CBA Scenarios: The Stretch Clause
All the of buzz in these collective bargaining negotiations between the NBA Owners and Players has gone to the potential ramifications of an amnesty clause, but the truth is another option has the potential to be used more often. The stretch exception, as it’s being called, could be a lifeline to teams over the course of the next collective bargaining agreement.
Eric Pincus did a good job yesterday detailing what the amnesty clause could mean to each team, so here we are going to build on that.
First we need to define the stretch exception. The stretch exception is as currently defined is a modification of the rules under the old CBA that dictated how waived or bought out players counted against the salary cap. (Note: This is widely reported as not quite a done deal in negotiations, but it’s more defining the details rather than the element being in or out of the deal – it’s in.) In the previous CBA a player’s salary counted for the full amount against the cap. If a lower buyout was negotiated, that amount was applied proportionately against the cap for the remaining years of the contract.
This new incarnation of the rules would take the amount owed to the player and instead of applying it to the owed years would apply to double the amount of years plus one, lowering the cap hit for each season. And unlike the amnesty clause, this wouldn’t be a one-time deal. Whether it’s once a year or more, or even optional, is among the aspects still to be defined.
Here’s an example:
Player X is owed $10 million (a flat $5 million per season) over the final two years of his contract. His team decides to waive him using the stretch exception. Instead of a $5 million cap hit, the $10 million would be spread out over five years (double the current contract, plus one). That leaves the team with a $2 million cap hit for the next five years.
It seems like a pretty nice option for teams, but it’s not a solution that allows a team to simply go shopping with no worries. Teams will need to weight very carefully the pros and cons of using the provision, because the financial impact could add up.
Let’s go back to the example. The team has decided Player X is not needed. Their options are to keep him and pay him $5 million each for two years, or to waive him (paying him the full amount) and have a $2 million cap hit for five years. That means that not only does the team need to replace whatever he did bring for $3 million or less to justify the move, but they also need to be able to do that for five years. If they did nothing, in two years the team would have a full $5 million to spend on a replacement player.
See how that works? In the example, to make it worthwhile, the team needs to find a player who does everything player X does, but for at least 60% cheaper to make it worthwhile, and they have to realize that decision will impact their spending for many years to come.
Given all of that, it seems most likely the best use of the stretch exception will be for players who can no longer physically give much of anything due to age or degenerative injuries rather than simply to open a roster spot. Very few players are so highly paid over their contributions they can be fully replaced for something in the range of 60% (depends on the number of years remaining on the contract) of the cost – or less.
Given all of that, let’s take a look at the current contracts and see what players might be good choices for the stretch exception and see what would do their team’s cap figures. It won’t be every team using this exception right off the bat; in fact, it may simply be a subset of the teams who decide to use the amnesty clause because that is the better first choice. Here are some teams who might want to make further cuts. (Click on the team name link to go to the team salary page.)
Charlotte Bobcats: The Cats have a couple options here. Presumably they could use amnesty on DeSagana Diop, which means they could use stretch on someone like Matt Carroll or Eduardo Najera. Najera is due $2.75 million in 2011-12, but under the stretch the cap hit would be $916,667 in each of the next three years. Carroll is owed $7.4 million over the next two years (second is an Early Termination Option), but that could become a $1.48 million cap hit over the next five years. Each of those would buy the Cats another couple million in spending power during the next free agency period.
Cleveland Cavaliers: How badly to the Cavaliers want to wipe the slate clean? If they use amnesty on Baron Davis, they could use stretch on Antawn Jamison and get it all out of the way now. Owed $15.1 million in the final year of his deal, that becomes a $5 million cap hit in each of the next three years. It buys the Cavaliers $10 million more in spending power now but could hurt them next summer. It would be wise to wait and see what is available to spend their money on before making such a decision on Jamison. It’s also important to note the Cavs have $64 million in commitment, so depending on the decisions they make reducing that amount by $10 million does not necessarily give them $10 million in spending power in free agency.
