New Orleans Pelicans Free Agency and the Tax

Published: July 5, 2015

The New Orleans Pelicans have had a busy start to the new season without creating much of a new look. The team replaced Monty Williams and at least some of his staff with Alvin Gentry and new assistants, but thee have not placed any players under contract yet who were not under contract last season with the team.

The Pelicans and Anthony Davis have agreed on a 5-year contract extension that starts in 2016-2017. While not directly affecting this season’s roster, it was a hugely important move. Davis will be playing on the final term of his rookie deal this season.

In actual free agency (in the moratorium period before signings are allowed), the Pelicans have agreed to terms with Alexis Ajinca, Omer Asik, and now Dante Cunningham (3 years, $9m total). They have extended a qualifying offer to now-restricted-free-agent Norris Cole, and they did the same to Jeff Withey before rescinding it, making him an unrestricted free agent.

Value of a Stable Roster

With no new faces from the recent draft and mechanisms to add pieces running out, the team is set to “run it back,” as McNamara (and seemingly others) like to say. As Graham later showed, there is some good support behind this idea given the level of player available to the Pelicans.

Beyond this, the coaching change is not something be ignored. Coach Williams and Coach Gentry are very different people and very different coaches. The idea that you can pop one out, slide the other in, and just be “better” is misguided. Adjustments take time for a number of reasons. Talking with some writers from The Bird Writes and Pelican Debrief, I said that I have no idea what to expect to start the season, then it’ll get worse, then come January I’ll start really buying what I see. By that time, there will have been adjustments, re-adjustments, etc.

Moreover, Dell Demps is the architect of this team. While others have had some input, this is Dell’s vision, right or wrong. He’s not afraid to take a risk or clean it up when possible in the cases it does not work. Given the differences in the coaching styles from last season to this coming season, it may be best to see how the coaching change affected his evaluation of the main roster pieces. Given the team’s limited mechanisms for growth this season, taking some time to see what you have before making an uninformed move seems justified.

Hidden Flexibility

I spent some time before 2015-2016 started laying out how life over the cap differs from line under it. This offseason is a taste of that, if a bit extreme.

  • Moves So Far
    • Anthony Davis Extension via Bird Rights
    • Omer Asik 5-year deal via Bird Rights
    • Alexis Ajinca 4-year deal via Early Bird Rights
    • Dante Cunningham 3-year deal via Mid-Level Exception
  • Remaining Tools
    • Bird Rights: Norris Cole, can be used for any salary
    • Early Bird Rights: Jeff Withey, Luke Babbitt, worth about $5,750,000 each (TBD post-moratorium)
    • Non-Bird Rights: Jimmer Fredette, about $1.1m
    • Minimum Salary Exception
    • Remaining Mid-Level Exception, about $2.5m depending on Cunningham’s deal
    • Bi-Annual Exception, $2,139,000
    • Traded Player Exception

As you can see, the team’s best options involve signing Norris Cole, which they seem to be planning to do once the market sets his value, bring back players they had last season, or sign a player or two in the sub-$3m range. Then, they can fill out the roster with minimum contract players. We are told that Withey and Babbitt are likely to return, which fits with the above, and the above makes sense of those moves.

If they were to use these tools to their fullest now or during the season, the Pelicans would find themselves at the tax line or above, depending on where it falls, likely between $80m and $82m. Above the tax there is what is called the apron, which is $4m above the tax. Once a team crosses the tax line, the team’s financial picture changes as they start to pay the NBA’s “Luxury Tax” rather than receive benefits from it. (This is not a government-imposed tax; this is a part of the soft cap system the NBA uses, and it is part of the Collective Bargaining Agreement, as well). Additionally, some transactions becomes less flexible. The apron levies even more hardship on a team by restricting transactions further than being a tax team does.

Most teams try to avoid the tax. Assuming Asik’s deal is $10m its first year, Ajinca’s is $4.75m, Cole ends up a $4m, and Cunningham’s deal starts at $3m, the team’s salary at that point is around $80m. Plus, they’ll had to add a player or two, waive Douglas, and hope Cole’s deal is that low. Staying below the tax line would give next to no room to make major changes.

