Would a Big Cap Increase Help or Hurt the Pelicans?

Published: April 19, 2014

Yesterday, Larry Coon projected quite a massive increase in next years’ salary cap and the natural question to ask is: What does this mean for the Pelicans? Well, first let’s talk numbers. Coon projects the salary cap to go from $58.7 million to $63.2 million. That is a 7.7% increase, which is higher than the maximum allowed player raise on contracts from year to year (4.5%). Long story short, that means that numerous teams will have a good amount of cap room this summer if this increase does come to fruition.

As of right now, the Pelicans have seven guys locked into guaranteed contracts for next year – Anthony Davis, Ryan Anderson, Tyreke Evans, Eric Gordon, Jrue Holiday, Austin Rivers, and Alexis Ajinca. Combined, their contract count for $54.1 million. When you factor in cap holds, that means the Pelicans can start a free agent at a little over $7 million per year. The Pelicans would also have the ability to use the room exception, which would allow the Pelicans to give a player a maximum contract of two years and $5.7 million total.

So, is this good or bad? Sounds good on the surface, right? Having more money seems to be better for the team than having less money, but not so fast. Let’s dig a little deeper.

A Whole New World

Let’s imagine a world in which the cap barely goes up. This is the norm actually, as the cap usually increases two to three percent, at most. In that world, the Pelicans would not have had cap room but would have had access to the Mid-Level Exception and the Biannual Exception. They could have used cap holds to keep their own guys AND get two other players with exceptions while staying under the luxury tax. For instance, they could have re-signed Roberts, Smith, and Aminu, then gone after free agents with those two exceptions. Can’t do that now.

They can’t do that because you can only use those two exceptions if you don’t use cap room. Once you use cap room to sign or trade for players, you lose the right to use those exceptions. You can use the room exception, but that is a far less enticing exception to players and usually yields a lesser caliber of player. Put it this way – Greg Stiemsma was signed for about the same amount as the Pelicans will have with the room exception. The mid-level exception is twice as big and has been used to sign guys like: Martell Webster, Jamal Crawford, and JJ Hickson.

So that is the essential trade off – the Pelicans would get more cap room in this scenario to sign guys from other teams, but they would lose some powerful exceptions. In a world where there was a small increase, they could have signed Roberts, Smith, Aminu, Morrow (with the biannual), and a guy like PJ Tucker with the MLE. In this new world, they could theoretically still do that, but they would have to overpay those guys to get above the cap, only to have the exceptions. The more likely outcome would be that they use the cap room to sign a player and use the room exception on one of their own players.

Getting Deeper Into the Numbers

If Larry Coon is right above the cap increase, Jason Smith might be the casualty. It’s hard to imagine that the team would not pick up Jeff Withey’s option. If they do, that brings their cap room down to about $6.7 million. Bringing in Pierre Jackson and picking up Babbitt’s option would cut another 400K. Now, we are down to $6.3 million. If the plan is (and should be) to save the room exception for Anthony Morrow, then it would be very hard to get a good free agent AND keep Smith. Even if Smith only wants $2-2.5 million, then the Pelicans would have less than what the teams with the MLE could offer to free agents. That would put them at a huge disadvantage, and probably limit the type of guy they could sign.

But if they let Smith walk and can start free agents off at a million more than teams with the MLE can offer, that is quite an advantage. A guy like Trevor Ariza could have several teams offering him the MLE, but the Pelicans would be able to trump that offer by more than $5 million over four years. Same could go for a guy like Spencer Hawes. But we have to remember that the cap will increase for everyone. More money out there means that prices go up because there are now more buyers with more cash.

Waiting for 2015?

Earlier this month, I advocated for Dell to wait for 2015 because that free agent class is loaded at the 3 and 5 positions.  Coon states in his blog that the 2015-16 cap could climb all the way to $66 million. If that happens, the Pelicans could have nearly $25 million in cap room if they can unload Gordon before that summer. If the Pelicans can limit their spending this summer, and maybe just sign smaller contracts or guys to one year deals, then they can make their big splash in 2015, as the cap goes up more than $7 million between now and then.

Will This Make Gordon Easier To Trade?

Gordon is going to be a hard guy to move, but the more money that is out there and the more prices inflate due to that additional money, the less horrible Gordon’s contract looks. Fifteen teams will be in position to have up to $20 million or more in cap room  heading into this summer. Now, look at the guys hitting the market. Let’s assume Lebron and Melo aren’t going anywhere. Who’s the next best unrestricted guy on that list? Kyle Lowry? Lance Stephenson? Luol Deng? Marcin Gortat?

There isn’t a ton of talent on the market and there figures to be 6-8 teams standing there at the end of musical chairs, holding a bag of money with nobody to give it to. Gordon still won’t look incredibly appetizing, but he would be more palatable, especially if you don’t have to give up anything to get him.

So is it Good or Bad?

An increase that is this big will make it hard for the Pelicans to get the mid-level exception. But that might not be such a bad thing. They can use cap room to outbid teams that only have access to the MLE. The increase in cap room probably forces the team to part ways with Roberts, Aminu, and maybe even Jason Smith. The increase also gives you more flexibility with trades, though. If the Nuggets want to dump Wilson Chandler, but don’t want to take anything back, New Orleans can now absorb his entire contract without sending anything away – something they couldn’t do without the massive increase.

The biggest problem with the large increase in both the salary cap number and the luxury tax number is that it will likely cause prices to go up this summer. A guy like Lance Stephenson is likely the big winner here, as teams will chase him and Indiana will be able to increase their offer to him, since the luxury tax will increase quite a bit as well. Six million dollar players will get 8 or 9 per year; 3-4 million dollar players will get the MLE, and so on and so on.

My solution, as it almost always is, would be to zig while others are zagging. If teams see this increase as a chance to spend more money, you try to use it as a chance to unload some money (Gordon) and wait out the market. Instead of calling some free agent at 12:01 am like they did with Tyreke, just wait teams out and try to identify the next Anthony Morrow. Find one or two guys who are sitting around at the end of the dance, looking for a partner, and lock them in to one year deals. Let others overpay this year, and wait until 2015 to spend big on a piece that will really make a difference.



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