New Orleans Pelicans Likely Will Operate Over the Salary Cap

For the first time in a number of year, the New Orleans Pelicans will likely operate above the salary cap for the entire season.

I know what you are saying: The Pelicans have been above the cap. You guys just got finished telling me how much Benson spent last season, and it was well over the cap, and it was even close to the tax line.

That is true. However, they went above the cap after dropping below it and using cap space. This is a subtle point, but it’s very important. Using cap space to complete transactions is often much more flexible than using exceptions, and this works in the team’s favor. Since the team seem poised to operate in this fashion for years, depending on how they treat the large bump in the salary cap, I wanted to lay out the basic differences.

All teams can:

  • Sign players using the Bird Exception
  • Sign their first round draft picks
  • Sign minimum contract players
  • Trade players using the Trade Exception

Below the Cap teams can also:

  • Trade players into cap space, which allows for unbalanced deals; see: Ayon for Anderson, picks for Holiday (which is why the trade was was not processed just after draft night . . . the team needed the cap room to exist, then it was further delayed because of his honeymoon.)
  • Sign players using a small exception known as the Room Mid-Level Exception; see: Salmons.
  • Sign free agents for amounts larger than exceptions may allow, up to the amount of cap space; see: Stiemsma signed for $25,000 more than the Room Exception allowed
  • Sign free agents or second round draft picks for terms longer than some exceptions allow; see: Russ Smith signing a minimum contract with a third year that was a team option. The minimum salary exception allows at longest only a two-year deal.
  • Allow deals to be agreed upon using space during the moratorium to be processed to deals using exceptions if helpful; see: Evans was tendered a free agent over using cap space, but the deal was converted to a trade by agreement of all parties, allowing the team to sign Stiemsma, make other offers. This change allowed the the team secure the free agent deal, then doing a trade instead, allows them to use the cap space again to an extent. The nature of the moratorium allows this, and this is highly restricted, as teams have to make sure that all deals agreed upon can be completed by some means.
  • Allow a player traded in to cap space to be aggregated into a trade immediately; see: Brad Miller prior to being traded for Robin Lopez.

Above the cap teams can instead:

  • Only sign players using certain exceptions, the Bi-Annual (every other year at most) and the Mid-Level Exception.

Short list, huh?

The above is not exhaustive, but it gets the point across. We’re not even getting into the apron and the tax. If the team gets close to that, we’ll take care of it then.

The two exceptions mentioned go for $5,464,000 (MLE) and $2,139,000 in first year salary. The MLE can be used to sign any single player of multiple players for up to that amount with raises of up to 4.5% of the first year salary, and the deals can be up to 4 years in length. If given to multiple players, their deals can differ, but each deal has those limits, and the total first year salary has a limit. The Bi-Annual Exception is similar, but has the lower limit on the total salary, the deals can only be up to 2 years in length. Also, this can not be used in consecutive years. The salary limits go up annually according to an agreed schedule in the CBA that is independent of the salary cap.

Don’t get too scared if this seems like it’s too restrictive. Mike put together a great piece about how the Pelicans can use this exception this season.

The MLE is one of the three main tools that teams over the cap use to grow. Many teams are successful for years with the MLE as their biggest weapon in free agency. To be clear, free agent signings agreed to based on these exceptions exceptions can become trades, but the flexibility and power are greatly reduced.

The second route is the draft. Note, the Pelicans have their first round draft picks for use or trade and have only minor claims to two second rounders (2016 can be swapped, 2017 is top-55 protected). Trading picks was a means to accelerate the rebuild when their free agent draw way not so great but they were not bad enough to land another player like Davis with enough confidence to risk losing Davis before the team was in fact rebuilt. Their three traded first rounders landed Asik and Holiday, and the Holiday trade likely played a role in helping to land Evans. At any rate, they need this tool, and they have it whether it be to trade or use as is each season.

The final route is trading. Since the team will be over the cap, their are restrictions on trades largely having to do with a relationship between incoming and outgoing salary. It get complicated, but here’s good data point. A player signed to the MLE can be traded later that season for a player whose salary is $8,296,000. That’s less than Ryan Anderson makes this coming season ($8,500,000), and a good bit less than Jrue ($10,595,507) and Evans ($10,734,586), give or take depending on relatively small incentives . . . I’m going with these numbers.

What will those guys bring back in trade, you ask? Individually, $12,850,000, $15,993,260, and $16,201,879.

Sound familiar? What does Eric Gordon make this season? $15,514,031, which can fetch $23,371,046 in an individual trade.

Factor in a non-guaranteed or minimum deal with an MLE guy later this season, and you see that Dell has many, many options to trade players individually, and clearly in packages, to trade away a player and take back a player with much higher salary. Every dollar value would be covered by some key player, with minor assets used to tailor a deal. Or, they could be combined to help land a major player.

This is very important. As we noted, the only way to add players unilaterally is through the draft or with the MLE. Players in the highest strata of the NBA will likely not be available to the Pelicans at that salary on with the draft picks (fingers-crossed, think about it). So, they must have big contracts on the books prior to going over the cap so they can both have those player and use them in trade to increase or decrease salary without completely gutting the roster to do so.

Dell appears poised to enter life above the cap with their quiver full. Whether this is happenstance or great cap management, the facts are there. The Pelicans are entering next season with a need to improve and changes already underway in terms of staff and a large number of bench contracts expiring. This is a critical season on the court, and that means this offseason and this season up to the trade deadline are important off the court.

Dell has made all his biggest moves via trade so far. Right now, he has to be hunting that second star to add to the core with Holiday (if my reckoning holds up in the new regime). Of course, his biggest target may not have the biggest salary in a package deal. Either way, I’m guessing he has his arrow nocked, string drawn, and the quarry in his sites. It’s just a matter of time before he shoots.

Will he hit?

Pass the popcorn.

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