Houston Rockets Salary Cap Update

Now that the March 15th trade deadline has passed, let’s take a look at the Houston Rockets salary cap situation heading towards the 2012 NBA Draft and the 2012 offseason.

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

• The Rockets waived Jeff Adrien prior to his contract becoming fully guaranteed.
• The team signed Greg Smith on February 8 to a three-year deal for the league minimum.  The deal was fully guaranteed for this season, is 50% guaranteed for 2012-13 and is non-guaranteed for 2013-14.
• At the trade deadline, the Rockets traded Hasheem Thabeet, Jonny Flynn and Minnesota’s 2012 second round pick (previously acquired with Flynn during last year’s draft) to the Portland Trailblazers in exchange for 6-11 center Marcus Camby.
• Also at the trade deadline, the team traded Jordan Hill to the Los Angeles Lakers in exchange for Derek Fisher and the Dallas Mavericks’ 2012 first round pick.  The pick from the Mavericks (previously acquired by the Lakers in the Lamar Odom trade) is top-20 protected through 2017 and then becomes fully unprotected in 2018.
• On March 16, the Rockets waived Terrence Williams.
• On March 17, the team signed Courtney Fortson to a 10-day contract.
• On March 19, the team reached a buyout agreement with Fisher. 

The Derek Fisher Buyout:  Cap Consequences

The buyout benefited both the Rockets and Derek Fisher, who signed with the Thunder

Whether it was due to Fisher’s altruism or Daryl Morey’s hard-line stance in negotiations (or both), the Rockets ended up making out like bandits with Fisher’s buyout agreement.  Fisher elected to leave his entire 2012-13 salary ($3.4 million) on the table and to walk away from Houston, choosing instead to seek a key bench role on a title contender (which, sadly, the Rockets currently are not).  Shortly after clearing waivers, Fisher signed with the Oklahoma City Thunder.

However, due to league rules, Fisher was technically not allowed to waive his 2012-13 player option.

The most likely reason for the league’s denial of Fisher’s waiver of his player option may have been that Fisher’s contract included a set window during which his player option either be invoked or waived; and since this window had not yet opened, Fisher was not permitted to take any action with respect to his option.  Furthermore, league rules prohibit a team and its player mutually amending a player contract if the end result is to shorten the length of that contract, so Fisher and the Rockets could not even mutually agree to the waiver of the player option.  While the parties theoretically could have mutually agreed to eliminate the OPTION (making Fisher’s 2012-13 year fully guaranteed), they could not have eliminated the YEAR on his contract.  (Many thanks to Larry Coon for guidance on these technical contractual issues.)

So, rather than waive his option, Fisher and the Rockets agreed that Fisher’s buyout amount would be the equivalent of the remainder of his 2011-12 salary, which was then allocated across this year and next in proportion to what his remaining salary would have been had he not been bought out and had instead exercised his player option.  Since most buyouts do not include a setoff right for any additional salary the player makes on a new team — as opposed to the setoff typical for most waived players who are not bought out — Fisher’s new salary with Oklahoma City was not subtracted from (or “set off” against) the Rockets’ salary obligations.  And even had there been a setoff, it would not have affected the Rockets’ cap numbers; it would only affect salary paid.

The result?  The Houston Rockets will take a salary cap hit of $644,005 in 2012-13.

This is an almost negligible amount.  To put it in perspective, the league minimum salary for a player with only one full year of NBA experience is $762,195.  Given the Rockets’ penchant for making moves to gain further cap flexibility, this cap hit is rather inconsequential.

So, after the dust had settled on the Fisher trade and buyout, for the burden of taking this insignificant cap hit next season, the Rockets in essence paid almost nothing for a first round draft pick likely to be in the early 20s.  By comparison, most first round picks in that range cost a minimum of $3 million cash, if not the inclusion of future second round picks or the obligation of taking on a bad contract (like Fisher’s, had he not left so much money on the table).

I know it’s not the home run that we were all hoping for, but this trade turned out to be one hell of a deal for the Houston Rockets.

