Following the Money

If you follow The Association with much interest then you know — or you’re beginning to understand, anyway — that the new collective bargaining agreement was a game changer.  The new luxury tax rates and rules, while still technically part of a “soft cap,” will operate effectively like the hard salary cap that the NFL and NHL have.  Beginning next season, every dollar over the luxury tax line will be taxed at $1.50 (previously dollar for dollar).  If a team is $5 Million or more over the line, the tax becomes $1.75 per dollar.  After $10 Million it becomes $2.50 and after $15 Million it becomes $3.25.  Oh, and if a team finds itself in the “repeater tax” zone (if they’ve been tax payers for 4 of the past 5 seasons) they’ll pay an additional dollar on all of those rates.  Some basic math will show that a team well above the tax line hoping to re-sign a veteran star player might end up paying $40 or $50 Million per year to do that, instead of the $15 Million or so that the player is actually paid.

I listened to David Stern speak last month in Minneapolis and he was essentially bragging about the owners’ lockout accomplishment of increasing revenue sharing AND “talent sharing.”  (Stern was speaking to the Timberwolves’ fan base, mind you.  I suspect his lawyerly instincts would have him singing a different tune if standing before a Knicks or Lakers-friendly crowd.)  He cited examples like Tyson Chandler leaving Dallas, Jeremy Lin leaving New York, Omer Asik leaving Chicago and James Harden leaving Oklahoma City as evidence that the league’s goal of spreading around talent is already being accomplished.  Bill Simmons took on the NBA’s fiscal phenomenon in his column yesterday, focusing on the league’s best bargain contracts.  The overarching theme is that getting great contracts is beginning to matter almost as much as getting great players.  If teams want to contend for championships–particularly if they’re one of the 29 teams that does not have LeBron James on its roster–they need to keep their finances in proper order.

So with that background, and with decisions like “whether to match Nikola Pekovic’s upcoming offer sheet” coming up sooner than later, I thought it a good idea to revisit the Wolves payroll.

A few things to note:

* The salary cap this season is $58.044 Million.  It is calculated each year in a formula tied to basketball-related income.  (I swore I’d never use that phrase again after the lockout ended.  Alas.)  It’s probably safe to assume an even $60 Million for the cap in each of the next few seasons.  Maybe I’m wrong on that, but I doubt it will be far from that figure.

* The luxury tax line for this season is at least $70.307 Million.  It is also calculated based in part on BRI.  For simplicity’s sake, we’ll assume a $70 Million tax line for the next few years.  Again, this may be slightly off, but probably not by much for sketching out a forecast.

* Glen Taylor is trying to sell the Timberwolves.  It is reasonable to assume that the Wolves, more than most other teams, will make decisions with an eye toward a healthy medium-to-long term financial outlook.

Let’s begin with what the Wolves currently have committed in salary to next season.  All numbers from shamsports.com.

This assumes a few things.  It assumes that Brandon Roy’s contract is gone (it’s been widely reported that the second year is non-guaranteed if Roy does not play a certain number of games), it assumes that Will Conroy’s contract — that was waived — has no cap hold next season, it assumes that Mickael Gelabale and Chris Johnson are signed only through the remainder of this season, it assumes that Andrei Kirilenko exercises his player option, and it assumes that Dante Cunningham’s team option is picked up.  I think those are fair assumptions, but please let me know in the comments if I’m wrong.

The Wolves then have about $51.4 Million tied up in ten players, none of which are named Pekovic or Budinger.  That leaves $8.6 Million of cap space and $18.6 Million of room under the luxury tax line.

Before getting to Pekovic and Budinger, the Wolves will have a lottery pick to sign.  Right now they have the 8th worst record in the NBA, so for projecting purposes we’ll add in the salary of last year’s 8th Pick, Terrence Ross.

11 players and $54 Million of salary.  We haven’t signed Pekovic or Budinger yet.  How much will Pek get paid on the open market?  I expect something very similar to what the Wolves signed Nicolas Batum to, last summer.  So I’ll just plug Nic’s numbers in and see what that does.

12 players and we’re about $5 Million over the cap.  $5 Million remaining under the tax.  No Budinger yet.

The first question is whether Taylor Corp. is willing to pay more than the salary cap.  (I’m pretty confident in assuming Taylor will not be paying luxury tax for a team fresh off its 9th consecutive non-playoff season.)  Before the season I predicted that Derrick Williams and either J.J. Barea or Luke Ridnour would get moved in a deal for an expiring contract.  Had the Wolves done that they’d have a much easier time keeping next season’s payroll within the cap and tax line.  But they didn’t, so they won’t be able to do that.  Keeping Pekovic will certainly mean that the Wolves are over the salary cap in 2013-14.

The second question is what the Wolves are thinking longer term and how a big contract for Pekovic affects that.  The big year is 2015 when Kevin Love has a player option and Ricky Rubio, Alexey Shved and Derrick Williams will either be newly extended (probably only likely in Rubio’s case, but who knows at this point) or restricted free agents.  For budgeting purposes I think the Wolves need to expect a maximum contract for Ricky Rubio in 2015.  This is far from a sure thing, I realize (something like Jrue Holiday’s 4 years, $40 Million deal is probably a more realistic prediction) but given that the Wolves are going to commit to Ricky Rubio almost no matter what, they need to project high.  So if he is re-signed for the max in 2015, and we assume Kevin Love decides to opt in, things look like this:

$42 Million tied up in 3 players is a lot.  But it isn’t a crazy-high amount.  That same season the Thunder will have $49 Million tied up in Durant, Westbrook and Ibaka.  But it is a lot, and if the Wolves are going to do that, it requires two things:

1) Those three players had better be really damn good.  Like, two of them should be playing at or near an All-NBA level.  In Rubio’s case (he’ll be 25) that means he needs to learn how to shoot at a functional level.  Otherwise, a max deal is significantly more than his value.  In Love’s case (he’ll be 27) that basically means no more breaking his shooting hand doing God knows what away from the floor.  In Pekovic’s case (he’ll be 30) it means staying healthy.  Given his growing list of ailments that keeps him out of the lineup, this is a real concern when committing long-term dollars like this.

2) The Wolves need to find value in cheap places to round out the roster.  They’ll only have about $15 Million remaining to stay under the cap to sign 8-10 more players.  If the team is contending for a title, maybe they’ll pay the tax for one season, but probably not much of it.  At most, I think they’ll have $30 Million of room to spend if they’re going all in on a title run and will pay a little bit of tax.

Notice that 4th player in 2015–the one making just $2.8 Million?  That’s our draft pick coming up this summer.  They can’t whiff on it.  If they’re going to pay tons of money to Rubio, Love and Pek, they need to have a legitimate starting player on the rookie scale by 2015.

There are a lot of issues that I haven’t discussed.  The idea that Kevin Love will opt in, or re-sign with Minnesota in 2015 is very far from a sure thing.  (Maybe it will help if David Kahn is replaced?)  Love deciding to bolt would be a very bad thing for the Wolves, but it would obviously open up money to keep Ricky Rubio, Nikola Pekovic and some of the others like Alexey Shved and Derrick Williams with contract extensions.  I haven’t discussed Chase Budinger, who is an unrestricted free agent that fills the Wolves’ biggest need of perimeter shooting.  If re-signing Budinger is a priority, and Pekovic is re-signed to the numbers used above, perhaps the Wolves will have to decline Cunningham’s team option to allow room for that under the tax.

I’m posing far more questions here than answers, but it’s worth at least having some of the numbers in front of us when talking about how to handle free agency.  Money has always mattered — especially in Minnesota — but never as much as it does now in David Stern’s New World Order.