send a message — to Gobert, to Hayward, to the rest of their young roster — that they take care of their own, or they can insist on maintaining a lower cap figure that they’re pretty unlikely to benefit from. That’s not to say there aren’t reasons to consider waiting, but we should stop talking about the Jazz’s 2017-18 cap room as one of them; it’s fairly likely they’ll never have any.

Dan Clayton

Dan Clayton

Dan covered Utah Jazz basketball for more than 10 years, including as a radio analyst for the team’s Spanish-language broadcasts from 2010 to 2014. He now lives and works in New York City, but contributes regularly to Salt City Hoops, FanRag and BBALLBreakdown.
Dan Clayton

2 Comments

  1. Mike says:

    Fantastic article! Great information. Seems to make sense to sign him now. Probably start negotiations at Antetokounmpo money and concede full max quickly if Rudy insists.

  2. Pingback: Jazz, Gobert Agree to Four Year Extension | Salt City Hoops

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