Hornets CBA FAQ Part Two: Buyer’s Remorse, Gordon Sign then Trade, Cap Space, Nick Collison

Published: July 4, 2012

We take another look at the parts of the CBA that affect the Hornets near-term and mid-term.

Larry Coon does a fantastic job covering the CBA, but we understand that it is a little daunting to go through the entire thing. Some misinformation is passed around by Hornets fans on some particular topics, but we can have one place where we can set it all straight. With that in mind, we have collected the most common questions from Hornets fans on the new CBA, on how it specifically affects our players and/or Demps’ options. Without further ado:

Q: Can the Hornets just match the Suns offer and then trade him wherever they want?

A: Yes and No. Mostly no. First of all, if they do match the Suns offer sheet, they can not trade him to the Phoenix Suns for the duration of the contract (4 years). However, they can match the offer sheet and then engage in trade talks with the other 28 teams in the league immediately. As always, there is a catch. Per the new CBA, Eric Gordon would have veto power on any trade for the next year. So, the idea of matching the offer sheet and sending him to Charlotte for MKG is nice and all, but Gordon would have to agree to go play for MJ. Not likely. After that year is up, the Hornets are free to trade Gordon anywhere without his consent until the final year of his deal.

So the scenario is similar to a sign-and-trade, as both the team and Eric would have to agree to the deal, at least in the first year. It’s just that Phoenix would be removed from consideration, per the CBA, if the offer sheet is signed.

Since nothing has been officially signed yet, however, Dell Demps can get on the phone with the Suns and work out a sign and trade in which the Hornets give him the same contract and move him for pieces if they prefer to have player’s whose bodies and hearts are both in the same city. Again, Dell holds all the cards, the only question is how he wants to play them.

Q: What’s the deal with matching salaries for this sign-and-trade possibility?

A: As far as match goes, this is is complicated as many teams have large free agent amounts that can easily come off the books quickly. The Suns have those of Steve Nash, Robin Lopez, and others. If we just focus on them an assume neither team is going to go into the tax, then we have three basic cases. Remember, it’s always the amount after the trade that determines if you are over the cap . . . groceries fit in your bag if they are all in after you fill it; how much room there was before is immaterial.

1) If the team adding salary ends up under the cap, then the salaries don’t have to match, as long as the team losing salary can make it work with their exceptions. It’s not clear which of us will be adding salary, so this analysis ends here.

2) Assuming the team adding salary is over the cap and the deal is moves salary to them that is $9.8 million to $19.6 million, then the other team can take on that salary plus $5m. For a Gordon max deal, this is about $18m the Hornets can take back. On the reverse side, the Phoenix sends us a smaller amount back, 150% of this amount plus $100k has to equal Gordon’s contract. Thus, we have to take at least about $8.6m

3) Assuming the team adding salary is over the cap and the deal moves salary to them that is over $19.6 million, then the other team can take on 125% that outgoing salary plus $100k. The max return starts at $24.6m

Q: If the Hornets sign Gordon to a fully guaranteed, high-dollar deal and have buyer’s remorse. If they can’t unload the contract, what are their options?

A: In this case, the Hornets have a few options.

The basic option is to just let him play out his contract. Teams have players on their team that make too much money for not enough production. The bigger the disparity, the more bitter the taste, but it’s an option that is completely in the control of the team.

An alternative is to waive him and “stretch” his contract. Previously, a waived player would still count fully against a team’s cap and would receive his compensation, perhaps reduced depending on the player’s future employment. Stretching was allowed in the new CBA. This allows the salary to be spread out over a longer period of time than in the original contract, both in terms of actual cash flow in the terms of the player’s book value.

The total of the player’s remaining salary is spread out over 2n+1 seasons, where n is the number of seasons left on the player’s contract, if the process starts before September 1 of the NBA season. If it is exercised after that, the current season is paid out normally and the remaining seasons are stretched.

For example, if they decide to waive Gordon and stretch his deal after 2 years into a new 4 year deal, the total remaining balance is paid out over 5 years, not 2. This reduces the effect of the Hornets salary to 2/5 of its original average effect. In general, the reduction will be to between 1/3 and 1/2 of the original average annual burden. Gordon would receive every penny promised, just over a longer time, and can still benefit from the waiver process.

Consider the particular case of Gordon making $12m and $13m in the last two years of his deal, and they decided to waive him and stretch the contract. Gordon would count for $5m per year for 5 years. This is the $25m owed him spread over 5 years, one more than twice the number of years left on the deal.

Related to this is a buyout. These are negotiated, so it is hard to gauge the financial effects on the team, but if he’s underperforming, it’s hard to imagine that Gordon would accept a buyout for significantly less than he was owed, as he’d be hard pressed to make the money up on another deal.

Q: How much cap room do the Hornets have?

A: None, but maybe up to $11,128,748. This may seem surprising to you, but until we know they have renounced players, they have none.

The Hornets have $29,742,240 in committed salary to players under contract. This increases to $37,315,252 when the scale for our first round draft picks (not the final contract value until they are signed) and the roster charge for having fewer than 12 players under contract is factored in. Additionally, factoring in Gordon’s $9,577,960 free agent amount, we arrive at $46,893,212 as our salary number. Once we factor in our other free agent amounts, we blow past the $58,044,000 salary cap, without even factoring in our exceptions.

The Hornets have many options before them and just a few constraints, the main one being the minimum salary of $46,435,000.

The Hornets can renounce their mid-level and bi-annual exceptions to sign a free agent for up to $11,128,748 in first year salary, with increase equal to 4.5% of this value. They can then sign Gordon, or do a sign-and-trade, for whatever amount using the Bird exception, and fill the roster out with rookies using the rookie exception.

If they just send Gordon off by not matching, we remove his free agent amount and the roster charge increases, leaving a cap figure of $20,255,144.

Taking an antipodal approach, the Hornets can not renounce their exceptions, stay over the cap, and fill out the roster using trades, the mid-level exception, and bi-annual exception, staying above the cap at each step in order to maintain access to these exceptions.

The Kaman and Landry free agent amounts can keep the Hornets over the cap even when sending Gordon out for nothing, by the way.

There are variations on these themes, but these are the two major groups of strategies: above the cap and below the cap.

The above will change if the cap changes.

Q: Can the Hornets do a “Nick Collison” deal?

A: Nick Collison’s deal with the Thunder contained a large signing bonus, then had a relatively salary going forward. This is advantageous in that is allows cap space in one year to used in a fashion in future years.

The specifics depend, of course on the player’s deal at the time, but here are the requirements and parameters in order to get this sort of deal with a declining salary.

The player cannot be on a rookie deal

The player must be at least three years into an at least four year deal.

The player must be amenable to receiving a lump sum payout, then declining payments.

The Hornets must have enough cap room this season to give a bonus that makes the total value of the contract acceptable to the player.

The Hornets will be limited in their moves through the year by using cap space in this manner and renouncing some of their exceptions.

There is exactly one player on team eligible for such a deal: Jarrett Jack. We’ll revisit this if we end up under the cap after filling out the roster.

Mike and Jason did these.


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