SCH Mailbag: Cap & Trade Questions

If Favors is really on the block, how would that work? (Photo by Melissa Majchrzak/NBAE via Getty Images)

You asked. We answer.

As we prime for what should be a wild last few hours leading up the NBA Draft and the start to an equally wild free agency period, we asked you what questions you had about the collectively bargained rules that govern transactions between teams and players. We got some great questions submitted here at SCH and on Twitter, and we’re ready to dive in.

“With the talk about Favors and #5 for #1, I was wondering about salary matching requirements? Do draft picks nullify salary matching requirements, or are the requirements just not strictly enforced in the offseason?” -Andrew

We’ll know before the sun sets again whether the Favors-Cavs rumor has legs, but in the meantime, Andrew asks an important question about salary rules as they pertain to draft trades.

Short answer, Andrew: yes, the rules you’re referring to always apply. However, they only apply to teams over the salary cap who wish to add salary. A traded player exception is the mechanism that a team would use to further exceed the cap to add salary, provided that the incoming salary is within a certain percentage of the players they’re sending out. But you don’t need a TPE to acquire a player if you have enough salary cap space to acquire him outright.

The Jazz, on draft night, don’t have the salary cap space to acquire additional salary outside the TPE range¹, and neither does Cleveland, so a trade between those teams before June 30 would have to include roughly matching salaries. But there’s an easy way around that, and it’s used frequently for draft trades. Both Utah and Cleveland have the ability to create cap space beginning on July 1, so they can verbally agree to a deal on draft day, but wait to make it official until after the July moratorium. That way, they don’t have to worry about the math because they’ll both have room.

The Thunder did this in 2010 when they needed to wait until after the moratorium to have room to absorb Morris Peterson in exchange for the 11th pick. So it’s a fairly common mechanism for teams who will have cap space next week. For all other teams, “salary matching” — or using a TPE to add salary in a trade — is still in effect if they are over the cap and adding salary.

Now, whether you think the Jazz should trade Favors to get the #1 is another matter entirely. And while we’re on the topic of Favors…

“How about answering how the Poison Pill affects Derrick Favors trades on draft night?” -Peter

If you know Peter, you know that he knows these answers, so he’s clearly testing me. Let’s see how I do.

This is another rule that applies specifically to a player who has signed an extension on the back of a rookie contract but whose extension hasn’t yet taken effect. That means Favors, IF he is officially traded before July 1. Basically, the outgoing team has to use a different number in TPE calculations than the receiving team, which makes salary matching harder.

The receiving team would have to calculate the trade on their end using the average of Favors’ 2013-14 salary and all four years of the extension (reported at around $48M plus incentives), so somewhere around $11 million. That means that to acquire him using a TPE, that team would have to send out about $7.3M in salary. That’s more than Jarrett Jack makes, so the Cavs would have to add salary to their end, something they may not be willing to do. The Jazz, meanwhile, have to treat his salary at his current $6M, which means the most they can take back is about $9.1M. This provision narrows the window for finding a mutually acceptable deal, and makes it harder to deal players with pending extensions.

But like on the last question, there’s a way around it. Again, the Jazz can simply agree to a deal but wait to carry it out until July. At that point, both teams have cap space to facilitate the trade, and Favors no longer qualifies as a Poison Pill player since his extension will have kicked in.

“What is a good amount for Gordon Hayward in your opinion? And what do you think he will get? Do the Jazz match that offer?” -@ghostofLHM

Great question. Andy Larsen and I broke down the financial aspect a bit last fall after Hayward and the Jazz failed to reach an agreement. It sounds like Hayward’s camp was asking for something less than the max — so probably in the high 50s for a four-year deal. The noise at the time indicated that the Jazz were offering something in the mid to high 40s. So you can see about where the middle ground lies.

Obviously there’s more sample to draw from since those negotiations, and that was a bit of a mixed result. Hayward probably validated some fears that he’s not a #1 option, but played well enough in overall terms that he’s on some teams’ radars. However, the Jazz haven’t made any indication that they will decline to match, and that will deter some suitors who don’t want a cap hold hanging around their necks for 72 hours when they could be approaching other free agents.

I think the final deal for Gordon winds up no lower than that natural compromise they couldn’t settle into last fall: low to mid 50s. That’s the low end. I wouldn’t be surprised if he got an offer closer to 60M, either.

And yes, I think the Jazz match. The Jazz can also now offer a fifth year without using up their Designated Player distinction, so they might try to get him to compromise on dollars to get the extra year, but in that case Hayward would probably want an Early Termination Option so that he could opt out and get paid if he played above his contract figure.

