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Financial Madness: Making sense of the Pistons cap situation

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Let’s attempt to understand the financial side of NBA free agency.

Oklahoma City Thunder v Detroit Pistons Photo by Chris Schwegler/NBAE via Getty Images

If you follow me on Twitter (@bensquag if you don’t), you’ll have probably noticed that I’ve been keeping up (well, trying my best anyway) with the Pistons salary cap situation by posting an updated cap sheet from Microsoft Excel every time a Pistons move is announced (I think the cap sheet counter is up to 27 now, not sure).

The Pistons came into this offseason with a fair amount of cap space, about $30 million back in October when teams were gearing up for a manic, truncated offseason with all the madness of a month of trade, draft and free agency openings packed into a hellish week.

Before I get too deep in what the Pistons have done and try to make sense of it all, a few key terms/concepts to know as we embark.

Rookie Exception - This is for first-round picks and their contracts. Obviously we’re all familiar with the rookie scale of deals. The rookie exception just means that teams can sign first-round picks to their standard contracts even if the team will be over the cap. It’s the reason rookies aren’t signed until after all other free agents are taken care of.

Bird Rights - Again, a fairly common concept, I think. Named after Larry Bird, Bird rights allow a team to go over the salary cap to re-sign their own free agents as long as the player has played at least three consecutive seasons with the one franchise (some caveats apply). The key difference with Bird rights vs. non-Bird rights is a Bird contract is eligible for 8% annual increases in salary rather than the standard 5%.

Early Bird Rights - A variation of Bird rights with more restrictions, a player has early Bird if they’ve been with a team for two consecutive seasons. An early Bird contract allows a team to go over the salary cap to re-sign a player for either 175% of their previous season’s salary, or 105% of the league average salary for the previous season, whichever amount is higher.

Stretch Provision - A personal bane of mine, the stretch provision allows a team to spread out the remaining guaranteed money of a deal over several years for accounting purposes (the Josh Smith rule as it’s known around these parts). It depends when in the season a player is waived and stretched regarding the payment schedule, but with COVID and me not being an expert myself, I’ll just keep it simple. The team can stretch the remaining guaranteed salary over double the length of the remaining contract years, plus one extra year. For example, a deal with two years remaining can be stretched over five years. If the player is waived “in-season,” which is typically after Sept. 1 and before June 30, the current season can’t be stretched. Again, this season is weird so I think now counts as out of season.

Room Exception - An exception where the team is so far below the salary cap that they lose privileges of other exceptions (tax and non-tax MLE, bi-annual). Basically, once a team is below the “soft cap,” they lose the right to all the above exceptions except the Room. The value of this exception this season is about $4.7 million, and can be split across multiple players. It cannot be used to offer contracts of greater than two years in length. Once a team uses this exception, it isn’t then allowed to use the mid-level exception or the bi-annual exception. Even if a team uses this exception on a two year deal, it can use this exception again the next offseason (unlike the bi-annual exception).

Soft Cap - The raw salary cap amount that you’ll often see reported as how much “cap space” a team has. This generally means how far below the soft cap they are (this season it’s about $109M).

Tax Line - Also known as the luxury tax, a point in a team’s total salary where they have to pay additional tax. This is set at about $132M this year but the Pistons don’t have to worry about that.

Apron - A level above the tax line, it invokes further restrictions re: contracts and what exceptions are available, but again, irrelevant for the Pistons. The apron is used to calculate whether a team pays the tax or non-tax MLE. A team over the apron also can’t use the BAE.

Ok I think that’s enough of an intro about some of the things I’m going to talk about. Let’s take a look at the Pistons cap sheet as of the time of writing (4:30am Eastern).

At this point, it’s been reported the Pistons will waive and stretch both Zhaire Smith and Dewayne Dedmon. Rodney McGruder, who was previously reported to be a candidate for the elastic guillotine, has since been reported to not be stretched.

