Houston Rockets Salary Cap Update

With the January 25th deadline to extend rookie contracts having passed, let’s take a look at the Houston Rockets salary cap situation heading towards the March 15th trade deadline.

The Rockets’ Latest Moves
Since my last update, the Rockets have made the following roster moves:

• There was this whole thing about a trade for Pau Gasol that didn’t end up getting approval from the league office, but I won’t get into that here. Let’s just say that Daryl Morey probably needed a hug after that ordeal.
• Fan favorite Chuck Hayes signed a four-year, $21.3 million deal with the Sacramento Kings . . . and then it was voided due to a detected heart defect . . . and then, after receiving a (relatively) clean bill of health, Hayes received a four-year, $22.4 million deal from the Kings.
• The Rockets signed Marcus Morris (the # 14 overall pick in the 2011 NBA Draft) to his first round rookie scale contract, using the maximum 120% of the rookie scale amount. The deal is for four years, $8.66 million.
• The team received assurances in writing from Donatas Motiejunas (the # 20 overall pick in the 2011 NBA Draft) that he would be playing the entire season overseas and would not seek to play in the NBA during the 2011-12 season. A little-known rule change in the new CBA allows first round draft picks playing overseas–who under the prior CBA would count against a team’s salary cap during the offseason–to not count at all against a team’s salary cap so long as written assurance are provided that they will not seek to play in the NBA during the following season. These assurances from Motiejunas added about $1.13 million in additional cap room for the Rockets this past offseason.
• The team signed Jeff Adrien to a two-year minimum salary contract. The first year is $150,000 guaranteed. The second year is fully unguaranteed, becoming $275,000 guaranteed if Adrien is not waived on or prior to July 14, 2012.
• The Rockets signed second rounder Chandler Parsons (the # 38 overall pick in the 2011 NBA Draft) to a four-year deal worth a total of $3.63 million. The deal is structured somewhat like the deal for Chase Budinger, although Parsons’s contract is a little more player-friendly. For instance, unlike in Budinger’s deal, the third and fourth years of Parsons’s deal become mostly guaranteed unless he is waived by January 1 of the prior season and become fully guaranteed unless he is waived by June 30 of the prior season. Essentially, this means that Parsons cannot be “used” as a non-guaranteed salary in trades.


The Dalembert signing looks good, but it cost the Rockets their cap exceptions

• Just before the start of the regular season, the team signed Samuel Dalembert to a two-year, $13.7 million contract. The deal pays Dalembert $7 million this season and approximately $6.7 million in 2012-13; however, the second season is only guaranteed for $1.5 million if Dalembert is waived on or before July 8, 2012 (which will presumably be the first day after the end of the July Moratorium on trades and free agent signings).
• In order to clear the salary cap room necessary to sign Dalembert to his contract, the Rockets renounced their rights to their Mid-Level Exception, their Biannual Exception, all of their trade exceptions (including the $7.35 million trade exception from the Shane Battier trade last February), and even their rights to unsigned free agents (including Yao Ming). Presumably, the Parsons contract (originally eligible to be signed using a portion of the Mid-Level Exception) was recharacterized as being signed using the Rockets’ cap room.
• Sometime prior to January 25, 2012, the Rockets exercised the third-year option on Patrick Patterson’s first round rookie scale contract ($2.10 million).
• On January 25, 2012, the team declined to exercise the fourth-year options on the first round rookie scale contracts of Hasheem Thabeet ($6.47 million), Jonny Flynn ($4.33 million), Jordan Hill ($3.63 million) and Terrence Williams ($3.14 million).

Rockets’ Cap Situation This Year: Capped Out But Looking to Trade
With the signings mentioned above (the Dalembert signing, in particular), the Rockets are essentially “capped out” for this season. They actually have around $777,000 in available cap room, but that isn’t going to do them much good.

However, because the Rockets are well below the luxury tax threshold, it is quite possible that Les Alexander would be willing to take on more salary this season via trade. Due to the more lax salary-matching rules under the new CBA, the Rockets can take back up to 150% of their outgoing salary, plus $100,000 (up to a maximum $5 million total difference) in any trade.

While it looks like the Rockets would not want to make any moves that increase payroll beyond this season (see below) unless they are acquiring a star, it is possible that the Rockets could serve as a depository for expiring contracts from tax-paying teams. That is, if the tax-paying team is willing to offer up, say, a future second round pick (or maybe even a first rounder) for the Rockets’ troubles.

This scary man could be playing for the Rockets... for the right price.

One rumored trade acquisition is New Orleans Hornets center Chris Kaman, who is on the books for a whopping $14.03 million in the final year of his contract. This is likely far more money than the league-owned Hornets would like to spend on a veteran who is not even starting on an otherwise young team. The other 29 NBA team owners that have to foot the bill for the Hornets’ expenses certainly want to reduce this season’s payroll (which is several millions of dollars over the salary cap but still below the luxury tax threshold). While David Stern (uh, I mean the Hornets’ front office) is insisting on highly coveted young players and draft picks in exchange for Kaman (ironic that the most ludicrous trade proposals are coming from the front office run by the man in charge of approving or rejecting trades based on fairness), it will be interesting to see if any team actually bends to these demands. Most likely, the Rockets will offer little more than expiring contracts and cash (perhaps also a future second rounder) to help alleviate the Hornets’ financial burden. Whether such an offer will net the Rockets Kaman will be something to watch out for between now and the March 15 trade deadline.

