Extension for Lowry or Amir - Fun With Cap Space and Finding Loopholes

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Old 01-09-2014, 12:53 PM   #1 (permalink)
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Default Extension for Lowry or Amir - Fun With Cap Space and Finding Loopholes

So we all know that Ujiri just loves controllable assets. And hates asset risk, such as letting a player go to unrestricted free agency. So extensions to deals are what he is probably most comfortable with. So let's find a way for him to extend players before they hit free agency.

The premise is based on Collison's case when he extended in OKC.

In 2010-11, Nick Collison was in the last year of his 4 year deal. He was due 6.75 M in that final year. Towards the end of the year, OKC decided they wanted to extend his contract. But they did something funny when they did.

OKC had an abundance of cap space that year, and signed Collison to an extension of 2.76M per year, but with a "signing bonus" of 6.52 million. This would usually be illegal - signing bonuses are limited to a small portion of the overall contract, and don't typically affect the cap situation (they get spread out over the entire contract). The way they avoided those limitations is by renegotiating his current deal (his expiring 6.75M deal) and then signing an extension on the renegotiated deal. Since they had the cap space, they renegotiated his current deal to be for 13.27M instead of 6.75M (you need cap space to do this). That gave him an effective salary of 4.4M per year over the extension, even though their cap hit was 1.6M less.

Applying that case to the Raptors, you can theoretically see potential. It gives the opportunity to offer more for Lowry than his theoretical extension limit would allow, which would solve the UFA risk problem. But for it to work, the Raptors need cap space now. And they are far from that. Currently they have 68M committed. That's about 9.4M over the cap.

Now if they wanted to offer Lowry 34M over 4 years to keep him (which is probably roughly market value), I think to agree to a 3 year extension he'd need more than 8.5M per year to do so. He could probably agree to 30M over 3 years instead of 34 over 4. Maybe that's optimistic, but I'll go with it. So that's 10M per year, which the Raptors cannot offer. They are currently limited to about 7M per year, a 7.5% raise over his current salary.

It is that raise over his current salary that defines what they can offer. 30M over 3 years is a starting salary of 9.3M. That means he would need a salary of 8.65M this year to be eligible for an extension of that value. He currently makes 6.21M - that's a difference of 2.44M. That is the amount of cap space the Raps would need to clear up - see, they don't even need to front load a full signing bonus to be able to keep Lowry, just enough to make re-signing him possible. So, let's take that 2.45M off the total contract, meaning we need only sign him to a 3 year, 27.5 M deal, with a "signing bonus" of 2.5M now. Now if you iterate that a few times, you get an ideal contract extension starting at 8.72M (28.1M over 3 years) with a signing bonus of 1.91 M. That gives 30M to Lowry over 3 years, with the minimum amount of cap space needed this year.

So if the Raps can clear 1.91M in cap space, THIS YEAR, they could do it. So they would need to shed 11.35M in salary before June 30th. Waiving Salmons won't do it as his non-guarantee is for next year, not this year. Would have to be a big deal with a team well under the cap.

Anyway, Lowry seems like a stretch.

---

Amir though. Amir we have another year before he expires, so this summer we could do the same trick described above, but it will be easier to get the cap space to do it. And for Amir it wouldn't be a case of trying to get just enough wiggle room to extend him, but to try to put as much of his salary in one year as possible.

This summer, we currently have 74M committed in salaries and cap holds. The cap was projected to 61M at the time of the CBA, although I believe the current projection is closer to 62M. I'll go with 61M to be conservative.

Let's say Salmons, Daye and Hansbrough are released. That clears 7.6M off the cap.

Assuming Kyle Lowry re-signs at 4 years, 34 million (8.5 M per year, backloaded); or 5 years, 44M, that gives him a salary of 7.64M next year. That clears 1.675M off the cap.

Now, let's say Vasquez is let go, because he's terrible. That clears another ~5M.

Let's say we re-sign Patterson to 5 years at 5M per year. That would start at 4.3M. That brings the cap space up to 5.2M.

5.2M in cap space, 11 players signed (including Stone and Buycks). Assuming we go with Buycks/Stone backup PG, we have Patterson and Hayes as backup bigs, and Fields as a backup wing. So ideally we would want an upgrade at the wing/guard and to lock down Amir as much as possible. Note that the cap room MLE (2.7M) would be available to us to sign a little help as well.

