July 2013 Houston Rockets Salary Cap Maneuvers: Timing is Everything

The flexibility Daryl Morey built for the Rockets paid off with the addition of Dwight Howard

This is it.

For the Houston Rockets, Les Alexander, GM Daryl Morey and his entire staff, years of maintaining salary cap flexibility have culminated in the acquisition of one Dwight Howard, a transformational superstar.

The month of July has seen a flurry of activity in Houston, with the Rockets making numerous trades and free agent acquisitions.

As news of each purported roster move trickled in, some confusion may have arisen among Rockets fans as to how one move could be made in light of a previously reported move having already occurred.

However, as the recent “incremental outflow” of news has shown us, the Rockets have chosen not to execute each purported move until another specific move has been made.  There is an order to these salary cap maneuvers, one that allows the Rockets to maximize certain benefits under the CBA.

With that said, here is my attempt to explain the order in which the Rockets’ July salary cap maneuvers were (most likely) made:

• As of July 1 (the start of the 2013-14 season), the Rockets were technically operating above the projected maximum team salary cap of $58.5 million.  This was due to the inclusion of various salary cap exceptions, cap holds and player contracts soon to be moved but which could not be moved during the July Moratorium (July 1 – July 9).

  (The actual salary cap came in at $58.679 million.)

• Houston traded Thomas Robinson to the Portland Trailblazers in exchange for the draft rights to Kostas Papanikolaou (regarded by many as a first round talent) and Marko Todorovic and two future second rounders (reportedly, (1) a 2015 pick being the lesser of Minnesota’s or Denver’s and (2) Portland’s own 2017 pick).

• Upon consummating the Robinson trade, the Rockets were sufficiently below the salary cap that they automatically lost the right to use the Mid-Level Exception (MLE) or the Bi-Annual Exception (BAE).  Larry Coon does a great job explaining why this happens here.

• Next, the Rockets traded Royce White, the draft rights to Furkan Aldemir and enough cash to cover White’s 2013-14 salary to the Philadelphia 76ers for, well, nothing.  (Technically, they got some future draft pick, but it is a near-certainty that the pick contains protections that will never allow the Rockets to get the pick, with the obligation quickly extinguishing.)

• Houston renounced the rights to free agents Francisco Garcia ($9.15 million cap hold) and Earl Boykins ($884,293 cap hold).  Really, this renouncement could have been done prior to the Robinson or White trades, but it definitely was done prior to the signing of Howard.

• On July 13, the Rockets waived James Anderson ($916,099 non-guaranteed salary) and Tim Ohlbrecht ($788,872 non-guaranteed salary), which were the last moves necessary to create a total of approximately $20.59 million in cap room – in other words, enough room to sign Howard to the maximum permitted salary.

• Immediately after waiving Anderson and Ohlbrecht, Howard–to much fanfare–signed his four-year contract with the Rockets starting at $20,513,178, thus eating up almost all of the Rockets’ available cap room.  But upon his signing, an extra $490,180 of cap room (equal to the amount of the incomplete roster charge that went away when Howard was added to the roster) opened up.

• With respect to two of the three remaining incomplete roster charges, Houston used an equivalent amount of room ($490,180) to sign each of Robert Covington and B.J. Young to three-year contracts, each starting at the rookie minimum.  According to a report by Jonathan Feigen, Covington’s deal involves a fully guaranteed first year, and Young’s deal has a small partial guarantee in Year 1.  Presumably, both the second and third years of each deal are non-guaranteed.

• The Rockets then used all of their remaining cap room (a little over $570,000, by my estimates) to sign Isaiah Canaan to a three-year contract.  Without actual cap room, the Rockets could not otherwise sign Canaan for more than two years to a contract with a starting salary in excess of the rookie minimum.

• With the Rockets now “capped out,” they were free to sign each of Garcia, Omri Casspi and Reggie Williams to two-year, veteran’s minimum contracts (reportedly, as to Year 2 of each deal, with Garcia’s being a player option, Casspi’s being a team option, and Williams’s being non-guaranteed).  Teams are permitted to exceed the salary cap (via the Minimum Player Salary Exception) to sign players to the veteran’s minimum salary under contracts of up to two years.

Even with all of these new player acquisitions, Houston still has the use of its “Room” Exception, a salary cap exception available to teams that utilize their cap room. The Room Exception allows a team to sign one or more players for up to an aggregate of $2.652 million under contracts of up to two years in length. The Rockets are not expected to use their Room Exception at this time, although things could change if a good player somehow shakes loose later this summer or even during the season.

As you can see, the Houston Rockets took advantage of the salary cap rules in order to effectuate an assortment of moves by strategically making those moves in a particular order.

Timing is everything.