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Mo Money, Mo Problems: the Thunder’s financial future and salary cap breakdown

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The NBA salary cap is a complex monster, but we at WTLC are here to help.

On September 29, Thunder fans everywhere had a collective sigh of relief as news broke that Russell Westbrook signed his Designated Player Extension and became a member of the Thunder until 2023. By signing the largest contract in NBA history, Westbrook locked himself in as the face of the franchise for the foreseeable future and, at a price of 5 years and $205 million dollars, he also became a cornerstone of the cap sheet.

The Designated Player Extension (DPE) is new to the most recent CBA and Westbrook, along with James Harden, was grandfathered in to the rule. Under this extension, any player in their 8th or 9th NBA season who has either:

  1. Earned All-NBA honors in 2 of the last 3 seasons;
  2. Won Defensive Player of the Year in the season prior or 2 of the prior 3 seasons; or
  3. Won NBA MVP any of the prior 3 seasons

Can extend for 5 years and 30 to 35 percent of the salary cap, with 8 percent raises each year. This contract structure gives the player a massive payday and also gives a franchise greater stability. While I would argue it’s rarely a bad idea to lock a player eligible for the extension up, it does create some financial constraints, given the salary cap. My goal here is to get rid of a little bit of the confusion by showing some possible scenarios for the next few years and show what might happen. For this exercise, let’s look at 4 scenarios:

  1. Both Paul George and Carmelo Anthony leave next season — PG via free agency and Anthony opting out of his contract and leaving via free agency.
  2. Paul George leaves via free agency, but Anthony opts in to his final year.
  3. Both George and Anthony stay. George takes a max and Anthony opts in.
  4. George stays on a max contract and Anthony opts out for a longer term deal at lower yearly salary.

The Ground Rules

To begin, let’s set some basics down. First, the salary cap has been set as an approximation for the 2018 season and a rough guesstimate for 2019 at $99 and $102 million dollars, respectively. The NBA uses a “soft cap,” which means that although those numbers are the limit for spending on outside free agents, teams may go over that number to retain their own players, but with some caveats. One of those caveats is to pay extra money if you go over the Luxury Tax Threshold, currently set at $20 million over the salary cap for the season (so $119 and $122 million). In addition to that, a team goes into what is referred to as “repeater status” if they are in the luxury tax in three of the previous four seasons. For reference, the Thunder were over the tax line in 2015 and 2016, but under in 2017, and with almost no way to get under the tax line in 2018. This means that, starting in 2019, they would be in repeater territory.

What are penalties for being over the tax threshold? You pay different amounts based on how far over you are, and if you are a repeater or not. The rates are as follows (per Larry Coon’s CBA FAQ):

I won’t go entirely into how much OKC will be paying into the tax each year right now but will show in the next few examples some of the implications on the team given the roster at hand. As well, there are some other restraints when a team is over the tax, such as a smaller Mid Level Exception and restrictions on sign and trades (See cbafaq.com for more details.) And so we begin...

Scenario 1: PG Signs a new max contract and Melo opts in

This scenario seems to be most likely if you think George sticks around past this year (personally I lean toward ‘no’ at this point but think if they win enough he may stay). Since George has been in the league between 7 and 9 years, his maximum salary is 30 percent of the salary cap with 8 percent raises with his incumbent team, or 5 percent raises with a new team. His contract would start at $30.6 million and escalate to about $41.6 by 2023. If he takes this contract in OKC, assuming a player option his final year (most players do this and get it as it benefits them in a worst case scenario) the long term salary cap outlook is as follows:

George Signs 5 Year Max, Anthony Opts In
Special thanks for the help of David Brandon (@birdrightsNBA) and his cap sheet.

As you can see, this sets the Thunder up to be well into the tax for the foreseeable future. The only way to get under that line is to shed at the very least Carmelo and probably another large salary (Steven Adams or Andre Roberson plus another smaller salary most likely). They would only be able to use the mid level exception or minimum salary contracts to fill out the roster other than rookie scale contracts, so development of youth would be essential to long-term competitiveness. Other than that, Presti would have to work with the roster at hand and pull a trade to hope for further improvement. It also would set the team up to be in repeater territory, something which no team ever (not even Prokorhov’s Nets) have done. This scenario would be interesting in that I don’t see a way it remains tenable long term.

Scenario 2: George Leaves, Melo Opts In

This possibility seems a it more likely to me, as Anthony isn’t likely to see the money he gets on his current contract again, while George to me still feels like he’s more likely to leave than to stay. This give a bit more room to wiggle, but the team still remains well over the cap and still would only have the MLE and minimum salary to work with. However it does mean the team could get out of the tax sooner and may be more workable long term.

Paul George Leaves Via Free Agency, Anthony Opts In

Scenario 3: George Stays, Anthony Opts Out and Re-Signs

One way this team could theoretically stick together and be a bit more workable is if someone takes a little less per year. To me this seems most likely to be Melo, as even though he’s never going to see his $29 million salary from the 2019 season again, he could lock up more money long term by opting out of that one year and signing a contract with less money per year, but with more guaranteed years.

As an example here, I’ve set it at 4 years and $70 million (honestly I’m not terribly comfortable with this contract, but am using it to show the numbers). If this happens, it looks at least as ugly as scenario one, and to me I’d almost prefer to find someone else to replace Anthony at this price. As good as the idea of the big three would be, I don’t know if Anthony at his age is worth the risk at this price, and I’d prefer to retain the others first. Personally I have no interest in any scenario where Adams is traded for salary relief, and I know most here don’t either. The outlook:

George Re-Signs, Melo Opts Out and Signs at 4/$70 Million

Obviously this is the scenario where the team has the cleanest cap sheet, but still remains high enough in overall salary to be essentially capped out. Even in this scenario, they’re only about $8 million under the cap, and the cap space can’t be combined with the Mid-Level Exception (MLE). Since the MLE is about that level of salary anyway, this doesn’t really give any significant advantages in ability to sign players but does allow for flexibility under the tax line. It does obviously significantly downgrade the talent level, however.

George Leaves, Anthony Opts Out

***

Hopefully this has at least given some idea as to the difficulties the contracts on the current roster present. Given all possible scenarios, I’d almost prefer to see what this team can do and, in an ideal world, I’d like to see if George could be kept first and foremost. His skillset seems to mesh the best with the roster at hand, and Presti will be tested in the next few years to work within the boundaries presented in the CBA for teams with this level of payroll.

Poll

Which scenario do you think is the most likely?

This poll is closed

  • 31%
    Scenario 1: PG Signs a new max contract and Melo opts in
    (102 votes)
  • 16%
    Scenario 2: George Leaves, Melo Opts In
    (55 votes)
  • 41%
    Scenario 3: George Stays, Anthony Opts Out and Re-Signs
    (136 votes)
  • 10%
    Scenario 4: George Leaves, Anthony Opts Out
    (33 votes)
326 votes total Vote Now