So, in the ideal re-signing Amir world, we don't upgrade at the wing, and stick with Fields and Novak as primary backups on the wing with Stone/Lowry taking some 2 duty if need be.

That means we have 5.2M to renegotiate with. There is a limitation - if a player has their salary renegotiated and extended like this, the maximum salary drop from the renegotiated year to the first year is 40%. So if we want to give Amir 3 years at 10M per year, we do the following.

Renegotiate next year's 7M salary to 12.2M. Give max raises each year. This gives him a contract that runs from 7.3 M in 2015-16 to 8.4M in 2017-18. Total value 23.6M, plus the 5.2M bonus in the renegotiation, gives him the equivalent of a 28.8M extension, while taking about 1.75M off our annual cap hit for his contract. As a note, 5.6M is the amount needed to give him a full 30M extension. Any other signings (including if we have a 1st rounder we need to sign) will eat into that cap space. Note that the cap will likely be about 1M higher than I've used here, so there is more wiggle room than I am making out.

Utilizing that strategy and the assumptions I stated above for the rest of the roster, our 2015 cap space looks to be about 19.0M and our 2016 cap space is 15.0M (there are big cap holds for JV and Ross this summer).

We could instead look to use that 5M this summer to sign a player, but I would argue the short term benefits of that are far outweighed by the flexibility this course gives moving forward. Especially considering the tendency of MLE range players to far underperform their contracts.

Anyway, I hope this post has given some hope to those who want to keep the team together long term that signing Lowry for an expensive contract in free agency would not kill our flexibility moving forward.

Last edited by DanH; 01-09-2014 at 02:38 PM. Reason: Small number typo in middle of post
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Old 01-09-2014, 01:06 PM   #2 (permalink)
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Sweeeeeeeeeeeeeeet post.

I love DanH. He's cool.
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Old 01-09-2014, 01:10 PM   #3 (permalink)
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Great post, thanks DanH! If we could trade Novak and Fields for expirings and draft good/serviceable players. Our cap situation would be much better
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Old 01-09-2014, 01:11 PM   #4 (permalink)
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Great post, thanks DanH! If we could trade Novak and Fields for expirings and draft good/serviceable players. Our cap situation would be much better
We should be able to get something for Novak, he was afterall traded for the great Ill Mago.
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Old 01-09-2014, 01:13 PM   #5 (permalink)
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Ya. Dan rules. Great post. Someone send this to masai and get dan a job.
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Old 01-09-2014, 01:13 PM   #6 (permalink)
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I remember seeing Collison's huge salary listed a few years back when looking over team payrolls during some fake trade ideas when I was bored. I always assumed it was some error on one of the websites. Guess not.
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Old 01-09-2014, 01:14 PM   #7 (permalink)
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Ya. Dan rules. Great post. Someone send this to masai and get dan a job.
So long as Dan is not too involved in short term team philosophy. I don't want Masai getting talked into tanking!!!!
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Old 01-09-2014, 01:18 PM   #8 (permalink)
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I think the chances of us re-signing him are 50/50. If finish the season strong, I think we have a shot but if we struggle, I doubt he will want to stay.
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Old 01-09-2014, 01:43 PM   #9 (permalink)
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I think that if they don't re-sign him we might see a S&T.
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Old 01-09-2014, 01:46 PM   #10 (permalink)
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Posting a link to this on the RF FB and twitter, what a great piece!

Amazing Job Dan
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Old 01-09-2014, 01:47 PM   #11 (permalink)
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I think the chances of us re-signing him are 50/50. If finish the season strong, I think we have a shot but if we struggle, I doubt he will want to stay.
the chances of signing him are nearly 100% IF we are willing to pay him whatever he wants (assuming we're going to be good the rest of the season). The main problem, imo, is the fact that we may have to pay through the teeth, given that lowry will have a LOT of leverage over us. If he goes to say Orlando, he may lose an extra year of contract, but if we lose him for nothing, we'd be hard pressed to find a reasonable replacement.