A note, I was on Twitter saying that Smith’s team option counted as a year for stretching and hence it could be over five years, but I think that’s wrong. A stretch of a team option infers the option is declined, so Smith is effectively on a one-year deal, and therefore will be stretched over three years.

Penny Pinching

The Weaver madness started before the NBA draft, and although this trade ended up including draft picks, it was a clear signal of intent from Troy Weaver to a) clean house of the old regime and b) architect trades that would save money for the team (aka Tom Gores).

Pistons receive: Rodney McGruder, Dzanan Musa, Saddiq Bey, Jaylen Hands, cash, ‘21 2nd round pick

Clippers receive: Luke Kennard, Jay Scrubb, 4 second round picks (‘23 POR, ‘24-’26 DET)

Nets receive: Bruce Brown, Landry Shamet

Right, this was tough to type out. I’m not even going to go into the forfeiture of every second-round pick remaining in my 20s. The next time the Pistons own a second-round pick, I’ll be in my 30s. I’m 25 now. Don’t fact check me on this, it’s a snappy line and I’m running with it.

On the face of it, this trade doesn’t do much for money saving. Bruce Brown and Luke Kennard combine to make about $7 million this season, while Musa, McGruder and Bey will combine for $9.4 million. Kind of the wrong direction until you realise this is a money-saving move for next year instead. Obviously, Kennard and Brown will both be free agents and in line for substantial pay increases (at least in line with their current deals). Weaver obviously identified that Detroit weren’t going to be the one to pay that, and therefore traded them away for a draft swing in Saddiq Bey plus the future flexibility afforded by McGruder and Musa. McGruder’s entire salary for 2021-22, about $5 million, is entirely non-guaranteed, while Musa has his fourth-year team option worth $3.6 million. This move saves the Pistons money that they would’ve otherwise committed to Kennard and Brown extensions. But how did they use that saved money? More on that later.

Pistons receive: Trevor Ariza, Isaiah Stewart

Rockets receive: Christian Wood, future protected first-round pick

This trade isn’t official yet (neither is the one above actually), but it follows a similar vein, just a year earlier. Considering the timeline for the initial trade of Ariza being reported and the subsequent signing of Christian Wood by Houston, you have to imagine that this deal was talked about well in advance. The salary Christian signed in Houston ($41 million over three years) lines up in sign and trade talks when you consider Ariza’s $12.8 million salary for 2020-21. Ariza’s salary was only partly guaranteed, but in order for the trade to work (Ariza was being traded from Portland via Houston), Portland had to fully guarantee his salary before sending him out.

Again, this was designed to recoup even some value for Christian Wood. Isaiah Stewart, whatever you think of him as a prospect, is a young big man that Weaver has taken a swing on. Trevor Ariza was just to make the salary work and become trade bait for other purposes.

Pistons receive: Dewayne Dedmon

Hawks receive: Tony Snell, Khyri Thomas

A cost-cutting move if ever I’ve seen one. Whatever you think of the stretch provision (spoiler, I hate it), it’s actually better for the contract to be slightly longer allowing for a spread over a greater amount of years to make the hit smaller per annum. Tony Snell may have been an expiring contract, but stretching him will cost the Pistons just over $4 million a season for the next three years. Alternatively, trading for Dedmon and the remaining $26 million on his salary actually saves the Pistons money. How you ask? Only $14 million or so of Dedmon’s remaining deal is guaranteed money (fully guaranteed this year, $1 million next season), meaning you can spread out the remaining $14 million over five years, at an average hit of just over $2.8 million a season. Sure, you’re paying more money over the long run, but teams look at this as a yearly exercise, so in that respect this is a cost saver.

Pistons receive: Delon Wright

Thunder receive: Trevor Ariza, Justin Jackson, draft compensation

Mavericks receive: James Johnson

I don’t know how the Thunder managed to both get a pick and rid themselves of James Johnson’s horrendous contract but Sam Presti is a wizard. I also don’t know where exactly this “draft compensation” is coming from, whether it’s Detroit or Dallas.

