Houston Rockets Salary Cap Update

What a difference a week makes.

After being within hours of acquiring Chris Bosh and creating a top-flight title contender for the next few seasons, the Houston Rockets lost Bosh to a five-year, full max deal to stay in Miami, then elected not to match the three-year, $46 million offer sheet that Chandler Parsons signed with the Dallas Mavericks.

While it is obvious why Bosh elected to stay in Miami (he and his family love it there, and it was a LOT more money), it is less obvious to many why the Rockets allowed Parsons to take his Buffalo Jeans up I-45 to shop for tight-fitting T-shirts with Mark Cuban for the next two to three years.

The tough choice on Parsons made by Rockets owner Leslie Alexander and GM Daryl Morey was rooted in the belief that a team with Dwight Howard, James Harden and Parsons (on his new deal) — without the benefit of another star-caliber player on the roster — was less likely to win an NBA championship than a team with Howard, Harden and the flexibility to add another star and/or to fill out the roster with a superior supporting cast.

So, it’s time to once again take a look at the team’s current salary cap situation and where the Rockets can go from here.

Player Salary, Exceptions and Available Cap Room

(Salaries and contract information courtesy of ShamSports.com and some good old-fashioned guessing.)

The Houston Rockets currently have the following player salary commitments, cap holds and salary cap exceptions available for the 2014-15 season:

Player salary commitments:

Dwight Howard ($21.44 million), James Harden ($14.73 million), Trevor Ariza ($8.58 million), Alonzo Gee ($3 million, non-guaranteed), Terrence Jones ($1.62 million), Donatas Motiejunas ($1.48 million), Scotty Hopson ($1.45 million, non-guaranteed), Josh Powell ($1,310,286, non-guaranteed), Joey Dorsey ($948,163), Patrick Beverley ($915,243, non-guaranteed), Jeff Adrien ($915,243), Ish Smith ($915,243), Isaiah Canaan ($816,482), Robert Covington ($816,482, partially guaranteed for $150,000), and Troy Daniels ($816,482).  Second round pick Nick Johnson does not count against the cap until he actually signs a contract.

Cap holds:

Jordan Hamilton ($2.1 million), recent first round pick Clint Capela ($991,000), and Francisco Garcia ($915,243).

Exceptions:

(1) a trade exception from the Jeremy Lin trade that allows Houston to absorb one or more contracts totaling not more than $8.47 million (and which CANNOT be combined with other salaries for matching purposes in trades);

(2) the Non-Taxpayer Mid-level Exception (MLE), which allows them to sign one or more players to contracts with starting salaries totaling $5.305 million for up to four years in length; and

(3) the Biannual Exception (BAE), which allows Houston to sign one or more players to contracts with starting salaries totaling $2.077 million for up to two years in length.

To Be or Not To Be (Over the Cap)

By not matching the offer sheet on Parsons, Houston has the flexibility either to create some cap room or to operate above the cap.

To create cap room, the Rockets would need to waive the above-mentioned exceptions and some of the non-guaranteed player salaries and also to renounce some of its cap holds (or, in the case of Capela, to get an agreement in writing from him that he will not play in the NBA next season).  If the Rockets waived/renounced to the maximum extent possible (while still keeping Beverley) without making any trades, they could create up to around $9.23 million in cap room.

However, given the dearth of remaining free agents worthy of such a salary (Phoenix PG Eric Bledsoe and Detroit PF Greg Monroe — both restricted free agents — either would not take such a low salary or would have such an offer quickly matched by their incumbent teams) and the ability to exceed the cap with the exceptions and cap holds, it is much more favorable to the Rockets at this point to operate over the cap.

The recently announced signing of Dorsey, Adrien and Smith is an indication that Houston does not intend to use its cap room any time soon.  As veteran’s minimum signings, the Rockets could have used all of their available cap room and then exceeded the cap to sign each of them.  Instead, they signed all three, cutting the team’s maximum available cap room by $1.26 million.

Therefore, expect to the see Houston operating over the cap . . . unless the right trade or free agent opportunity presents itself that can only be accomplished by using the cap room the Rockets could create.

Trade Tools

Because the Rockets do not have quite enough cap room available to simply trade for most star players, look for Houston to take advantage of its other tools to make trades while operating over the cap, taking advantage of the league’s salary-matching rules.

Non-Guaranteed Salaries:

Between Gee, Hopson, Powell and Covington, the Rockets have enough non-guaranteed salaries to take back nearly $10 million in incoming salary.  That is before even factoring in additional (guaranteed) salaries, such as those of Jones, Motiejunas or Canaan.

However, because they were acquired in trade while Houston was over the cap, the Rockets are unable to aggregate the salaries of Gee or Hopson with other player salaries for two months, essentially until mid-September.  It is quite possible that trades could be lined up between now and September using Gee and Hopson; but they could not be consummated until September.  (Also, as recent free agent signings, none of Ariza, Dorsey, Adrien, Smith or Daniels can be traded until December 15.)

As the Rockets hunt for more salary to match for a star player in trade, they could even make trades in multiple stages, where a first trade is made in September using Gee and Hopson, with the resulting larger salary received in that trade later aggregated with still more salary in November or December for an even larger contract.

The Lin Trade Exception:

The Lin trade exception not only allows the Rockets to acquire their primary target — with players such as Goran Dragic ($7.5 million) and Ersan Ilyasova ($7.9 million) fitting perfectly into it –it could also be used as a supplemental piece to a larger trade.  A team that otherwise might not trade its player for the draft picks, players and non-guaranteed salary that Houston was otherwise offering might be more willing to make a trade if they could also unload an additional contract or two into the Lin trade exception.  Expect the Rockets to use that trade exception as a selling point in their search for a star player.

Bird Rights:

Another overlooked trade tool for the Rockets:  the Bird rights of Hamilton and Garcia.

Because the Nuggets declined their team option on Hamilton prior to trading him to Houston, the Rockets are limited to offering Hamilton the same $2.1 million starting salary he would have been eligible for had that option been picked up.  (The Lakers re-signed Jordan Hill a couple of years ago under similar circumstances after the Rockets declined to pick up his option.)

Garcia, however, is not bound by such restrictions.  Hypothetically, the Rockets could pay Garcia a max salary in a sign-and-trade arrangement.  Such a sign-and-trade is further complicated by Garcia’s (what used to be called) Base Year Compensation (BYC) status, which basically means that Garcia is getting more than a 20% raise without his team using cap room to sign him.  Due to Garcia’s BYC status, only 50% of his new salary would count as outgoing salary for salary-matching purposes.  Still, if the Rockets come up shy by a few million dollars in matching salaries in a huge trade, Garcia could be lined up for a Keith Bogans-style huge payday for the courtesy of facilitating a match.

Conclusion

Look, I’m not going to sugarcoat it for you.  Missing out on a Bosh-Parsons combination to add to the Harden-Howard core was a big hit to the Rockets’ title hopes.  But they are not damaged nearly as badly as most believe.

Morey has gone on record as saying that the Rockets would be a better team by the start of the 2015 NBA Playoffs than they were in the 2014 NBA Playoffs.  With the numerous salary cap tools at his disposal, it is entirely possible — if not outright probable — that Morey’s prediction can become a reality.