Brian Spaeth on Cavs and more with @dimoko – WFNY Podcast – 2015-02-23
February 24, 2015
The Alan Cox show parodies Browns fan logo reaction
February 24, 2015Last Thursday’s trade deadline was a fairly quiet affair for the Cleveland Cavaliers. Sure, you can discuss the merits of Kendrick Perkins and his presence as a fourth big for this streaking team. But largely, the most impactful Cavs news from last week was a non-transaction.
After some recent speculation from the blogosphere, the Cavs decided to keep veteran center Brendan Haywood and his peculiar contract. “I’ve been around a long time. I can read,” the 35-year-old told the Akron Beacon Journal’s Jason Lloyd. “I know my contract situation.”
And boy, it sure is a unique situation. Haywood is earning only $2 million this season. That’s about to be expected for a player of his service time in the league. This coming summer, however, he’ll be a remarkably valuable trade asset because of an unguaranteed $10.5 million figure for 2015-16.
That’s a massive deal. No team would want to pay that kind of money for what Haywood has done on the court. But many would happily trade for him to clear off another oversized deal. The issue wasn’t the desirability of Haywood’s contract during the summer. The issue was that the Cavaliers would be punished for using it to its full advantage.
As I shared last month, the Cavaliers are expected to be over the NBA’s luxury tax next season. That was going to be the case no matter what. With the news of keeping Haywood through the trade deadline, and some recent NBA rumblings, we can update the salary cap situation a little bit further.
The NBA Players Association will not agree to a smoothing of the cap increases. This was announced shortly before the All-Star Game. NBPA executive director Michele Roberts shared that it was a unanimous vote by team representatives. This is mostly good for Cavs GM David Griffin.
With the league’s new $2.6 billion annual TV contract beginning in 2016-17, there had been speculation the league would push for a smoothing of cap increases. The current TV contract is only $900 million per year. A one-year jump like that would cause significant issues for free agency, accounting and more.
A smoothing proposal could have brought the cap from $63 million this season gradually up by $10 million each year for three years. Without smoothing, the cap is expected to jump by maybe $6 million this season and then a whopping $20 million the year after.
As I shared previously, a basic layout of the 2015-16 Cavs player salaries plots the team at about $89.4 million for 11 players:
#Cavs salary situation for 2015-16 gonna get messier and messier. About $89M sans Haywood. pic.twitter.com/wsMK6uobpP
— Jacob L. Rosen (@JacobLRosen) January 7, 2015
Smoothing would have meant the Cavs would be over the tax line for 2015-16 and 2016-17, guaranteed. But without smoothing, there remains an outside chance the team could back under the line barely in two years. This is major news in avoiding the dreaded repeater tax – an added jump in tax rates for teams over the tax in three out of four years.
No smoothing also means lower possible jumps in salaries for the team’s Big Three. Kyrie Irving’s rookie max extension is based off the 2015-16 cap figure. Kevin Love and LeBron James both hold opt-out clauses for this summer, meaning they could reset their max deal to a percentage of the new cap.
Given the approximate $6 million or 10 percent increase to the cap this summer, the combined effects for the Big Three would add $5.6 million to the team’s salaries. That brings the estimated $89.4 million number up to $95 million:
Another look at how cap increases can affect estimates/new max amounts for Cavs Big Three in 2015-16 pic.twitter.com/y7x1JPkrnc
— Jacob L. Rosen (@JacobLRosen) January 24, 2015
In addition, both Tristan Thompson and Iman Shumpert are restricted free agents. Their qualifying offers are for $6.8 million and $3.7 million, respectively. A sizable increase is certainly likely for Thompson after he rejected a deal this past October. There’s no knowing exactly what might be a future contract for Shumpert, who has played exceptionally well off the bench thus far.
So will the Cavs consider trading Haywood this summer? Even without jumps in salaries for Thompson and Shumpert, you can already start to see the tricky salary math for the Cavs in 2015-16. Fortunately again, this might only be a one-year stint in the tax zone. But it could get ugly.