From a money perspective it’s pretty straight up. Ariza costs $12 million, Wright only $9 million for this season. Sure there’s an extra year on Wright’s contract, but he enters next offseason as a proven combo guard on an expiring $8.5 million deal, a very tradeable asset indeed.

Pistons receive: Zhaire Smith

Sixers receive: Tony Bradley

I’m aware I haven’t spoken about the trade that acquired Bradley from Utah along with Saben Lee. Basically, that was just an absorption into salary cap space from the Pistons. They could take on Bradley’s salary while only having to send cash back to Utah.

On this trade, from a financial perspective, this saves the Pistons, straight up, a negligible amount for this season, maybe $300-400K. But if the reports are true and the Pistons intend to stretch Zhaire Smith (yuck), then it actually saves the team about $2.5 million this season as Smith’s remaining $3.2 million guaranteed will be spread out over the next three years.

Why do teams stretch?

While I personally hate the stretch provision with all my being, you can argue there is a set of valid arguments for it’s utilisation:

  1. It’s a negligible amount per year
  2. It allows for earlier savings
  3. Easiest way to release an untradeable asset

My main argument against this reasoning is when you know you’re going to be bad, there’s little to no point in stretching a deal and elongating the cap hit and the pain. Of the three players the Pistons have been reported to likely stretch in Dedmon, Smith and McGruder (not anymore but at one point), they all have one thing in common. The team can get out of their contracts next summer effectively for free. Zhaire Smith has a team option, Rodney McGruder is unguaranteed next season, and Dedmon partially so ($1 million). Even if you’re hellbent on stretching Dedmon, wait out a year with this obviously bad roster, lose 55-60 games or whatever, and stretch him next summer for $1 million over 3 years (which is also pointless because a mostly unguaranteed contract is a trade boon for cap-strapped teams looking to create any skerrick of room they can.

This is what I would’ve thought the Pistons would be doing. This team is obviously bad. They’re not making the playoffs, so I personally don’t see the point in paying these short-term contracts to go away and linger as a cap albatross (a small albatross but all the same) for the next 3-5 years. Josh Smith was different in that the team was trying to be good (lol) and he was a) so horrendously awful as a player and b) so untradeable as an asset that the only measure was to stretch. These are not Josh Smith deals you’re hamstrung with, these are moderate deals for proven NBA role players. If you can’t find a trade partner, ride it out a year and wait.

The only valid argument I can think of that I might agree with, is creating the small semblances of extra space needed to sign the desired free agents.

Order of Operations

The most underrated aspect of NBA free agency is the timing of the moves and the order they’re completed in, as every move, at least for Troy Weaver, has a flow on effect into another move.

At the moment, the following moves have been made official:

  • Saben Lee trade acquisition
  • Kennard/Brown/Saddiq Bey trade
  • Dedmon for Thomas/Snell
  • Sign and trade for Jerami Grant

This leaves the following yet to announce:

  • Trevor Ariza/Isaiah Stewart for Wood sign and trade
  • Trevor Ariza follow up for Delon Wright
  • Tony Bradley for Zhaire Smith
  • FA signings of Mason Plumlee, Jahlil Okafor and Josh Jackson

That’s a lot of moves. There’s also a reason they haven’t been announced yet.

Firstly, the easy ones to explain. Jahlil Okafor has been signed using the veteran minimum exception, while Josh Jackson has (reportedly) been signed within the Room Exception (the actual value of his contract as yet to be reported, but I’d be very sceptical if it was the full amount - $4.7 million).* As both of these guys were signed with exceptions, they’ll be announced last as Detroit can go over the cap to sign them both.

If I had to predict, they’ll announce the Trevor Ariza series of trades next. Firstly, the sign-and-trade for Christian Wood as a salary matching exercise, then the flip on for Delon Wright to save the extra $3 million this season.

