Houston Rockets Salary Cap Update

Since striking out swinging for a super-team (a risk that, in this author’s opinion, was well worth taking), the Houston Rockets have been waiting for their next chance to get that significant hit.  So far, there has been a single or two for Rockets GM Daryl Morey; but that situational at-bat has not yet presented itself for the next big swing to be taken.

With the Rockets closing the book on training camp and ready to enter the regular season, 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 digging.)

Daryl Morey is positioning the Rockets to be able to make a significant trade this season

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), Jason Terry ($5.85 million), Kostas Papanikolaou ($4.8 million), Terrence Jones ($1.62 million), Donatas Motiejunas ($1.48 million), Clint Capela ($1.19 million), Joey Dorsey ($948,163),  Patrick Beverley ($915,243, non-guaranteed), Francisco Garcia ($915,243), Isaiah Canaan ($816,482), Troy Daniels ($816,482), Nick Johnson ($507,336) and Tarik Black ($507,336, partially guaranteed for $50,000), along with guaranteed money owed to Jeff Adrien ($915,243), Ish Smith ($915,243), Robert Covington ($150,000) and Akil Mitchell ($150,000).

Cap holds:  None.

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); and

(2) 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.

Given Houston’s current salary situation, the Rockets can no longer waive enough cap exceptions and salary to drop below the cap.  Barring another big trade in which meaningful salary is sent out for little/nothing in return, do not expect the Rockets to have any cap room this season.

The Rockets are about $9.6 million shy of the luxury tax threshold and about $13.6 million shy of the “apron” level that also acts as a hard cap for Houston this season.  That should be enough room for the Rockets to utilize most of the Lin trade exception, possibly the BAE, and still use salary matching rules to take on additional salary.  If there is a move to be made for a third star player, don’t expect the luxury tax to be a significant deterrent for Rockets owner Leslie Alexander.

What Are They Doing?

As expected, Houston elected to operate over the salary cap this season, most notably because the combined value of their cap exceptions far exceeded the amount of cap room the Rockets would have had to make player acquisitions.

Instead, the Rockets have been attempting to fill out their bench with shooting (Garcia, Daniels) and defense/toughness (Dorsey, Black), all with league minimum signings.  In fact, other than signing the very raw Capela to his first round rookie scale contract, Houston has only made two additions making more than the league minimum salary since trading for Ariza in mid-July.

Jason Terry could be the key salary piece of a trade later this season

Papanikolaou — the 24-year-old Greek small forward whose draft rights Houston held — was lured away from Europe with an eye-popping two-year deal paying him most of the Non-Taxpayer Mid-Level Exception (other than the rookie minimum-sized portion used to sign Johnson to a three-year deal).  Even with the second year being both a team option and fully non-guaranteed until early October 2015 (making his contract a potentially valuable trade asset next summer), a $4.8 million starting salary is far more than players of Papanikolaou’s caliber normally receive when first coming to the NBA.

Terry — the 37-year-old veteran guard whose best days are behind him — was acquired from Sacramento in what was obviously a salary dump for the Kings.  The Rockets received Terry and two potentially valuable future second round picks in exchange for the non-guaranteed contracts of Alonzo Gee and Scotty Hopson, two players who were never part of the Rockets’ future on-court plans.  (Quick tangent: With the trade of Gee and Hopson, Houston’s total haul from the Omer Asik trade this past July is now Ariza, Terry, a potential lottery pick and two second rounders, making it one of the most underrated deals of the 2014 offseason.)

The Rockets also made some tough final cuts to bring their roster down to the league-mandated 15-man maximum.  The most controversial of the cuts were Adrien and Smith.  Many had felt that Adrien had out-played Dorsey for a backup big man spot; and coach Kevin McHale had been using Smith as his primary backup point guard throughout much of the preseason.

So why take on Terry’s contract (even for the second rounders)?  Why pay Papanikolaou so much?  Why keep Dorsey over Adrien?  And why get rid of Smith?

Why Are They Doing That?

As I mentioned on the podcast with Dave Hardisty back on July 1, the trades of Asik and Jeremy Lin threatened to leave the Rockets devoid of contracts large enough to match salaries in major trades to add talent to the core of Howard, Harden and (now) Ariza.

By acquiring the mid-sized contracts of Terry and Papanikolaou, Morey has put himself in position to at least be able to make trades for players in just about any salary range.

While CBA rules dictate that Terry’s salary cannot be aggregated with other salaries in trades for a period of two months after he was officially acquired (that period expires on November 16), he is immediately eligible to be traded by himself for one or more players making up to nearly $8.9 million.  Even if salary aggregation is required, Terry will be trade eligible long before the next mini-trade season begins in mid-December.

As a signed draft pick (rather than an outside free agent), Papanikolaou became trade-eligible only 30 days after his signing.

The most important part about Terry’s and Papanikolaou’s contracts, however, is their expiration date.  Terry’s contract expires after this season; and Papanikolaou’s has a team option that will most likely be picked up but that won’t remain guaranteed unless he greatly outperforms initial expectations or a major trade is made without using his contract (it being quite likely that Papanikolaou ends up being traded or waived instead).

With both salaries cleared off the books next summer, combined with a potentially huge increase in the salary cap, the Rockets could open up a significant amount of cap room.  Even if both players are waived/renounced, there is still a chance that one or both could be back on next year’s team at a reduced salary.

The length of Joey Dorsey’s guaranteed contract likely played a role in his making the final roster over Jeff Adrien

None of this is to say that Terry and/or Papanikolaou are not viewed as potential contributors to this Houston team.  But the presence of their mid-sized contracts (versus the bevy of rookie scale and veteran’s minimum contracts currently filling Houston’s roster) will facilitate a variety of trade options that otherwise would not be available to the Rockets, all while still allowing for material cap room next summer.

Dorsey — who had been battling a foot injury for much of training camp — was signed to a two year, $2 million contract this summer, which includes a fully guaranteed salary in 2015-16.  Unlike Adrien (whose contract — while fully guaranteed — would have expired after this season), Dorsey could not be cut without negatively impacting the Rockets’ available cap room in 2015.  That was never really an option for Houston.  This, combined with Capela’s decision not to play overseas this season, resulted in Adrien (who himself battled an ankle injury throughout training camp) being the unlucky “odd man out” among the bigs.

As for Smith (who also had a fully guaranteed one-year deal), his lack of a reliable outside shot — combined with the increasingly impressive preseason performance of Canaan and the growing belief within the organization that Terry can be passable as a backup point guard playing alongside Harden — spelled his doom.  And with the Rockets otherwise lacking in depth at the small forward position behind Ariza and the rookie Papanikolaou, roster balance dictated that Garcia should claim a roster spot over Smith.

Conclusion

Morey has done an admirable (albeit not sensational) job of picking the team up off the canvass after a major swing-and-miss for a super-team.  The resulting supporting group of players is expected to provide the Rockets with both added perimeter defense and improved three-point shooting — two areas that sorely hurt the Rockets last season — while still offering the flexibility to make in-season trades of significance and/or to open up significant cap room next summer.

While the scoring and play-making ability of Chandler Parsons and Lin, as well as the post defense and rebounding of Asik, will be missed in Houston, there have been improvements made in other areas.  The end result, the Rockets hope, is a team better prepared for the NBA Playoffs.  And maybe for a big trade, too.  All while preserving flexibility to make a major addition next summer.