Getting the Magic Under the Tax
The NBA and NBPA seem to be inching closer and closer to resolution. The hope, which appears to have gained new life after last week’s meltdown, is that the league may be nearing a full 82-game schedule that stretches through to the end of April.
Nothing is done yet and as Commissioner David Stern said recently, “There’s no deal on anything unless there’s a deal on everything.”
One of the main goals for the union is to avoid a hard cap. The owners, in turn, are hoping to provide some level of parity which has gradually evolved into a punitive luxury tax system.
The players insist the owners don’t rollback existing deals while providing guaranteed contracts moving forward. They also have a vested interest in making sure there are no additional restrictions on players with Bird Rights.
As long as the tax doesn’t infringe on any of the above, there may be a deal to be had.
For teams who would be flirting with or above the tax threshold, the new Collective Bargaining Agreement (CBA) . . . once written and agreed to . . . may provide a number of mechanisms to help teams get under the tax.
As covered in Getting the Lakers Under the Tax, the new CBA may have an Amnesty Clause along with a Stretch Exception.
Amnesty would allow a team to waive a player on an existing contract with a portion (75%) or even all of that salary coming off both the salary cap and luxury tax. In the previous CBA, the Amnesty Clause only impacted the tax and didn’t allow for any additional spending power (as far as cap space).
The designated player would still get paid out on the same schedule. The money just wouldn’t go into the salary computation.
The Stretch Exception, as proposed, would be available every year, allowing a team to waive a number of players and stretch out payments over a lengthy period of time (either twice the existing contract or possibly a fixed seven years).
Used together, the tools may prove to be a game-changer, especially for a team nearing some very big decisions . . . like the Orlando Magic
Dwight Howard Issue
Howard is easily the best center in the league and one of the best overall players in the game itself. After this coming season, Dwight can opt out of his deal and become an unrestricted free agent.
Although he’s professed support and loyalty to Orlando, he’s also indicated that if he doesn’t feel the Magic give him the best chance to win he will consider other options.
The Magic are charged with putting together a team that can win now (despite somewhat limited resources) without sacrificing a future that would appeal to Howard.
The Cleveland Cavaliers faced the same problem last summer and LeBron James ended up in Miami.
The new rules of the CBA may drastically change Howard’s options, but the Magic are facing the serious possibility that they lose their franchise player for absolutely nothing.
If that’s the case, wouldn’t it make sense to trade him before he goes for as much value as possible? If enough teams are competing for his services, perhaps Orlando may find it to be a seller’s market.
Existing Contracts
Part of the issue for Orlando is their considerable investment in a good but not great roster. The team has 10 returning players but their top three make a combined $48.4 million. In comparison, the Los Angeles Lakers have $58.9 million tied up in three as well but can boast Kobe Bryant, Pau Gasol and Andrew Bynum. Two are All-Stars and Bynum has the potential to be one this coming season in the West.
The Magic trio is Howard with Gilbert Arenas and Hedo Turkoglu. Arenas played just 16.2 minutes a game through the postseason while averaging 8.6 points a game on 42.9% shooting. Turkoglu needed 34.8 minutes to average 9.2 on a woeful 29.4% from the field. Meanwhile, Howard scored 27 a game on 63% shooting with 15.5 boards.
Dwight was on an island and notably/understandably frustrated.
Additionally, the Magic have Jameer Nelson, JJ Redick, Brandon Bass, Chris Duhon, Quentin Richardson, Ryan Anderson and Daniel Orton under contract.
That’s a $76 million investment for the coming year for a team that appears to be getting worse each and every season since the Magic’s run to the NBA Finals in 2009.
Nelson and Redick are solid although neither shot well in the postseason. Bass still has potential. Anderson might as well although he was even worse than Turkoglu from the field at 26.7%.
How do the Magic revamp the roster, retain Howard and find a way to compete without taking a step backwards?
The Amnesty/Stretch Provisions
Arenas appears to be the obvious choice for amnesty, so much so that the clause will likely be nicknamed after him.
Gilbert is set to make $62.4 million over the next three years. If amnesty knocks off 75% off that, the Magic’s cap would be charged an average of $5.2 million a season.
The money still gets paid out but already that’s a major savings coming off of Orlando’s cap.
The other option of amnesty is Turkoglu who is locked in at $22.8 million over the next two years followed by a third year at $12 million of which only half is guaranteed.
If cut via amnesty, Hedo would cost the team $5.7 million over the first two years and then just $1.5 million the final (although again, he’d still get paid his $28.8 million not to play).
The Magic have a few more mistakes on the books, most notably Chris Duhon, but Arenas and Turkoglu are head and shoulders above the rest when it comes to the Amnesty Clause.
The Stretch Exception might allow Orlando to pay Arenas about $10.4 million for six straight years. Depending on exactly how the rule is implemented, Turkoglu might run to $4.8 million per year over six.
Because the Stretch Exception can be used more than once, the Magic may also want to look at spreading Duhon’s $8.5 million of guaranteed money (starting at $3.5 million for the coming season) to just $1.4 million a year.
New Math
By dumping Arenas with the Amnesty Clause and both Turkoglu and Duhon with the Stretch Exception, the Magic would reduce their cap number from $76.2 million to $53.5 million.
It’s not clear what the cap or tax will be set to in the yet-to-be-written CBA but last year, the cap was $58.0 million and the tax threshold was $70.3 million.
Orlando would still have a significant expenditure with the buy-outs but the tax wouldn’t be a worry.
From there the team can look to see if there are any free agents of interest available. They’d certainly be better able to re-sign guard Jason Richardson if tax isn’t a factor.
A number of teams would have interest in Nelson, Redick, Bass and Anderson via trade, assuming the Magic found the return appealing, that may be another way for the team to replenish the ranks.
At the very least it opens up flexibility when it comes to keeping Howard long-term.
Howard Leaving Inevitable?
The Magic, regardless of what they do, may lose Dwight, and if that becomes clear enough in time for Orlando to act, they may look instead to trade him. HOOPSWORLD’s Mark Nugent recently went over some of the potential options (Let’s Trade Dwight Howard). Nugent notes the L.A. Clippers, Chicago Bulls, New Jersey Nets, New York Knicks and Lakers as possible destinations.
With the return ranging from young prospects to veteran talent, draft picks and the like, most ideas include Arenas and/or Turkoglu heading out as well. Would the Magic be better off passing on their albatross contracts or will that only diminish their return? Getting Gilbert and/or Hedo off their books entirely would be the better financial move but everything has to be about building for the future.
It’s certainly feasible the new CBA will make it easier for Orlando to offer Howard the most substantial economic package to sign beyond his current deal.
Time will tell but at a minimum, if the league institutes both the Amnesty Clause and Stretch Exception, the Magic may be looking at a very different and brighter economic future after the lockout finally resolves.
More importantly, they may be able to makes moves that keep Howard in town long-term.
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