With the estimated $69 million cap figure, the tax line would be approximately $83 million:
Another chart: Tried to estimate increase of tax line based on increases to the cap. Uses diff % of BRI. pic.twitter.com/UK2Fkz9Kup
— Jacob L. Rosen (@JacobLRosen) January 24, 2015
From my earlier math, I’ve got the Cavs at $95 million already. Using my created CBA Tax Calculator, a non-repeater team $12 million over the tax line would pay $21.3 million in taxes back to the NBA. That’s a non-significant amount, for sure.
But what if the Cavs trade Haywood and take back $10 million in salaries? That would push the team to being $22 million over the cap … resulting in a gigantic $52.5 million tax bill. You see the issue now.
The NBA’s new progressive tax system, installed with the 2011 CBA, is the closest thing possible to a real-life hard salary cap. By just adding $10 million in player salaries, the Cavs would be paying over $30 million extra in taxes. That’s a 300% tax rate!
And again, this is without increases for Thompson and Shumpert, and the fact I previously only included 11 players. The Cavs also have first- and second-round selections in the 2015 NBA draft. These additional salaries could actually add to the tax rate increase for a Haywood-based summer acquisition.
This is again why many petitioned for a small trade during this deadline. But now, as the Cavaliers move closer to the playoffs, we know a little bit more about what to expect this summer salary cap-wise. And it’s why Dan Gilbert would have to open his wallet quite a bit to make any major roster changes in the coming months.
44 Comments
the Dolans would have a major problem with this. Gilbert, he laughs at writing such checks.
Great stuff, Jacob.
You’re assuming Tristan is a Cav next year, although as a restricted FA they can’t even talk to him from season’s end until July 1, after which they’ll have a right to match other offers (not coincidentally, I’d suggest, he’s not having any trouble playing ferociously every night this year, unlike many passive weeks last year. Very reminiscent of how Hot Rod Williams played in the same situation). He may price himself right out of here. Gilbert and Griffin won’t pay absolutely any amount to keep him, no matter how ridic given his limited game, even if he has LeBron’s agent. My point is: we cannot assume he’ll be on the books, as opposed to some cheaper big who can come off the bench and rebound. And the better the Cavs do in the playoffs the higher his price might go.
A 300% TAX RATE???? WHAT IS THIS SOME KINDA QUICKEN LOANS MORTGAGE???
i kid, i kid.
I hope the casino is doing really really well, because as long as Gilbert is thinking about the Cavs (and as many rounds of home playoff games as possible) as a loss leader for the Horseshoe, we’re in pretty good shape. If he’s looking at the Cavs in a silo though, the ROI math gets a lot trickier.
Even if he’s expecting the Cavs to lose, there’s a limit to how much he’s willing to lose, and how much he’s willing to lose to add certain players. People give the Heat grief for the amnesty of Mike Miller’s contract, but that saved them $17M. Mike Miller would have been a nice player to have, but at the cost of $17M? There’s a point where even the most ridiculous assumptions of Gilbert’s willingness to spend has to have a limit.
Wow, you didn’t even come close to responding to my point.
The point is with the Heat, you’re evaluating the basketball team based on the financials of the basketball team. With the Cavs you’re evaluating the team itself and the casino that sits next door.
If turning Haywood into… I don’t know somebody making $8M a year… costs $30M but makes it more likely to turn into 4 additional home playoff games, how does that affect the casino’s finances? It’s a simple ROI evaluation.
Dan Gilbert aka Predator!
http://www.sideshowtoy.com/wp-content/uploads/2013/06/902001-product-thumb.jpg
Cavs could very well just let Haywood walk too.
I agree, but it is a scary situation if he does leave because it will be difficult to replace him in our situation. Perhaps, the Tristan situation is why Griffin didn’t trade Haywood? His contract is replacement insurance in case we lose Tristan in RFA?
But, what if that $17M savings is what pushed LeBron out the door?
No idea if he would have come back anyway, but he made it a point to bring up Mike Miller and there is a reason that MM got a 2year contract with the Cavs.