Look for the Rockets to explore trades involving one or more of their own expiring contracts. It is quite obvious that efforts to trade some of the former 2009 lottery picks prior to the January 25 option exercise deadline yielded no favorable results. As the season progresses, the Rockets’ asking price for these players will probably decrease, with buyouts even possible if they are not traded by March 15. (I’m looking at you, Hasheem.)

One current Rocket free-agent-to-be to keep an eye on is Goran Dragic. Given his relatively high level of play since joining the Rockets, along with the likelihood that he will be offered more money in unrestricted free agency than the Rockets are willing to spend on him, there is a decent chance that the Rockets look to move him (perhaps for a future draft pick) at the trade deadline. Of course, the Rockets could just as easily hold on to Dragic if they feel he is the difference between making the playoffs this season and missing them in the extremely competitive Western Conference.

Summer of 2012 – Clearing the Decks???
Barring any further roster moves, the Houston Rockets will have a minimum of approximately $33.99 million in salary commitments to seven players for the 2012-13 season: Kevin Martin ($12.44 million), Luis Scola ($9.41 million), Kyle Lowry ($5.75 million), Patterson ($2.10 million), Morris ($1.91 million), Parsons ($888,250), and a waived Dalembert ($1.5 million partial guarantee).

However, given Dalembert’s strong play–and the likelihood that there would be a trade market for him next summer–it is far more likely at this point that Dalembert’s full $6.7 million salary counts against the Rockets’ cap. It is also highly likely that the Rockets exercise the fourth-year option on Budinger for the league minimum salary of $885,120. Add to that the rookie scale cap hold for Motiejunas ($1.13 million), who will probably come over next season, and the Rockets’ total salary commitments increase to about $41.20 million for nine players.

Adrien is set to earn the league minimum $854,389 if he manages to remain on the roster beyond July 14, 2012. Restricted free agent Courtney Lee will have a cap hold of about $5.56 million (more details on Lee’s free agency can be found here); and Dragic, an unrestricted free agent, will have a cap hold of about $4.01 million. With these additions, the Rockets’ total salary commitments further increase to $51.62 million for twelve players.

As of the publishing of this update, it was unclear to me how the new CBA treated cap holds for rookie scale contracts where a team option was declined (as is the case for Thabeet, Flynn, Hill and Williams).  Under the previous CBA, the cap hold amount was equal to the maximum salary.  While I am not sure whether this “max cap hold” concept carried over to the new CBA, it is largely irrelevant, since the Rockets expect to have cap room available this summer.  My gut feeling, though, is that the Rockets will be unable to exceed the salary cap to re-sign any of those four players to above the league minimum salary.

How the Rockets handle Goran Dragic's free agency may greatly determine their available cap room.

Based on next season’s salary cap figure ($58.044 million, at which the salary cap will be artificially set before resetting based on the new BRI split in 2013), in order for the Rockets to maintain rights to their current players (except for the former 2009 lottery picks), they will have approximately $6.42 million in salary cap room.  This assumes that the Rockets value Dragic at an amount greater than his $4.01 cap hold and would like to retain him at a starting salary in excess of his cap hold figure rather than to spend that money elsewhere.  If the Rockets instead wish to cut ties with Dragic–or if they feel that they can just re-sign him to a starting salary of less than $4.01 million–then the team’s cap room figure increases to about $10.43 million (before accounting for the amount necessary to re-sign Dragic).

That’s without taking into account (a) the cap holds for the former 2009 lottery picks, (b) the cap holds for the Rockets’ 2012 first round picks (second round picks do not count against the cap until signed), and (c) the increased cap figure for Motiejunas if the team signs him to 120% of his rookie scale salary in order to get him into summer league before the start of 2012 free agency. If, for example, the Rockets and the New York Knicks both miss the playoffs and the Rockets end up with the # 11 and # 14 picks, and if the team signed both of those players and Motiejunas to 120% of their rookie scale salaries in order to get them into summer league play on time, then even after renouncing rights to the 09’ers, the Rockets’ available cap room with their current set of players could be as low as $2.24 million (or $6.25 million, without Dragic).

Not to worry, though. This figure is on the low end of the spectrum of the Rockets’ available cap room. If, on the other hand, the Rockets timely waive Dalembert and Adrien, don’t exercise Budinger’s option, manage to keep Motiejunas overseas for another year, renounce their rights to all free agents and do not end up with any 2012 first round picks, then their cap room with the current roster could be as high as $21.21 million.  While the Rockets will not likely commit all of those cap-clearing acts, it is reasonable to expect them to have cap room towards the higher end of this spectrum if necessary to acquire a star player.

Of course, none of these figures account for the near-inevitability of the Rockets making additional roster moves between now and the end of the 2012 offseason, with a chance that the team could open up even more cap room with a trade of Martin or Scola. Even then, though, it is unlikely that the Rockets will have enough cap room to sign two maximum salary free agents, especially if one of them is Dwight Howard (who will be eligible to receive a “super max” salary starting at about $19 million).

Conclusion
The Rockets have set themselves up nicely to make a run at a major acquisition next summer, either via free agency or via trade, by creating the potential to have copious amounts of cap room. How their desire to even have a chance at a prize like Howard or Deron Williams will affect the roster moves they make this season remains to be seen. Would the Rockets be willing to endanger their playoff hopes this season by trading current key pieces in order to increase their chance for a 2012 offseason prize?

Only time will tell.

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