How the Grizzlies wiggled under the luxury tax
The passing of the last day of the NBA regular season allows those of us with a keen eye towards the NBA's financial motivations to make some more specific observations. It is a date with some importance in this sphere.
A team's luxury tax number is taken from the last day of the regular season, and, for the most part, is calculated simply by comparing its salary position to the luxury tax threshold. With the last day of the regular season having just passed, the order of things as of the close of play yesterday is pretty much how a team's luxury tax position will be when the calculations are done officially during the July moratorium.
Most teams have been unfazed by the luxury tax this season, and those that are affected have long since known it was coming and strategised accordingly. Most applicable data is long since established. There are, however, some minor modifications to this final day figure.
For starters, any outstanding cap holds and unspent cap exceptions are discounted from calculations. These figures are generally ignored by the general public anyway, and are only relevant in the calculation of salary cap space. Any amounts paid out in grievance settlements are further added to the team salary, although this does not apply to any team at this moment.
Any trade kickers paid to incoming players acquired after the final day of the regular season are subsequently added, something we will wait to see if happens. And the most common adjustment is one whereby players signed as free agents (i.e. not as draft picks), who sign for an amount less than the third year minimum player's salary or its equivalent prorated amount, are adjusted in tax calculations to count as the third year player's minimum ($884,293 this season) or its prorated equivalent. This rule creates quite a few minor adjustments, and is much more prevalent than the rest.
All told, those things change little. The final adjustment on this list, however, is of paramount importance to one team this season.
Memphis started the season under no imminent threat from the luxury tax, yet their midseason trade for Courtney Lee combined with the signing of James Johnson and other shorter term deals (Seth Curry, Darius Morris) to make the risk a palpable one. Then in late February came a waiver claim on Beno Udrih, released by the New York Knicks after they were unable to deal him at the trade deadline, which ostensibly put the Grizzlies over the tax threshold they had hitherto not gone over.
Udrih was deemed an important enough acquisition for the Grizzlies to use up the remainder of their flexibility, as their backup point guard spot had been an issue all season. Jerryd Bayless, as ever, proved he just was not a point guard despite his size, and Nick Calathes, the assumed backup, has struggled consistently and significantly to find his role on an NBA court. Nevertheless, despite Calathes's struggles and his acquisition using up Memphis's every last shred of wiggle room, Udrih has found it difficult to find even a single minute ahead of him, recording only minutes for the Grizzlies all campaign. It thus appears on first glance as though the Grizzlies have paid over the odds for minimal help.
However, one of the modifications to a team's salary cap position that applies here relates to player performance bonuses, and is done (as are all adjustments) at season's end during the July moratorium. Performance bonuses built into contracts are considered to be either likely or unlikely during a season, based solely on whether their relevant thresholds were met or not during the previous season. However, once the season is over, they are recalculated based on whether they actually were.
This gives the team cap hit during the season (when salary cap calculations are always pertinent) that can retroactiveley be changed at the end (when luxury tax calculations are done). If the likely bonus was not met, or the unlikely bonus met, the two values will not be the same. (The actual salary paid to the player is further confused, but is ignored here as it is not relevant.)
For example, a player who has a $3 million salary in 2013-14, plus $200,000 in incentives, would have his incentives considered likely that season if he had met them the previous season. He would thus have a cap hit of $3.2 million throughout the 2013-14 season. However, if he did not meet that incentive again in the 2013-14 season, it will be edited retroactively during the following July moratorium to the $3 million figure, which will be the figure included in the team's 2013-14 luxury tax calculations.
An exception to this retroactivity rule is when the performance bonuses in a player's contract are related to the performance of his team, such as a $250,000 bonus for making the Conference Finals. When a player is traded to his new team, those bonuses are recalculated immediately upon his acquisition by the new team. This is why Luke Ridnour seemed to randomly lose $100,000 part way through this season.
This is relevant to Memphis on account of Zach Randolph, who, in addition to other unknown bonuses, has a $438,333 performance bonus for appearing in the All-Star game. Randolph did this in the 2012-13 season, thereby earning himself an extra $333,333 for that season, as well as increasing his cap hit in the 2013-14 season by that amount for the duration of the year due to the incentive being considered as 'likely.' However, as he has not been an All-Star in the 2013-14 season, that amount will be adjusted downwards during the July moratorium, and thus so will the Grizzlies' overall tax position.
This moves Memphis' luxury tax number from the $71,929,032 it appears to be, to the lower figure of $71,490,699. With the luxury tax threshold this season at $71,748,000, this difference is key to understanding why Memphis did what they did.
Memphis planned for this, of course. This is not news to them. Indeed, they have planned for such an event for a while. Had they not used the stretch provision on Fab Melo when they were still several million below the threshold, thereby reducing his cap hit from one year and $1,311,240 to three years at $437,080 each, they would not have been able to claim Udrih at all.
Whether having Fab Melo on the cap for two more seasons just to bring in a little used third string point guard was a good basketball decision or not is another matter. Nevertheless, the repercussions are small, and the benefits measurable.