Salary Cap Update: Heading into the 2017-18 Raptors season

Since our last update, the Raptors have essentially done very little. They signed some guys to training camp invites (McKinnie, McDaniels, Rautins, Wiltjer, Meeks and Berry) and two-way contracts (Miller and Brown), and they waived a bunch of training camp invites (only McDaniels and McKinnie remain).

Meeks and Berry were signed with the new Exhibit 10 in their contract, which gives them a $50,000 bonus if they sign with the 905, so expect them to stick in the organization.

In any case, the team is down to 15 players (plus the 2 two-way contracts allowed), so they have a full roster.

Right Now

Here are the committed salaries for this coming season.

Kyle Lowry $28,703,704
DeMar DeRozan $27,739,975
Serge Ibaka $20,061,729
Jonas Valanciunas $15,460,675
C.J. Miles $7,936,508
Lucas Nogueira $2,947,305
Jakob Poeltl $2,825,640
Bruno Caboclo $2,451,225
Delon Wright $1,645,200
OG Anunoby $1,645,200
Norman Powell $1,471,382
KJ McDaniels $1,471,382
Pascal Siakam $1,312,611
Fred VanVleet $1,312,611
Justin Hamilton $1,000,000
Alfonzo McKinnie $815,615

McKinnie will count for a higher salary for tax purposes, just like VanVleet does. McKinnie seems likely to make the roster based on pre-season, and with the season opening shortly, neither him nor McDaniels have been waived. I still expect one to be though — more on that later. Lowry and DeRozan once again have only their non-bonus salary in this list for the moment.

Those salaries total to $119.6 million (for tax purposes), roughly $350,000 above the tax line. So if the team stays as is, and Lowry and DeRozan don’t earn any unlikely bonuses, they will be taxpayers at the end of the year. Spending into the tax to add real talent makes sense — but it’s a harder sell to guarantee a tax bill to keep a minimum salary player in the 15th man spot.

For that reason, one of McKinnie or McDaniels is unlikely to make it through the entire year. Both players are on partially guaranteed contracts, so if waived by January 10th, only the portion of their salary they have earned at that point would stay on the books. Using McDaniels as an example, that would drop his salary from $1.47 million to $0.71 million. So that moves the team from just above the tax line to just below.

One other consideration is that Lowry’s unlikely incentives are reported to have some smaller bonuses within that are technically unlikely (he did not accomplish them last year) but seem quite likely to occur this year, such as him making the All-Star team or playing more than 60 games. So if he earns those, they could push the team over the tax line if they have limited space below it.

The other factor to consider is that if the Raptors use up all their flexibility before January 10th, they will not have much left to sign players to 10-day or rest-of-season contracts later in the year. So they would be out of the hunt for those veteran role players who tend to get waived by bad teams late in the year.

For this reason, they will likely look to waive one of McKinnie or McDaniels at the start of the season and save flexibility for later, especially with OG Anunoby back earlier than expected. The good news is they have some time to make the decision — both players have $100,000 of their salary guaranteed, so if whether they are waived now, or waived two to three weeks into the season, they will still only earn that $100,000 and the Raptors’ flexibility will not be impacted. The exact time by which each player needs to be waived to have no additional earnings above their guarantee is 22 days for McKinnie, and 12 days for McDaniels.

The one other complicating factor in the decision is that McKinnie’s salary gets pro-rated for tax purposes, to a two-year veteran minimum salary. So his $100,000 guarantee will count as a $180,000 guarantee for tax purposes. I think McKinnie’s won the camp battle and should get the spot regardless, but this is one more small thing in his favour, a small increase in flexibility under the tax for the team.

We’ve covered the options for spending into the tax previously, though it seems clear the team does not intend to do so this year. The Raptors still have the Bi-Annual Exception, and their trade exceptions, to help them add salary, but that is all likely moot this season, with the team successfully ducking the tax right now and with the hard cap in place preventing any significant salary increases anyway.

Next Summer

So, this year looks pretty done. It is likely this Raptors squad as constructed will be the same one we see in the playoffs next spring, and heading into free agency next summer. A summer where the team looks primed to spend into the tax, barring any salary shedding moves, thanks to Norman Powell’s recent extension.

Norm signed a 4-year, $42 million dollar deal, the most the Raptors could offer in a veteran extension. (He was not eligible for a rookie scale extension because he was not a first round pick.) The deadline has now passed for extensions for Bruno Caboclo and Lucas Nogueira, so they will be restricted free agents next summer if the team offers them a qualifying offer. The same goes for VanVleet — he will be a RFA, though unlike the other two, the team could not have offered him an extension at all, his contract was too short to qualify.

The committed salaries for next summer are as follows.

Kyle Lowry $31,000,000
DeMar DeRozan $27,739,975
Serge Ibaka $21,666,666
Jonas Valanciunas $16,539,326
Norman Powell $9,412,200
C.J. Miles $8,333,333
Jakob Poeltl $2,947,320
Delon Wright $2,536,898
OG Anunoby $1,952,760
Pascal Siakam $1,544,951
Alfonzo McKinnie $1,378,242
Justin Hamilton $1,000,000

I’ve included McKinnie here again on the second year of his deal, since again the team will have to sign someone anyway to fill his spot if he is removed. Norm’s money is an estimate, because the average salary won’t be determined until next July.

The above totals to $124.7 million. That’s a high number. The tax threshold is currently projected to increase to about $122 million next season, leaving the team above the line. That roster also only has 11 players, so at least three other minimum salary (again, at least) signings will need to occur as well, bringing the total to $130.7 million, almost $9 million above the tax line.

Powell’s deal really helps the Raptors here. I had expected him to be at risk of receiving a $15 million or higher offer in the free agent market, meaning the tax situation would be much more problematic, and the team would need to shed salary. But with his contract being so reasonable, the team would only be in line to pay a tax of $14 million. So a total salary commitment of $145 million is high, but reasonable for a team that is looking to go deep into the playoffs.

And that’s the other factor. If the team has success this year, they can probably justify paying the tax to keep going. If not, some bigger salary will need to be shed to move below the tax line.

And on that note, you may recall that the team has a few free agents next summer — Bruno, Bebe and VanVleet are the only guys who fit the bill there. They can extend one year qualifying offers to these three to make them restricted free agents. The risk there is, the players can accept that offer. The qualifying offers are as follows:

Bruno Caboclo: $3.5 million
Lucas Nogueira: $4.1 million
Fred Van Vleet: $1.7 million

The VanVleet offer is low risk, as it is barely above the minimum salary they would otherwise need to replace his spot with. But the other two, if they were to accept those qualifying offers, would add $4.6 million to the total salary. And that $4.6 million comes with an $11 million tax bill, moving the total team salary cost from $145 million to $160 million. For two players who seem buried in the rotation, that’s not a reasonable price to pay.

Now, if the team were to shed salary and get below the tax, then it might make sense to try to hold onto those restricted free agents. For example, if Valanciunas was traded to shed salary, keeping Nogueira as centre depth makes sense, and the added flexibility reduces the risk associated with extending the QO to him.

I think that about covers the outlook for this season and next with the way things stand now. If you have any questions or comments, please fire away.

As ever, thanks to basketballinsiders.com for the source data on existing contracts.