Is it possible the Cavs pair Haywood with that first round pick and look to move up on draft day?
In the short term I’d be very surprised if Gilbert wasn’t 100% all-in on any expense to get them over the top. It’s a big deal for his “brand” in the city, and for the long term value of the franchise, which we know from the sale of the clippers is the real source of revenue in this business. As an example, Forbes has the value of the Cavs growing by $400M from last year to this year and $559M since he purchased the team. And, the Cavs have been profitable every year Gilbert has owned them to the tune of a total $175M. That means since 2006 he’s in the black by a total of $734M. It would seem foolish to not invest $40-$50M in order to make that franchise a championship team and increase its popularity immensely over the next decade. Gilbert has said as much himself in interviews.
I”m not saying he’ll be reckless about it, though. Even with oodles more tv money coming, they have to think a little bit about long term player costs or they’ll spend themselves into a corner a la Brooklyn. Perhaps a Haywood trade could be used to replace a departing Tristan Thompson if somebody else is willing to offer him $14M/yr. or something crazy like that.
In hindsight you can sort of imagine that may be the case, but I think the decision made sense at the time. Also, I think making those kind of value judgments in the long term maintenance of a roster and payroll are a little different when you’re coming off back-to-back championships than when you’re trying to get over the top for the first time. The difference between bringing a championship to Cleveland or not in the course of all but four years of LeBron’s career is a much bigger deal for Gilbert long-term than the difference between a back-to-back or a three-peat for Arison would be.
GM-ing a team has never been one of Lebron’s strengths. I wonder if he realizes that his franchise building has led to scenarios where he felt it was necessary to leave two different teams.
I still think you take that risk. The Heat still went to the Finals, and Lebron said that if they had won the Finals, he probably would have stayed. $17M on Miller is a bad bet, and his presence wouldn’t have won a championship, which is what was really the driving force in Lebron leaving.
Sorry to not respond as you liked.
I get the idea of including the casino in the ROI. But I also think that any player making $8M a year is barely going to move the needle toward adding playoff games. I know how “winning the offseason” is a big factor in this town – compare the reaction to the Browns and Indians despite the product actually on the field – but players that provide that kind of surplus value, even if they actually bring people to the casino, are few and far between.
I think contracts have to be within 85% of each other, so I dont think that’s possible.
/only did 3.5 years of capology school, left before getting degree to pursue other interests
If Gilbert bought the Lebron-led Cavs and put little around him and skimped and saved, how much would the franchise be worth? No way to know, but I’d bet not much less.
It would certainly be foolish of him to drop $50M a year if he didn’t expect to make it back. Gilbert cut back on spending when the team lost Lebron. It was the right thing to do, because picking at the top of the lottery is the fastest way back to contending in the NBA, but this narrative that he’s willing to lose money hand-over-fish to provide a championship to the forsaken people of Cleveland is baffling to me. Like you said, the public version of the numbers say that the Cavs have been profitable ever year. Why does anything think that at any point, Dan Gilbert, who had no problem pushing subprime loans, would ever let that change?
It’s ok. I expect reading comprehension to be issues on forums like this.
I’m not talking about getting a star on the level of Kevin Love. I’m talking about getting a rotation player who could effect a playoff series. Guys like Goran Dragic and Aaron Afflalo are making about that and they just changed teams at the deadline, and they’ll effect playoff games (or Dragic would have anyways if Bosh didn’t immediately go out for the year).
I believe that’s only the rule if we traded him to a team over the cap. If we traded him to someone who’s under they could absorb his entire salary without sending any contract(s) back.
I heard the Dolans haggle and plead before writing their utility bill checks. Dolanz are cheep!!
Those guys aren’t bringing $30M in surplus value, and won’t add enough value to count on making the next round of the playoffs.
Dragic was 3rd team NBA just last year.
Certainly the franchise would have appreciated in value regardless, but there is variation in how much teams have increased over the past few years, and the Cavs are valued higher than some teams in not-inconsequential markets like Atlanta, Philadelphia, Washington DC, and Denver, and Detroit. San Antonio is 4 spots higher than the Cavs despite being the fourth smallest TV market in the NBA, and I’d imagine consistent winning has something to do with that.