Hidden Flexibility

So, maybe the team in the position that they may need to go into the tax to make the right move. Many a writer here and elsewhere are assuming the team will not pay the tax. Maybe they will, maybe they won’t. Dell was trading picks when people did not expect them to because they were thought to be so valuable. As it turns out, maybe they were not so valuable. Dell traded for the contracts of Rashard Lewis and Omer Asik under Benson’s ownership, incurring financial obligations that did not appear directly on the court or in the salary figure. So, who’s to say they would not become a tax team if it were worth it to do so?

At this point, not only are they positioned to become a tax team, but they are actually able to go over the apron, as well.

  • Teams can not go over the apron if they have received a player in sign-and-trade who is being signed-and-traded. The Pelicans have not received a player in this manner, so they are able to go over the apron.
  • Teams can not go over the apron if they use the Bi-Annual Exception. The Pelicans have not used the exception yet, so they are able to go over the apron.
  • Teams can not use more than the Taxpayer Mid-Level Exception in signing players using the Non-Taxpayer Midlevel Exception and go over the apron. The amount of the Taxpayer MLE is $3,376,000. Cunningham’s deal, as reported, is below this number in the first year. This could be me taking the reports too literally, but I checked a few reports and the deal seems no higher than $3m in starting salary. Also, Cunningham’s deal is for 3 seasons, which is allowed by the Taxpayer MLE. A 4-season deal is not, though it is by the Non-Taxpayer MLE.

In order to go over the apron, the team would have to not use sign any more free agents other than those who were on their roster last season and minimum contract players. This leaves trading, Dell’s specialty, as the means for growth. As noted, the team has an array of contract values that allow a number of trades, and even moreso once the free agent signings are eligible to be traded on December 15. Alternatively, they can send a player out in sign-and-trade if all parties agree.

Of course, not all trades increase salary, but teams trying to build will often take on inflated salaries or even bad contracts to try to become an elite team. At that point, some players will take discounts to play with that team whose options to pay are limited. So, in this case, we cam assume the Pelicans will take back salary exceeding what is sent out. In order to go over the apron when a team is at the tax line, this excess needs to be at least $4m. If it is a single player leaving in trade, Gordon is the only player that fits the bill; his contract would allow a tax team to take back about $19.5m, or about $4m more than he makes this season. Any two of Anderson, Evans, Holiday, Gordon, and Asik (when eligible) would do the trick, too. The team could nickel and dime its way up the salary scale, but it’s not clear that it’s with the financial problems caused by the tax to nickel and time up the talent. Rather, a big swing is necessary. Also, with the jump in the cap next season, the danger of being a tax team for two seasons in a row is quite low, which lowers the risk of such a move.

I have long said that Evans and Anderson were perhaps signed in part to be good trade chips, and we all know Gordon has some value as a player now. Anderson and Gordon are also expiring contracts. While expiring deals are not pure gold, as teams prepare for next offseason’s free agency, some may try to clear space for maximum salary offers and fall just a bit shy. An expiring to such a team could have good value, even if the player received back had a sizable cap hold; the devil is in the details.

I’m not suggesting a major deal is pending. I’m suggesting that the team has left this option open at this time. The situation may not be as I describe, and the situation could change, as maintaining the option will require some austerity. They will not be able to receive a signed-and-traded player and will basically only be able to sign “new” free agents to minimum contracts. However, positioning themselves in this way could be very valuable. As the trade deadline nears, there may not be may teams who are ready, willing, and able to add major salary, even for a good asset. Being a team in that position and with good assets to send back in trade could lead to something major.

So, as the team brings back what they had last year, if things go according to plan, the level of play will improve, the Pelicans players will look better than last season, and some of their contracts will be shorter. Also, the team will determine just what the core of the team is in the new regime and what the team is missing. If they can’t add what they need in the manner in which they have before, they are positioned to make another unexpected move to improve, and perhaps in the most substantial pay possible this season: going into the tax and above the apron.


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