Stories from the Early Free Agency Hours
Free agency opened as calendars turned to July and with it came quite a lot of news on the general NBA front as well as some things for the Celtics.
The 2018-19 salary cap was announced at $101,869,000. This is nearly $1M above the most recent estimates. With that comes a $123,733,000 luxury tax threshold and a $129,817,000 "apron" hard cap for any teams that take an action that invokes that.
The salary cap now impacts exception amounts so all of the variants of the MLE, the BAE, minimum contracts, and rookie scale deals crept up with the higher than expected cap figure. The estimated average salary for this year is just north of $8.8M.
Mo Money Mo Problems
An important, if under-the-radar, story is the cap projections for the next two seasons. Previously the 2019-20 season had a $108M cap estimate that many people thought would come down some. Instead it increased to $109M and a new estimate of $116M was revealed for 2020-21.
If you take the last few years of cap increases and understand how the cap calculation actually works (which I'm not going to bother explaining in detail because you almost certainly don't care) the story is that league revenues are growing at 7-8% annually. That's a strong growth rate for any mature business and leaves teams relatively flush with cash.
The spending spree that came with the cap spike of recent seasons still wasn't enough to actually account for all that teams were supposed to spend, artificially inflating the 2017-18 cap. Teams have now caught up to their contractual obligations meaning that the cap boost did not happen again this year. Cap spike contracts plus an inflated cap last year plus a "true" cap number this year results in those same teams flush with cash not being flush with cap space.
What happened in the early hours of free agency is what always happens in the NBA. Teams that have money want to spend it! They don't have easy cap space to use like a few seasons ago, but they do not appear to be as shy as expected in handing out contracts and going into the tax.
This will ultimately end badly for some teams on their cap sheet, but with near 8% growth and players still only getting 51% of revenues (as opposed to the 57% of a few CBAs ago) the business side of owning a team is looking very good. The penalty of being a tax team is higher in raw numbers than it has been in the past but not necessarily as a percent of team revenues.
Can the Thunder really have a $250M payroll and tax bill after keeping Paul George? Probably not, but they aren't paralyzed by the fear of it. Is Doug McDermott worth a three year deal for $22M? Probably not, but Indiana is willing to spend. Should Denver be ponying up $54M for Will Barton and going deep into the tax? Probably not, but they seem fine with where they are.
Increasing Revenues Mitigate C's Concerns
That near 8% revenue increase projection is good news for Boston. Kyrie Irving will be a free agent next summer and if the cap jumped to $108M and then flattened out it would exacerbate the team's long-term cost problems.
Kyrie's new deal will almost certainly include 8% rises on top of the 5% raises for Hayward and Horford, plus possibly Smart/Rozier on contracts with increasing salaries. An 8% upward revenue trend won't balance out rookie scale annual increases, but it could create a situation where the team's max contracts are, in total, increasing at a rate slower than the cap and tax.
If that growth rate continues through the end of this CBA and TV deal it will make a lot of teams feel better about their payrolls.
In a move that surprised no one, Boston announced the re-signing of Aron Baynes. The Aussie/Kiwi big man signed for the most allowed using his Non-Bird Rights (120% of his salary from last year) on a two year deal with the second season a player option. His salary for 2018-19 will be $5,193,600.
I normally don't like teams giving non-star players a player option, but this is one of those scenarios where it makes some sense.
To begin with, most team building rules are for teams trying to get to where Boston is. Once you're a contender you have to bend a lot of rules to get over the last hurdles. Good front offices also earn a lot of leeway in these decisions that teams with unestablished or poor track records don't.
Beyond that basic premise, getting Baynes on his Non-Bird amount means the team preserves that Non-taxpayer MLE (often called the "Full MLE") to find a replacement for Marcus Smart if he leaves. If they keep Smart, they would still have either the Full MLE or the Taxpayer MLE (depending on Smart's deal) to use either to upgrade one of the back-end roster spots or to hold for a potential midseason addition.
The trade-off here is basically getting Baynes to agree quickly and to a number that Boston can live with, and giving him the player option for not soliciting other offers and taking a number that he may see as a slight discount. This is the kind of calculation that bad teams should not make, but good teams sometimes need to.
With Baynes signed and Robert Williams and Brad Wanamaker functionally on-board, the Celtics are now about $7.8M below the tax line.
It's hard to imagine Smart signing for less than that in any situation other than taking the qualifying offer, which I don't think is the desired outcome for either party. If he returns to Boston on a fair market deal for longer years it will push the C's into the tax.
From there they could make moves to duck back under, and could make those moves as late as the trade deadline, but t's not as easy as it looks. Sending out someone like Marcus Morris could require taking back some smaller salary, and re-filling his roster spot would obviously add back into the tax total.
Furthermore, having signed Baynes to a contract that preserves the MLE the team could be looking to add more salary on upgrades instead of cutting back. If the tax is a primary concern then that comes off the table, unless Smart is on the QO or playing elsewhere.
I'm sure the team would like to avoid the tax; the payout to non-tax teams should be hefty this year on top of it helping avoid repeater status down the line. However, it does not appear to be a high priority right now. As with the rest of the league, the Celtics appear to be on very solid financial ground and happy to invest in a title contender, if the right players are available.