“Another question related to Hayward. I know the Jazz can’t match and then trade, but could they do a sign and trade with him?” -@shottyjon

Yes, the Jazz can work with Hayward’s agent and an interested team to orchestrate a sign-and-trade. The incentive for Hayward to do this is he can choose his destiny and not sweat the “will they match” question for 72 hours. For the Jazz, they’d get assets back instead of letting Hayward walk for nothing. And the advantage to the other team is that it guarantees they get their guy, versus being at the Jazz’s mercy.

Also, technically the Jazz can match Hayward’s contract and then trade him beginning December 15, but they need his consent on any trade for one year after matching.

But again, I think the most likely outcome of all this is Hayward sticking in Utah long term.

“How effective is the CBA at really limiting teams’ salaries? For instance, with Anthony and James both opting out of their contracts, what is stopping a team like the Nets or Mavs from keeping their current payroll the way it is, while simultaneously offering each of those men $50 million a year?” -musiccynic

The CBA sets maximum salaries for each player, as well as a salary cap construct that makes it very difficult to continue adding salary once your team salary exceeds a certain level. In LeBron and Melo’s case, the maximum any team can offer them would be a deal starting at 35% of the new salary cap, or 105% of their last season salary, whichever is greater. And the only teams that can offer that much are their current teams or anybody who has enough salary cap room to accommodate that amount. So there are definitely controls in place that keep deep-pocketed teams from saying, “I don’t care what it costs, go get that guy.” If a team is caught finding other ways to compensate a player, there are serious penalties. The league doesn’t mess around with that stuff.

“What happened to Raul Neto? The Jazz supposedly “picked” him last year. Do they still have some rights to him? If so, how does that work with him having a contract with a professional team overseas for the last year? Does Neto factor into what the Jazz are building this year?” -musiccynic

The Jazz still hold the player right to Neto, as well as Ante Tomic. Whenever Neto and Tomic decide to come over, the Jazz have exclusive NBA rights to sign them, unless they have traded or waived those rights by then.

Neto is in Salt Lake City right now, ostensibly to discuss his future plans with Jazz brass and maybe to participate in summer training camp. Tomic had a strong season in Europe, and the Jazz sound like they’re at a “now-or-never” juncture with the skilled big man from Croatia. So to answer your question, yes, they could very well factor into Utah’s plans, either as players or as assets that can be dealt.

“I am intrigued by the Asik and Lins deal. They basically have massive deferred compensation in the last year. Does the CBA really not allow Houston to pay the deferred compensation they are only limited to the $3.3 M in cash? If so, how on earth can Houston trade them?” -@shottyjon

Jon wins the clairvoyance award, because as I was sitting down with this batch of questions, Asik was dealt to New Orleans for a future pick and cash.

For reasons we won’t go into², Asik and Lin’s deals were structure in an odd way when Houston signed them as restricted free agents. The result is that each guy will count for $8.37M on the team’s cap sheet, but they actually stand to get paid close to $15M this year.

As Jon points out, that makes them incredibly hard to trade, because a team has to have the cap room (or matching salary) to get the $8.37M on their books, but more importantly, you have to find someone willing to actually shell out $15M in cash for guys who are fringe starters. Houston can help offset that, but only the tune of $3.2M in total cash for trades through June 30, and then $3.3M total for July 1 through next June 30.

So it’s difficult, but obviously doable since the Asik deal just went through. It’s being reported that Houston used about half of the $3.2M limit for this cap year to get New Orleans to take Asik off their hands. They could use the other half to unload Lin, or they could wait until that cash limit resets and they can pay someone $3.3M to absorb the remaining commitment to Lin. It could be an interesting way for the Jazz to get an asset since it won’t harm Utah’s cap situation much, but I doubt they have a real strong desire for Lin as a player.

“Is there an all-encompassing source available online where one can learn the ins and out of all these rules?” -musiccynic

A good chance for me to rep my favorite sources. Most of what I know about these cap rules is stuff I’ve learned from www.cbafaq.com, from Larry Coon’s online chats and articles, from other materials at ESPN.com, and from years of tinkering myself. For anyone interested in learning the ins and outs of the CBA, www.cbafaq.com is an irreplaceable resource, but this is complicated stuff, so you’ll occasionally botch something. The best way to learn is to mess around and learn as you go. People like @Peter_J_Novak, @nsanba and @k_clayt still keep me honest all the time by pointing out when I missed an obscure clause that changes an answer.