Summer of 2012:  Options, Options, Options
Barring any further roster moves, the Houston Rockets will have a minimum of approximately $35.01 million in salary commitments to six (remaining) players for the 2012-13 season: Kevin Martin ($12.44 million), Luis Scola ($9.41 million), Kyle Lowry ($5.75 million), Patrick Patterson ($2.10 million), Marcus Morris ($1.91 million), Chandler Parsons ($888,250), Fisher’s buyout ($644,005), a waived Samuel Dalembert ($1.5 million partial guarantee) and a waived Smith (about $381,000).

However, it is highly likely that the Rockets exercise the fourth-year option on Chase Budinger for the league minimum salary of $885,120.  It is also very likely that the Rockets will not waive Smith, since the additional amount he’d be owed if not waived would be less than the amount of a roster charge (should the Rockets have fewer than 12 players otherwise counting against their cap).  Add to that the rookie scale cap hold for Donatas Motiejunas ($1.13 million), who will likely be coming over next season, and the Rockets’ total salary commitments increase to about $37.41 million for nine players. 

Between the Rockets’ lack of other centers (Camby will be a free agent this summer) and the fact that he can walk and chew gum at the same time, it is probable that Dalembert will not be waived and that his full $6.7 million salary counts against the Rockets’ cap this summer.  That puts the Rockets’ cap figure at $42.61 million for ten players.  (NOTE:  I believe the Rockets have until July 8 to waive Dalembert without guaranteeing his entire salary; so there may be the possibility that a trade could be worked out during the July Moratorium with Dalembert being shipped elsewhere on July 8 for salary-matching purposes or as an attractive financial asset, with the acquiring team either keeping him or waiving him immediately in a salary dump. See my previous analysis of Dalembert’s contract)

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 Goran Dragic, an unrestricted free agent, will have a cap hold of about $4.01 million (details on Dragic’s free agency here). With these additions, the Rockets’ total salary commitments further increase to $52.18 million for twelve players.

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, they will have approximately $5.87 million in salary cap room.   

That’s without taking into account (a) re-signing Camby, (b) the cap holds for the Rockets’ 2012 first round picks 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, Dallas secures a top-10 record, the Rockets end up with the # 11, # 14 and # 22 picks, and if the team signs each of those players and Motiejunas to 120% of their rookie scale salaries in order to get them into summer league play on time, then the Rockets would be left with only a negligible amount of available cap room with their current set of players (less than $440,000).   

Before anyone beats his/her head against a wall, decrying that the Rockets won’t have any cap room after all, the Rockets can just as easily have plenty of cap room.  If, for instance, the Rockets (1) make the playoffs, (2) timely waive Dalembert and (3) let Lee, Dragic and Camby walk in free agency, then their cap room with the current roster would jump up to about $17.03 million.

What this means is that the Rockets will be able to easily afford one maximum salary free agent… if they are willing (and, more importantly, able) to lure one to Houston.  They are also in a flexible enough position that they can make some minor moves (e.g., trading Dalembert, packaging multiple 2012 first round picks to move up or down, or even paying another team to eat a small salary) in order to keep one or more of their free agents.  Heck, if there just isn’t anything out there in free agency on which it’s worth using their cap space, the Rockets could even choose to bring back their free agents (assuming they can get them locked into reasonable deals) and save some cap room for 2013 (when Martin, Dalembert and others come off the books).

And almost none of this analysis takes into account that the Rockets will make trades.  If the 2012 NBA Draft ends without the Rockets having made at least one trade, I will be shocked.  A draft-day (or later offseason) trade of Martin or Scola could dramatically increase the Rockets’ available cap room to sign free agents or to provide further flexibility in future trades.

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 positioning themselves as one of several NBA teams that will have enough cap room to sign a maximum salary free agent.  Or they can make some moves for the future while still preserving salary cap flexibility for 2013 and beyond.  Or they can potentially add to their list of talented players on reasonably-priced deals if they retain Lee and/or Dragic, adding even more flexibility to trade other parts going forward in their pursuit of a star trade acquisition.

F-L-E-X-I-B- . . . well, you know the drill by now.

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