The only hope would be for vasquez to pick up his play to the point of at least becoming a credible alternative, giving MU some pull. Either that, or maybe lowry will truly enjoy his time here and be willing to give us a small discount, which is not unrealistic, especially if we can do well in the playoffs. He's a competitive dude and I have a feeling he places a high value on winning.
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Old 01-09-2014, 02:02 PM   #12 (permalink)
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the chances of signing him are nearly 100% IF we are willing to pay him whatever he wants (assuming we're going to be good the rest of the season). The main problem, imo, is the fact that we may have to pay through the teeth, given that lowry will have a LOT of leverage over us. If he goes to say Orlando, he may lose an extra year of contract, but if we lose him for nothing, we'd be hard pressed to find a reasonable replacement.

The only hope would be for vasquez to pick up his play to the point of at least becoming a credible alternative, giving MU some pull. Either that, or maybe lowry will truly enjoy his time here and be willing to give us a small discount, which is not unrealistic, especially if we can do well in the playoffs. He's a competitive dude and I have a feeling he places a high value on winning.
I don't know man. I agree but I don't think I will put it as nearly 100%. I can see other teams paying him top $$$ if they are desperate.
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Old 01-09-2014, 02:09 PM   #13 (permalink)
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Not that I doubt your expertise, but why don't other teams do this signing bonus loophole?
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Old 01-09-2014, 02:22 PM   #14 (permalink)
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Not that I doubt your expertise, but why don't other teams do this signing bonus loophole?
Well, OKC did. But it is rare to be in a situation where you have cap space now but also want to retain expiring players long term. So it has limited use.
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Old 01-09-2014, 03:46 PM   #15 (permalink)
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nice try dan
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Old 01-09-2014, 05:06 PM   #16 (permalink)
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So we all know that Ujiri just loves controllable assets. And hates asset risk, such as letting a player go to unrestricted free agency. So extensions to deals are what he is probably most comfortable with. So let's find a way for him to extend players before they hit free agency.

The premise is based on Collison's case when he extended in OKC.

In 2010-11, Nick Collison was in the last year of his 4 year deal. He was due 6.75 M in that final year. Towards the end of the year, OKC decided they wanted to extend his contract. But they did something funny when they did.

OKC had an abundance of cap space that year, and signed Collison to an extension of 2.76M per year, but with a "signing bonus" of 6.52 million. This would usually be illegal - signing bonuses are limited to a small portion of the overall contract, and don't typically affect the cap situation (they get spread out over the entire contract). The way they avoided those limitations is by renegotiating his current deal (his expiring 6.75M deal) and then signing an extension on the renegotiated deal. Since they had the cap space, they renegotiated his current deal to be for 13.27M instead of 6.75M (you need cap space to do this). That gave him an effective salary of 4.4M per year over the extension, even though their cap hit was 1.6M less.

Applying that case to the Raptors, you can theoretically see potential. It gives the opportunity to offer more for Lowry than his theoretical extension limit would allow, which would solve the UFA risk problem. But for it to work, the Raptors need cap space now. And they are far from that. Currently they have 68M committed. That's about 9.4M over the cap.

Now if they wanted to offer Lowry 34M over 4 years to keep him (which is probably roughly market value), I think to agree to a 3 year extension he'd need more than 8.5M per year to do so. He could probably agree to 30M over 3 years instead of 34 over 4. Maybe that's optimistic, but I'll go with it. So that's 10M per year, which the Raptors cannot offer. They are currently limited to about 7M per year, a 7.5% raise over his current salary.

It is that raise over his current salary that defines what they can offer. 30M over 3 years is a starting salary of 9.3M. That means he would need a salary of 8.65M this year to be eligible for an extension of that value. He currently makes 6.21M - that's a difference of 2.44M. That is the amount of cap space the Raps would need to clear up - see, they don't even need to front load a full signing bonus to be able to keep Lowry, just enough to make re-signing him possible. So, let's take that 2.45M off the total contract, meaning we need only sign him to a 3 year, 27.5 M deal, with a "signing bonus" of 2.5M now. Now if you iterate that a few times, you get an ideal contract extension starting at 8.72M (28.1M over 3 years) with a signing bonus of 1.91 M. That gives 30M to Lowry over 3 years, with the minimum amount of cap space needed this year.

So if the Raps can clear 1.91M in cap space, THIS YEAR, they could do it. So they would need to shed 11.35M in salary before June 30th. Waiving Salmons won't do it as his non-guarantee is for next year, not this year. Would have to be a big deal with a team well under the cap.