I’m not suggesting it would be an altruistic move to “pay back” the people of Cleveland for their support. I think a championship benefits Dan Gilbert. He’s got merchandise to sell, and loans to make, and real estate deals to work, tax breaks to negotiate, a casino to market, etc. Not to mention cementing the longer term support of the Cavs’ fan base. The Cavs were more profitable directly after Lebron’s departure due to high numbers of season ticket holders and the clearing of the roster, but from their peak in 2011, their revenue dropped by $33M, or just over 20% in three years. It rebounded in 2014, but that’s because the league year and the calendar year aren’t the same and Lebron had an affect. Either way, it’s clear that getting results on the floor has an effect on the bottom line and in the value of the franchise.
Of course he’d have to make a determination as to how much he might be willing to “invest” over a season or two to get there and I just threw out the number $50M at random, (and as a multi-year figure) but I still think there’s an argument to be made that he can take a short term loss and profit from it in the longer term.
Gilbert himself said that he doesn’t understand owners who shy away from the luxury tax when they are on the brink of championship contention, given the amount of money usually involved relative to the overall investment at stake. He also said that the luxury tax would never be an impediment to the Cavs doing what they need to do when the time came.
I wish they used their last roster spot on claiming Thomas Robinson rather than Perk for this reason exactly – if TT is gone, have someone of similar skillset (be tall, rebound, take advantage of obvious scoring opportunities) to step in on a cheaper contract.
Unfortunately Philly just grabbed him outright on waivers. Didn’t get to go to Brooklyn as was hypothesized
I recognize that Dragic had a really good year last year. And that he’s just a slightly above average player now that shouldn’t be counted on to get you to the next round of the playoffs. And who’s going to cost a lot more than $8M next year.
No one’s suggesting that winning isn’t highly correlated to revenue. What I’m saying is the vast majority of that winning, and revenue, comes from simply having Lebron. You even say the numbers back that up. So now we need the evidence that spending around Lebron has helped increase the value of the franchise.
As I said, it’s impossible to tell, but there isn’t a whole lot of evidence. And there isn’t a whole lot of evidence that Gilbert will go into the red to win any more than any other owner out there. His spending when he has Lebron on the roster has a lot to do with the fact that he gets $30-50M (maybe more?) in surplus value by having Lebron in a league that puts a cap on player salaries.
Maybe Gilbert will give that extra push to win a championship, but I don’t know why anyone ever believes a word that comes out of his mouth anymore. He’s a propaganda machine, and talk like that is only about drumming up good PR. He’s darn good at it to, I won’t take that away from him. Maybe he will spend $17M a year to keep the likes of Mike Miller around. It’s not my money, and he’s already got his hooks deep in the pockets of hard-working Clevelanders either way.
And correct, this is the main thing I forgot to include. If the Cavs traded Haywood to a team under the cap and able to consume his salary, they could create a TPE for his $10.5M amount. This would last for 12 months, so they could use it more fruitfully for the 2016-17 cap situation.
I mentioned the idea of just letting Haywood walk more extensively in my previous article. So yeah, that’s essentially what I’d recommend because the thought of paying for a $10M player — or really, any non-LeBron player — the equivalent of $40M just seems crazy to me.
I think there’s more evidence that he’ll spend than that he won’t. Just because he hasn’t spent into the red doesn’t mean he hasn’t taken a smaller margin than he could have in order to improve the team’s future, and by not-insignificant numbers. A lot of owners wouldn’t have ok’d that Baron Davis trade. There’s no evidence at all that he’s a guy who will cheap out on the team when they get close. He may not actually need to spend into the red to make these moves anyway. I’m just saying I’d be surprised if he wasn’t willing to do so on a short term basis. Plenty of other owners have done it. It’s not so rare.