Denver Nuggets: Denver is a team creating a new face, moving from a team led by Carmelo Anthony, Chauncey Billups and Kenyon Martin to one led by Ty Lawson and Danilo Gallinari. If they choose to use amnesty on Al Harrington, as many speculate, they could go stretch on Chris Andersen. Andersen is a luxury of a playoff team, a defensive maniac off the bench. He can’t contribute much on offense, nor does he play big minutes. He is owed $13.58 million over the next three years, but with the stretch that could become a cap hit of only $1.94 million over the next seven, give the Nuggets $2.3 million in spending power this year in free agency. However, here is where it gets tricky. What does that $2.3 million get you? Already well under the cap it could be the difference between signing a difference maker or not, but if that’s not the intended use can the Nuggets replace what Andersen brings for $2.3 million or less? Remember, if it’s not less, it’s probably not worth it.
Detroit Pistons: If Detroit uses amnesty on Rip Hamilton, they could use the stretch on someone else. Charlie Villanueva? He is owed $24.18 million over three seasons which would become cap hits of $3.45 million over seven, giving them $4.2 million more to spend now. Added to their cap room, they could then sign a solid player.
Golden State Warriors: It’s likely the Warriors, if they choose, would use amnesty on Andris Biedrins or Charlie Bell. If it’s Biedrins, then they may use stretch on Bell (probably doesn’t make sense to go the other way around because of the costs). Bell is due $4.1 million in the last year of his deal, which could become a $1.37 million cap hit for three years. Is it worth it? Do they gain anything there, or should they just deal with the contract for one more season?
Los Angeles Lakers: With the Lakers it would seem using amnesty boils down to Luke Walton or Metta World Peace. If they use the amnesty on Peace (World Peace?), then using the stretch on Walton makes a lot of sense (like with the Warriors, probably not the other way around). Walton is owed $11.48 million over two years, which could become a $2.3 million cap hit for the next five years. At the least, it would lessen the Lakers’ luxury tax payments, which they will be guaranteed to be making for at least the next two years.
Orlando Magic: If the Magic use amnesty much speculation is about them choosing one of the big, overpaid names like Gil Arenas or Hedo Turkoglu. It’s doubtful either would make logical sense with the stretch, but what about Chris Duhon? Duhon could also be an amnesty candidate, but if he’s not (meaning Orlando chose to use it on someone else) he is guaranteed $8.5 million over the next three years (last season is only $1.5 million guaranteed). The stretch would make that a cap hit of $1.7 million over five years. Like with the Lakers, that would lower their taxable amount for the next two years $1.8 million each.
Phoenix Suns: If the Suns use their amnesty clause on someone like Josh Childress, why not use the stretch on Vince Carter? By waiving him they only have to pay him $4 million instead of $18.3 million anyway, so if they changed that to a stretch clause move the cap hit would be only $1.33 million for three seasons. That one move would drop their cap figure for 2011-12 from $67.8 million to $49.8 million – not including an amnesty move.
Toronto Raptors: If the Raptors use their amnesty clause on Jose Calderon, they could consider using the stretch on Leandro Barbosa since neither of them is part of the future of the team. Barbosa is owed $7.6 million in the final year of his deal, which could become cap hits of $2.53 million over the next three. Between that and an amnesty cut, the Raptors would suddenly become major free agent players.
The stretch clause could become a valuable tool moving forward, but it’s not an ideal fix to all situations because it doesn’t allow a team to simply reload. Initially the amnesty clause will have a bigger impact and draw bigger headlines, but the stretch clause will likely prove itself valuable to every team in the league at least once over the course of the next CBA’s lifetime.
What’s your take on the stretch clause? Should your team use it, and on who? Leave your thoughts in the comments below! Follow Jason Fleming on Twitter and check out his chat every Monday at 8pm Eastern.