Houston Rockets Salary Cap Update

Goodbye, June. Hello, July.

It’s been an exciting few months since my last cap update. The Houston Rockets advanced to the NBA playoffs for the first time since 2009, ultimately losing to the Oklahoma City Thunder in a thrilling six-game series. Almost as importantly, the Rockets have once again grabbed the attention of a national audience, both with their play (led by budding superstar James Harden) and with their much-ballyhooed pursuit of now-unrestricted free agent Dwight Howard.

With that in mind, let’s take a look at the team’s current salary cap situation.

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

• Signed center Tim Ohlbrecht to a three-year non-guaranteed deal.
• Signed guard Aaron Brooks to a two-year deal, with the second season being non-guaranteed.
• Waived Tyler Honeycutt, electing not to “stretch” his $100,000 partial guarantee, meaning that Honeycutt will count $100,000 against the Rockets’ team salary in 2013-14.
• Drafted Murray State guard Isaiah Canaan with the 34th pick of the 2013 NBA Draft.  As a second round pick, Canaan will not count against the Rockets’ team salary until he signs a contract.
• Reportedly signed Tennessee State forward Robert Covington to a two-year partially guaranteed deal.  The deal is presumably at the rookie minimum ($490,180), with approximately $150,000 of that being guaranteed.
• Declined their option on the contract of Francisco Garcia (for $6.4 million).
• Waived Carlos Delfino ($3 million) and Brooks ($2.508 million), neither of whose contracts were guaranteed.
• By not waiving him, fully guaranteed the whopping $926,500 salary of Chandler Parsons for the 2013-14 season.
• Agreed in principle to trade Thomas Robinson to the Portland Trailblazers in exchange for two future second round picks and the draft rights to Kostas Papanikolaou (6-8 small forward from Greece, 48th pick of 2012 Draft) and Marko Todorovic (6-11 center from Montenegro, 45th pick of 2013 Draft)
• Elected not to spend the remaining $2.1 million of their 2012-13 Maximum Annual Cash Limit (which represents the aggregate amount of cash that a team can include in all trades combined over the course of a season).  The Maximum Annual Cash Limit for 2013-14 will be $3.2 million.

Salary Commitments and Available Cap Room

“Thomas, we hardly knew you.”

(All salaries courtesy of ShamSports.com.)

Barring any further roster moves, and assuming a maximum team salary cap of $58.5 million (which is the rough estimate according to the latest league projections but will be clarified by July 10), the Houston Rockets now have just over $40.11 million in team salary committed for the 2013-14 season: Harden ($13.78 million . . . approximately – more on that here), Jeremy Lin ($8.37 million), Omer Asik ($8.37 million), Royce White ($1.72 million), Terrence Jones ($1.55 million), Donatas Motiejunas ($1.42 million), Parsons ($926,250), James Anderson ($916,099), Greg Smith ($884,293), Patrick Beverley ($788,872), Ohlbrecht ($788,872), Covington ($490,180), and Honeycutt (waived – $100,000 partial guarantee).  (Technically, Robinson’s $3.52 million salary is still on the books until the trade with Portland can be consummated on July 10, but he’s off the books for all intents and purposes.)  Add it all up, and the Rockets currently have salary cap room in the maximum amount of approximately $18.39 million.

Of course, that figure includes the non-guaranteed “league minimum-equivalent” contracts of Anderson, Smith, Beverley and Ohlbrecht, all of which can be waived to create additional cap room.  I purposely do not include Covington with the other four players here because, since his contract is partially guaranteed and his total salary is (likely) the same as an incomplete roster charge, it’s actually cheaper to include him in team salary than not to.

If you waive Anderson, Smith, Beverley and Ohlbrecht, and replace them with four (4) incomplete roster charges ($490,180 each, to bring the total number of players/cap holds on the books to a minimum of 12), it would bring the Rockets’ total available cap room up to approximately $19.8 million.

To make up the difference needed to get to “Dwight Max Room” ($20.51 million), the team could potentially waive White using the “stretch” provision, which enables teams to stretch out a waived player’s cap hit over twice the number of years remaining on the player’s contract, plus one (in White’s case, his lone remaining guaranteed year could be stretched out over three seasons).  Waiving White would net the Rockets an additional $656,140 in cap room.

While these moves would bring the Rockets’ total available cap room–according to my figures–to approximately $20.46 million in cap room (around $54,000 or so short of Dwight Max Room), it is entirely possible that my rough estimate of Harden’s salary–my one deviation from the numbers on Shamsports.com because no such number exists yet–could be off by more than $54,000, meaning that this avenue quite possibly would create Dwight Max Room.  It’s also entirely possible that Howard won’t let $54,000 determine the course of his NBA career.