Certainly we can never know the exact value of any of his moves in the past. My point with all the numbers is just that the team is a long-term investment, and falling short has financial ramifications. Just having Lebron has a lot to do with the team’s winning and value, but these decisions are made on the margin. I think it matters long-term for Gilbert in a concrete (financial) way that the Cavs get over the top.
Outstanding work Jacob. You’re the best.
thanks for the info, Jacob. At first i was thinking it would be no big deal for GIlbert, but $50 million dollars is a big deal for anyone.
But, if it meant a title, I could see Gilbert paying the tax. You have to figure he will sell the team at some point if he wins a title. With LeBron, and after a title, you’d think the Cavs would be worth more than $950 million. He paid under $300 million for the team, so the $50 million could be covered there.
I love spending other people’s money.
There is one Andy Varejao on the roster to replace TT. I know you can’t count on his health but he fills the void. I would NOT pay top dollar for TT and his limited game.
ever heard of Anderson Varejao?
But the Mike Miller $17million is the LeBron loss-leader.
If Miller stays, LeBron (presumably) stays. That makes Arison’s Heat franchise a 3 or 4-time title winner, and likely raises the value of the team well over $1.5 Billion. Is it worth $17million for that? Yes. Yes it is.
to your point, according to Forbes, the Bucks are worth about 600million. That’s a LOT less. That’s what the Cavs would be worth.
http://www.forbes.com/nba-valuations/#page:3_sort:0_direction:asc_search:
also not sure what your comment means:
“Why does anything think that at any point, Dan Gilbert, who had no problem pushing subprime loans, would ever let that change?”
you make it sound like Dan Gilbert is stealing from people with his “hooks deep in the pockets of hard-working Clevelanders.” People are free to spend their money any way they like. He isn’t taking anything from anyone who doesn’t want to pay.
I see you have some sort of ax to grind with him.
That requires us to assume that Miller being on the roster is what actually makes Lebron stay, which I don’t buy for a second. Miller doesn’t make enough of a difference to beat the Spurs, or make Bosh and Wade over these next few years a better set of teammates than Irving and Love.
That’s certainly not what the Lebron-led Cavs would be worth even if Gilbert skimped everywhere he could.
“Plenty of other owners have done it.”
I really am sorry to be a pain, but we have zero evidence of this. People seem to search for stewardship in sports owners, when there is likely to not just be none, but the opposite effect.
I didn’t use the word steal. With Gilbert, I’d say his crime is more obfuscation of the truth. We’re still waiting on all those jobs and a permanent site for the casino.
It’s easy to find examples of teams running operating losses for a couple of years. It happens all the time. Some of those losses are probably unintentional, but in most cases the owner could theoretically cut somebody and save a few million bucks if that was the priority. (and when the team is clearly not going to contend, this sort of thing does happen quite a bit)
I’ll ignore the teams that seem to run small deficits a lot or for an extended period because I don’t have the time to research their situations for all those years but here are a few that jump out at me: The Nets are a train wreck this season, but the owner was obviously willing to spend way into the red to get over the top. Mark Cuban has spent into the red a bunch of times, including biggish dips of $25M in 2007 when they were serious championship contenders and $17.5M in 2010 when they won it all. Orlando went $23M into the red in their last best chance year with Dwight Howard. Denver spent $26M into the red in the last season of Carmelo.
Thank you JESUS – somebody gets it!!!
Just dealing w/ the rest of this season, moves have to be made if we even hope to sniff the NBA Title this year – I’m serious!!! Atlanta played us last night and SCHOOLED the crap out of us! Atlanta is a measuring stick and we came up short and will again if corrections aren’t made to the overall ROSTER!!! Toure Murry would be an excellent backup PG and he could take Harris spot. Put Marion on IR for Harrington or Austin Daye. You might dislike Mcgee and Blathce, but somebody will sign them – I would rather have the bullies on my roster then face them!!! Only 1 “King” his name is JESUS
Use him…Make an All-Star out of Haywood. Make the man work for his money on the real game floor. Lets shoot for the star and make him a MVP. Just give him the damn minutes and if he doesn’t perform don’t take him out..keep him in and let him embarrass himself game after game if he doesn’t perform.