(Ed note: The numerical figures are very close approximates as I have rounded to the hundredth or thousandth digit in various instances for ease of reading.)
With at least conference finals aspirations for the upcoming year, the Clippers are seeking to reload a roster under a more restrictive cap structure negotiated in the most recent Collective Bargaining Agreement (CBA). There are a variety of methods in composing a roster with payroll in mind.
For the purposes of this exercise, total payroll will be the sum up to the luxury tax line. This is mainly because: 1. Donald Sterling has shown he’s capable of going up to the tax line to field a legitimate playoff team (this year’s team salary came in just over $69 million) and 2. The new CBA has made the luxury tax so restrictive almost no team is willing to enter tax territory.
Pertinent Information: The 2012-13 salary cap is guaranteed to be at least $58.044 million, which can only be exceeded by use of exceptions, minimum/rookie salary deals or retention of one’s own Free Agents. The luxury tax is set at no less than $70.307 million for the upcoming season.
The first thing to consider is that Blake Griffin will be eligible for an extension July 1. And whether it’s the “Rose-rule” 5-year, $90 million contract or the standard 5-year, $74 million contract (like Russell Westbrook), Blake Griffin will be a max player starting the 2013-14 season. Either way, Griffin’s salary will occupy between 22% and 27% of the salary cap.
Chris Paul will make $17.78 million for the 2012-13 season. If he decides to re-sign with the Clippers, Paul’s salary could start as high as $18.67 million. Chris Paul would be at 32% of the Clippers’ salary cap.
In looking at the combined salaries for Paul & Griffin, the disparity between their current contracts and their projected new contracts is $6-$9 million.
That means the Clippers either: 1. will not spend within $6-$9 million of the luxury tax line for the 2012-13 season, or 2. $6-$9 million must come off the payroll before the 2013-14 season begins. Again, this has nothing to do with the Clippers being cheap or unwilling to spend. The simple realities of the new CBA dictate that the offenders of the new luxury tax are punished harshly. Even perennial spenders like the Lakers, Knicks and Mavs are restructuring their roster payroll to not incur any tax penalties.
I’m assuming Mo Williams has opted-in to his Player Option (as he’s stated several times is his intent). I’ve also included Travis Leslie’s team option and the 53rd pick of the 2012 draft. With all these options set, the Clippers are already above the cap for the upcoming season.
That means, to remain below the luxury tax line, the Clippers have a total of $10.54 million to spend if they choose to retain some combination of Nick Young, Chauncey Billups, Kenyon Martin, Randy Foye, Reggie Evans or Bobby Simmons.
We can forget about the two trade exceptions. Cook’s exception would basically bring back veteran minimum players or 2nd round rookie contracts. Aminu’s exception could bring back a player still on the 1st round rookie scale, but I’d imagine that would be a byproduct of a larger deal.
So that leaves some combination of the Mid-Level and the Bi-Annual Exceptions in which the Clippers could sign free agents. If the team uses the full amount of both exceptions, then the Clippers would have $3.58 million remaining to re-sign their own free agents without incurring the luxury tax.
Going back to the beginning, why bring up the Paul/Griffin contracts in 2013-14? Because if the Clippers sign any free agents this offseason (including their own), those new contracts added to the Paul/Griffin salary bump will offset the expiring contracts of Ryan Gomes and Mo Williams. The Clippers will only have trades, the draft and the Mid-Level available to improve, if necessary.
What does all this mean?
First, it means whomever the Clippers sign this summer directly impacts their ability to sign free agents next summer. If they use the maximum exceptions, it means less money available for next season. If the players signed this offseason underperform, it means the Clippers have to look again next offseason.
If the Clippers made no trades and Williams and Gomes expired, that would be $12 million off the payroll for 2013-14. But Paul & Griffin’s new contracts would kick in for as much as $9 million immediately. Add the MLE and BAE at $6.96 and the Clippers have added $15.96 million without having done anything. That would mean the Clippers would be almost $4 million worse from a payroll perspective than they are after this offseason.
So then the Clippers would end up with $5 million in payroll room to try and address any issues the roster might have in the free agent market (I have proactively subtracted the approximate 2013 1st and 2nd round rookie salaries of $1 million and $500K, respectively).
MLE, in conjunction with $5-$10mil salaries (which typically start as MLE contracts), are the riskiest contracts to award. Why? Mainly because the NBA cap system is designed to reward teams that find value. Players that earn max contracts are typically worth more than salary slot indicates (i.e. max players are more than 25%-30% important to their teams success). And players on rookie contracts are exceedingly valuable (e.g. Russell Westbrook is more valuable to his team’s success than his 8.6% salary slot would indicate).
The $5-$10 million contracts generally go to players coming off the rookie scale and established, but aging, veterans. These contracts tend to FAIRLY pay a player for his production. But this equitable transaction is actually detrimental to a team’s payroll for the simple fact that there are clearly outlined, more efficient means of generating production for the value. Not every team is able to sign or attract a max-contract type player, but every team has at least one draft pick annually.
Getting back to the title of this, the idea of $5-$10 million salaries and the MLE being potentially toxic contracts is only applicable on rosters with two or more max contracts. And this is applicable to the Clippers because in order to effectively maximize Chris Paul and Blake Griffin’s primes, the team has to already treat their current payroll** as one that carries two max contracts
**Again: Payroll = space up to luxury tax line. Cap = space up to salary cap limit
If the MLE is 7.1% of the payroll, it’s manageable. But with 2 max contracts set in stone, the MLE becomes doubly valuable at 14.1%, which is 1/7 of remaining payroll space (up to the tax line). So the value of the player given MLE is artificially high relative to roster slot. 10 to 12 players have to share the 6/7 of the payroll left over after 2 max contracts and the MLE.
This is not to say that all players/contracts in this “middle-class” are overvalued. Sometimes, shrewd executives have the foresight to preemptively sign higher level players to reasonable contracts (e.g. Rajon Rondo, Kyle Lowry, Marcin Gortat). And these $5-$10 million contracts are very useful in salary matching if a team is able to attract a marquee player’s attention (see Knicks, Clippers).
How can the Clippers learn from this?
The main key, from my observation, is to avoid the 3+ year MLE contracts. For example, no one would fault giving Ray Allen the full MLE for one year. A team manages its risk for value in a contract by limiting the long-term exposure. Take the San Antonio Spurs, for instance, who are long thought of as the model franchise in terms of efficiency and cap management. The Spurs were essentially a 3 max contract team this past season (where 1 max salary slot = $15+ million). Duncan, Parker and Ginobili occupied 80% of the San Antonio cap space. And yet they were able to fill out the roster with highly productive players. Yes, they lucked into a bought out Boris Diaw. But they were also able to translate Richard Jefferson’s longer contract for a “2012-13 expiring contract” in Stephen Jackson.
On top of that, Duncan’s salary comes off the payroll and, if he chooses to continue playing, will likely sign at a much more reasonable figure. And the team that posted the best record in basketball will effectively bring back the same team with an opportunity to retain their free agents and improve. How? Because aside from Ginobili, Parker and Jackson, no Spur makes over $4 million and only two make over $3 million (Splitter and Bonner). The Spurs have fantastic coaching and a reliable core, but the longevity in their success is more than just that. The Spurs organization understands the importance of value in the modern, cap-conscious era. And the Clippers need to identify and process this idea as well to satisfy their goals and appease their stars’ ambitions.