Other Cap-Clearing Alternatives
Despite that the above-referenced cap maneuvers might create Dwight Max Room, it is unlikely that the Rockets would want to part so easily with some of its good young players.  For purposes of this piece, let’s assume that the Rockets elect to waive Anderson and Ohlbrecht (each of whom could presumably be re-signed later at the same salary, although either or both of them might get claimed off waivers by another team) but decide not to waive Smith and Beverley (both of whom are tremendous value contracts and neither of whom would ever make it through waivers unclaimed).  Keeping Smith and Beverley on the books would reduce the Rockets’ cap room by $692,805

However, if White could be packaged in a trade with Smith without any salary coming back rather than being waived, the Rockets would get to approximately $20.73 million in cap room.  That’s more than enough to offer Dwight the max and would also allow the Rockets to retain Beverley.

There is also no guarantee that it will be another one or more of the young power forwards dealt.  There have been reports that the Rockets were gauging other teams’ interest in Lin (including one very speculative-sounding rumor of a trade to Detroit for a signed-and-traded Jose Calderon).  If Lin were moved with little to no salary coming back, Houston could comfortably add Howard–and probably another player–without having to trade or waive anyone else on the roster.  (For what it’s worth, I assume that the team does this for all of its players–sans Harden–and would not jump to any conclusions that the Rockets are actively looking to “dump” their starting point guard.)

There are any number of alternative means by which the Rockets can create additional cap room.

Save a Little Something for Isaiah
Howard may not be the only new addition on whom the Rockets would like to use their available cap room.  Given that Canaan likely graded out as a first round talent on the Rockets’ draft board (pure speculation on my part), it is also likely that the team would want to sign Canaan to a three- or four-year deal, similar to the contracts previously handed out to second rounders like Chase Budinger and Parsons.

In order to sign Canaan to a contract of more than two years in length or starting at higher than the rookie minimum salary ($490,180), the Rockets would need to leave a sliver of cap space open.  For instance, in 2011, the Rockets set aside $850,000 in cap room to use on Parsons while negotiating a free agent contract with Samuel Dalembert.

Of course, if the Rockets are forced to choose between using an extra few hundred thousand dollars or so on Howard or Canaan, I’m pretty confident that Canaan would find himself playing for the rookie minimum faster than you can say “Carl Landry.”

So . . . Is That It?

After the draft, Daryl Morey was confident he could create the cap room, and he was right

Using most/all of their cap room on one free agent signing (Howard) has raised many questions from fans wanting to know how the Rockets will be able to add other quality veteran free agents for next season.  While the utilization of cap room means that the Rockets would not be able to utilize many of their salary cap exceptions, there are still other avenues to add quality players.

One new salary cap exception introduced in the 2011 CBA is a type of Mid-Level Exception commonly referred to as the “Room” Exception.  The Room Exception allows a team that has opted to use its salary cap room to exceed the salary cap by a set amount in order to add one or more players on a one- or two-year contract.  It cannot be combined with cap room to offer a free agent more money.  For the 2013-14 season, the amount of the Room Exception is $2.652 million.  It is quite possible that the Rockets will try to use the Room Exception to bring back either Garcia or Delfino or to add another quality veteran willing to take a pay cut in order to play on a championship contender.

Another avenue for adding players could be the Minimum Player Salary Exception, which allows a team to exceed the salary cap to add players for the veteran’s minimum.  Such contracts can be up to two years in length.  If a veteran of three or more NBA seasons is signed, his cap hit is only the two-year veteran’s minimum salary (for 2013-14, $884,293); and if such a player signs a one-year minimum deal, the portion of his salary over and above the two-year veteran’s minimum actually gets picked up by the league!  To the extent that the Rockets need to waive several players to create enough cap room to sign Howard, it is possible that Houston adds at least one decent veteran on a minimum salary contract.

With a potential foundation of both Harden and Howard, the Rockets would certainly present an attractive opportunity to NBA veterans looking for a rotation spot on a winner.

Conclusion
Over the course of the past year, the Houston Rockets have quickly gone from “perennial bridesmaid” to “prime catch” in the eyes of many star players.  With an awesome (and I mean that literally) contingent–including Rockets owner Leslie Alexander, GM Daryl Morey, Executive VP Gersson Rosas, CEO Tad Brown, Harden, Parsons and Rockets legends Hakeem Olajuwon and Clyde Drexler–meeting with Howard, it is quite clear that the Rockets have become major players in how the NBA landscape will shift this summer and beyond.  With a core of high quality young players, along with plenty of cap room, Houston now presents one of the league’s best opportunities for a star player to become part of a championship contender for the next several years.