I’m assuming here that Mason Plumlee’s contract is a standard 5% raises over the next three years, with a total value of $25 million. That would put his first year at a hair over $7.9 million. That fits in under the cap before Okafor and Jackson, and before the Smith-Bradley trade.

If my maths is correct, the Smith for Bradley trade is inconsequential. After acquiring Wright (and losing Ariza), and before announcing the Plumlee deal (at a first year of $7.9 million), the Pistons would have about $8.6 million before trading Tony Bradley and waiving-and-stretching Zhaire Smith. That means they could probably announce Mason Plumlee’s contract either before or after that trade. After the Bradley-Smith trade (and before Plumlee), the Pistons would have over $11M in space** (assuming a stretched cap hit for Zhaire Smith). Even if the Pistons don’t stretch Smith, they still have enough space to sign Plumlee.

If you’re a list learner, my expected order of announcements:

  • Trevor Ariza and Isaiah Stewart for Christian Wood sign and trade
  • Tony Bradley for Zhaire Smith trade
  • Mason Plumlee UFA contract
  • Jahlil Okafor and Josh Jackson signings (veteran and room exception respectively)
  • Rookies sign their rookie scale contracts

Obviously this assumes no more moves, which would be naivete of the highest order.

*Right now I just have Josh Jackson as his minimum value on the cap sheet, but that’s subject to change

**When I talk about space here, I’m assuming that the rookies have signed their rookie scale contracts. They obviously won’t sign them until after as well, as they can take the Pistons over the salary cap and have it be legal, but Plumlee can’t sign after the rookies (and Jackson and Okafor) because he’ll push the team over the cap which would be illegal

Note: This was written before the team announced the Tony Bradley for Zhaire Smith swap. It was inconsequential for cap manoeuvring as it brought minor savings, so it didn’t really matter when it was announced/made official.

Why was Jerami Grant a sign-and-trade?

Excellent question, reader, and in short, I have absolutely no idea. From a Pistons perspective they didn’t really gain anything extra out of a sign and trade deal, and they had little incentive to agree to one. Generally, sign-and-trade deals are facilitated when the team signing the player doesn’t have the cap space necessary to fit the contract under the soft cap. As the Pistons had this room available, they didn’t have to negotiate with Denver at all.

Usually in a sign-and-trade scenario like this, the team losing the player gains a valuable trade exception as the Pistons are absorbing Grant under their soft cap, effectively paying cash to Denver in the form of this exception. What makes it weird is that usually, for the team in Detroit’s position here, they usually get something extra in the pot as a sweetener to agree to the sign and trade when they don’t actually need to, normally in the form of a second round pick or two.

In this case, the Pistons just got the draft rights to Nikola Radicevic, the 57th pick in the 2015 NBA Draft.

For Denver, they gain a $9.5 million trade exception, calculated as 50% of Grant’s first-year salary with Detroit being just over $19 million. The trade exception is calculated at either 50% of the first year of the new contract, or the previous year’s salary in its entirety, whichever number is bigger. Grant made just over $9 million last season, hence this exception being worked out this way.

[EDITOR’S NOTE: One advantage to the Pistons might be that the sign-and-trade allows Grant’s contract to have the 8% raises instead of the 5% raises. That would enable the Pistons to offer Grant a lower first-year salary on his $60 million deal. That could be the breathing room under the cap to not be forced to stretch one or both of McGruder or Smith.]

**

The Pistons don’t have much in the way of space to make any more moves really. They have veteran minimums to sign players, plus whatever remains of the room exception after signing Josh Jackson. Otherwise, it’s purely the trade market for moves right now, but I don’t want to jinx it.

Hopefully you’ve gained a bit of an understanding into the financial side of what the hell has happened this offseason. While I’m definitely not an expert in the CBA at all, following along this mad offseason has forced me to keep up with the rationale behind everything, so hopefully this incoherent thread of numbers makes sense.