Money Matters

Darius Soriano —  July 24, 2013

A casual look around the internet reveals a simple truth: more people care about what the Lakers will be doing a year from now than what occurs in the months leading up to that date in 12 months.

Yes, people wonder (and care) about how good the Lakers can be next year, whether or not they should be tanking for a top draft pick, when Kobe will return (and how good he will be when he does), and whether or not Nick Young will shoot a lot (no one actually wonders this, we all know he will). But, even though these are legitimate talking points, the real intrigue around the Lakers is what they will do next summer when they can potentially have a boatload of cap space to chase any free agent who is on the open market.

I say “potentially” because the Lakers’ cap situation isn’t as clean as many have led you to believe. Sure, it’s possible the Lakers can have as much as $50 million in cap space, but that number isn’t exactly real. Nor is it very likely to exist when July 1, 2014 rolls around on your calendar. I’ll let Kurt Helin of Pro Basketball Talk explain:

The Lakers go into next summer with two contracts on the books — Steve Nash with $9.7 million and Robert Sacre at $915,243. Also, Nick Young could stick around as he has a $1.2 million option, but it is more likely he opts out to try and find a longer deal. So we’ll leave Young out of this. But the Lakers don’t just have the difference between the $10.6 in guaranteed salary and the $62 million to spend. Meet the cap hold — a placeholder salary that counts against what you can spend based on the value of what you could pay your free agents to come back (also that could include holds for draft picks and minimum contract players yet to be named to get you to a dozen roster spots). In the Lakers case there are cap holds for Kobe Bryant (almost $32 million), Pau Gasol ($20 million), Steve Blake ($7.6 million) and on down the line. With all their cap holds in place the Lakers are at $86 million, way over the cap and luxury tax line, they couldn’t sign anybody.

Those pesky cap holds assigned to the Lakers entering free agency swallow up all of their potential cap space. And while that problem can be easily fixed by renouncing the rights to all their free agents, renouncing those rights dissolves those players’ Bird Rights which also means an inability to give them higher raises in any contract you do sign them to after renouncing, but, more important, also means that signing them to cheaper, one year deals with the hope of re-upping them the following summer with massive raises becomes nearly impossible because the Lakers would no longer have their Bird Rights to pay them amounts that push them well over the cap.

(Said another way, a good way to pacify a player who you’re asking to take a pay cut from, say, $30 million to $10 million is to have the ability to give him a 7.5% raise in years two and three of his contract rather than a 4% raise. That may not seem like it matters, but if you’re intent on giving a player a raise and the player is intent on receiving one, being able to give a higher one is important. But, even more important, is if you want to be able to tell a player “next year, would you mind taking a massive pay cut to, say, $3 million a year and then the year after we can talk about a contract more in line with your actual value. *wink* *nod*” and actually mean it, you need to have that player’s Bird Rights so you can go over the cap to keep your own free agent. Renouncing a player’s rights surrenders those Bird Rights and makes that latter scenario impossible due to the CBA.)

These are the types of cap gymnastics the Lakers are dealing with heading into next summer, so it’s not really as simple as saying “the Lakers can sign multiple players to the max next summer”. In fact, as Jared Dubin put it, it’s a pipe dream for that scenario to actually occur.

All of this thinking about money leads me to several random thoughts, some of which go in entirely different directions:

  • Will Kobe get an extension before the summer of 2014? Ramona Shelburne has already reported that the team intended to discuss an extension with him this summer and will now push those talks back to when Kobe is further along in his rehab. There are benefits to this approach, even though it throws a monkey wrench into the “all in for 2014” plan. Not only does an extension save the team from having to answer the question on what do about renouncing his rights, but it also brings more clarity to their cap situation heading into the summer and allows them to better know how much money they actually have to spend on free agents heading into the summer and who their targets will be with those available funds. What that extension amount will be is unknown, but a 3 year/$30 million dollar deal seems possible (though that may just be wishful thinking).
  • Building on this point, I don’t expect the Lakers to actually be in a position to sign two max level free agents next summer. While it’s easy to see that signing two elite players in one off-season is great from the standpoint of accelerating any rebuild, it also puts the team in a position where they’d be close to the luxury tax line after only one season being below it, and, thus, put them close to where the repeater tax is in play. Said another way, to get two max players while keeping Kobe the Lakers will likely need to sign Kobe to a cheap one year deal and then sign him to a massive deal in the summer of 2015 using his Bird Rights. If that were to happen, the team gets much closer to the tax line and would still likely need to fill out the roster with additional players. From everything I know, the Lakers will not pay the repeater tax, the financial penalties are just too severe.
  • I believe the Lakers’ dream scenario is signing the best free agent on the market next summer (in other words LeBron or, possibly, Carmelo) and then filling out the roster in a way that allows them to chase another max free agent in the summer of 2015. Remember, Steve Nash’s contract expires that summer and with it there’s roughly $9 million of salary shaved off the Lakers’ books. If the front office plays their hand correctly, they could be major players in free agency in back to back seasons and grab one player in 2014 who is in the middle of his prime and another in 2015 who is just starting his prime. If talking about the best case for long term success, this plan may even be better than signing two max free agents next summer who are in the middle/approaching the end of their respective primes.
  • Of course, forget those last two bullet points if the Lakers can get out from under the tax this season. As it stands today (which is before Ryan Kelly has been signed), the Lakers are approximately $4.75 million over the luxury tax line for the 2013-14 season. That number will go up once Kelly is signed and after the Lakers add one or two more players to fill out their roster. But since Kelly is a 2nd round pick and the Lakers can only sign free agents to minimum level contracts, the amount they end up over the tax line when the season begins will be roughly $7 million. There are several ways the Lakers could try to shave that amount of money off their payroll between the start of the season and the trade deadline. And, if they decided to go that route, they could put themselves in position to be over the tax line again as soon as the 2015 season without having to worry about the repeater tax because they’d be under the tax for two consecutive seasons (this upcoming one and the 2014 one). Just some food for thought.
  • Speaking of Ryan Kelly, I wouldn’t be surprised to see him signed to a contract similar to the one that Chandler Parsons signed after he was drafted in the 2nd round by the Rockets. Parsons was signed to a 4 year/$3.6 million contract, but with the final two of those years not guaranteed. Parsons, of course, has turned into a very good player for the Rockets and is now one of, if not the, best bargains in the entire league. I don’t expect Kelly to turn into a player the caliber of Parsons, but over the next several years the Lakers will need cheap, young talent on their roster and if Kelly develops, the Lakers won’t have to worry about him hitting free agency early and having to match contract offers after issuing qualifying offers. Sure, the Lakers could always treat Kelly the way they treated Darius Morris, Andrew Goudelock, and their other 2nd round picks from recent drafts. But, as the team just did with Robert Sacre, there’s also little harm in locking up a young player for multiple years with the option of cutting him down the line for no cost if he doesn’t pan out. Especially if he does end up exceeding expectation and you can then reap the rewards of having a contributing player locked into a very cheap contract. (UPDATE: Pretty much ignore what is written above about Ryan Kelly. I’ve been informed by the great Kevin Pelton that Kelly can only be signed to a 2 year deal by the Lakers. In my example, the Rockets signed Parsons to a 4 year deal using part of their mid-level exception. The Lakers no longer have a mid-level exception (used on Chris Kaman) and don’t have any other exceptions available to them to sign Kelly to a longer deal. That said, I wouldn’t be surprised to see Kelly signed to a 2 year deal rather than a 1 year deal, with the 2nd season not guaranteed. This would give the Lakers the most flexibility with him specifically.)

There’s really no way of knowing how all this plays out this early in the process and, ultimately, a year from now is a long ways off. A lot can change between now and then that makes much of what’s written above obsolete. That said, there’s a reason a year from now offers so much intrigue. There will be some hard decisions involved, but the Lakers can set themselves up for long term success while holding onto a franchise icon in the process.

Darius Soriano

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