Anyway, Lowry seems like a stretch.

---

Amir though. Amir we have another year before he expires, so this summer we could do the same trick described above, but it will be easier to get the cap space to do it. And for Amir it wouldn't be a case of trying to get just enough wiggle room to extend him, but to try to put as much of his salary in one year as possible.

This summer, we currently have 74M committed in salaries and cap holds. The cap was projected to 61M at the time of the CBA, although I believe the current projection is closer to 62M. I'll go with 61M to be conservative.

Let's say Salmons, Daye and Hansbrough are released. That clears 7.6M off the cap.

Assuming Kyle Lowry re-signs at 4 years, 34 million (8.5 M per year, backloaded); or 5 years, 44M, that gives him a salary of 7.64M next year. That clears 1.675M off the cap.

Now, let's say Vasquez is let go, because he's terrible. That clears another ~5M.

Let's say we re-sign Patterson to 5 years at 5M per year. That would start at 4.3M. That brings the cap space up to 5.2M.

5.2M in cap space, 11 players signed (including Stone and Buycks). Assuming we go with Buycks/Stone backup PG, we have Patterson and Hayes as backup bigs, and Fields as a backup wing. So ideally we would want an upgrade at the wing/guard and to lock down Amir as much as possible. Note that the cap room MLE (2.7M) would be available to us to sign a little help as well.

So, in the ideal re-signing Amir world, we don't upgrade at the wing, and stick with Fields and Novak as primary backups on the wing with Stone/Lowry taking some 2 duty if need be.

That means we have 5.2M to renegotiate with. There is a limitation - if a player has their salary renegotiated and extended like this, the maximum salary drop from the renegotiated year to the first year is 40%. So if we want to give Amir 3 years at 10M per year, we do the following.

Renegotiate next year's 7M salary to 12.2M. Give max raises each year. This gives him a contract that runs from 7.3 M in 2015-16 to 8.4M in 2017-18. Total value 23.6M, plus the 5.2M bonus in the renegotiation, gives him the equivalent of a 28.8M extension, while taking about 1.75M off our annual cap hit for his contract. As a note, 5.6M is the amount needed to give him a full 30M extension. Any other signings (including if we have a 1st rounder we need to sign) will eat into that cap space. Note that the cap will likely be about 1M higher than I've used here, so there is more wiggle room than I am making out.

Utilizing that strategy and the assumptions I stated above for the rest of the roster, our 2015 cap space looks to be about 19.0M and our 2016 cap space is 15.0M (there are big cap holds for JV and Ross this summer).

We could instead look to use that 5M this summer to sign a player, but I would argue the short term benefits of that are far outweighed by the flexibility this course gives moving forward. Especially considering the tendency of MLE range players to far underperform their contracts.

Anyway, I hope this post has given some hope to those who want to keep the team together long term that signing Lowry for an expensive contract in free agency would not kill our flexibility moving forward.
Great post Dan. I'm hoping we resign Amir as I enjoy what he brings to the table, both on and off the court.
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Old 01-09-2014, 07:19 PM   #17 (permalink)
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I don't know man. I agree but I don't think I will put it as nearly 100%. I can see other teams paying him top $$$ if they are desperate.
yeah, but we can give him one extra year. And almost all teams that can pay him big money and have a starting spot for him are going to be worse than us. So we have a good situation and the ability to beat any offer. Unless he *really* needs espn, can't see how he leaves, provided we are indeed willing to pay what he asks.
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Old 01-09-2014, 07:30 PM   #18 (permalink)
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Dan!

If this team is kept together going forward, I'd look to the summer of 2016 and a chance at Durant.
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Old 01-09-2014, 07:35 PM   #19 (permalink)
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Dan!

If this team is kept together going forward, I'd look to the summer of 2016 and a chance at Durant.
IF, giant IF, but IF Lowry/Amir/JV/DD/TR, maybe PP, and at least average bench were to be on the team, with the addition of KD, the Raptors could legitimately compete for a championship.
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Old 01-09-2014, 07:36 PM   #20 (permalink)
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We have Lowrys bird rights rights so not overly concerned. Amir would probabaly not be able to be done if we use Lowry's bird rights. snowball

Great intersting post as always Dan.
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