With the Raptors trading Cory Joseph for C.J. Miles in a sign-and-trade from the Indiana Pacers, another domino fell, and then they kept on falling. Let’s take a look at the trade, where the team is now, and the big decision they need to make now.
The Raptors traded Joseph, who makes $7.63 million this season, to the Indiana Pacers for C.J. Miles, who is being signed to a $25 million, three year deal. That puts his first year salary (assuming full backloading) at $7.94 million. The Raptors only added about $0.3 million to the books this year, but do commit $8 million or so in each of the next two seasons after this one. It has been reported that Miles might have a player option in the third year of the deal, but that is not possible, as sign-and-trades must have three full seasons in them before an option can be added in the fourth year. We'll have to wait for the deal to be official to be sure.
It can't actually be executed until the Carroll trade is completed, as the Raptors need to be clear of the tax apron to receive a player in a sign-and-trade. Using the full Mid-Level Exception, the Bi-Annual exception, or receiving a player in a sign and trade converts the tax apron into a hard cap. As such, with this deal, the Raptors will be hard capped at $125.3 million — they cannot exceed that salary by any means between the Miles official signing date and next July 1st. In any case, they are waiting on the Carroll trade, which is waiting on the Nets receiving official word that their offer on Porter is being matched. These are all formalities and there's no reason to expect these deals aren't rock solid, but technically they aren't official until each of those dominoes fall.
It also means that if the team does add more salary, they can feel free to use the full MLE to do so, as they have no reason to use the tax-payer's MLE, since the hard cap is already activated. Teams can split exceptions up into portions — so to use the full MLE, you don't have to use the entire $8.4 million in one place, or at all. They could use portions of it to give minimum salary players three years on their deals (the minimum salary exception allows you to sign a minimum deal up to only two years in length), so that they will have full Bird Rights at the end of those contracts. Or, if they had only $4 million to spend under the hard cap, they could use $4 million of the MLE to sign a free agent. We'll cover this more later.
As expected, Justin Hamilton was not long with the team. He was waived, and had his salary stretched. The stretch provision allows a team to spread the cap hit of a waived player over multiple years instead of just the one year. The rule is, if a player is waived in the off-season (prior to August 31st), all the remaining salary on their contract can be spread over twice the term, plus one year. So Hamilton's one year remaining of $3 million salary can be spread over three years, meaning only a $1 million cap hit each year. If a player is waived after August 31st, that season can't be stretched, but any other years on the contract can be. In any case, the Raptors acted quickly and clear about $2 million in salary with this move.
One mitigating factor in clearing salaries: there is a roster minimum requirement. Every team must have 14 players at least on their regular roster (so not counting the two 2-way players a team can sign for their D-League affiliate). By waiving Hamilton, the Raptors dropped to 13 players on the roster. As such, they needed to sign at least one more player before the regular season.
And so they signed Alfonzo McKinnie to a two year, partially guaranteed minimum contract. Since the team needs to have someone there by the beginning of the season, we'll assume for our cap sheet that he makes the team. If he doesn't, he has a small guarantee that would sit on the books, but in the big picture it doesn't mean much.
Here are the committed salaries after the moves.
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
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 Siakam and Van Vleet do. You may notice that Lowry's number is lower here. This has to do with the question the Raptors are facing. I've only included his non-bonus salary in this list for the moment, as I had been doing with DeRozan. DeRozan's incentives are even more unknown than Lowry's. He was reported with a range of salaries when he was signed, as is usually the case with incentivized deals, but no confirmation ever came. Which doesn't really mean anything — on DeRozan's previous deal, no incentives were reported at all until he earned some of them in his first all-star season. It is one area of salary cap leaks that tends to be lacking; incentives are harder to access even for those with contacts, as they tend to be more complex than the simple base salary tied to a contract.
In any case, those total to $122 million, roughly $3 million above the tax and $3 million below the hard cap.
But, if we leave the incentives off as shown in the list above, that total drops to $118.3 million, almost exactly $1 million shy of the tax. So if everything breaks right (or wrong, as usually incentives are tied to players having more success), the Raptors could play the season with the current roster and not pay tax. But that's a risky bet.
So, the team is presented with a choice. Do they stand pat now, or maybe make one more small salary clearing move (such as trading Nogueira for no salary return and replacing him with a minimum salary player, saving about $1.4 million off the team salary) to give a small bit more cushion trying to duck a tax bill? Ducking the tax bill is not necessarily a sign of being cheap either. By ducking it now, they avoid having to deal with the repeater tax in year three of this competitive window, which could make it easier to spend more money next summer (for example, to keep Norman Powell).
Or do they leverage the flexibility they have under the hard cap to spend as much as possible on the team now?
There are middle grounds. They could line themselves up to duck the tax now, and decide at the deadline to spend more if the team is having success. They would still have the MLE (pro-rated down after January 15th, but still substantial), and their TPE from the Carroll deal to potential make a trade. But let's look at the options they have right now.
They can use the full MLE, but only up to the hard cap. Right now, that means roughly a $3 million salary (the hard cap calculation assumes all incentives are met). That number could be slightly higher depending on how far off our estimates are for incentive values for DeRozan and Lowry, but certainly nowhere near the full $8.4 million available under the exception.
If the team were to make the move to shed Nogueira, but also want to bring in another solid player, they would be able to go up to about $6 million starting salary (Nogueira's full salary is cleared in this case because they are replacing him with the MLE signing, so no extra minimum signing is required to meet the roster minimum). Again, possibly a little higher depending on the exact details of those incentives.
The team could probably use another power forward for depth, or even a big combo forward to maybe slot into those small ball units. With patience, the team probably expects Siakam and Anunoby would be fine sliding into those roles. But with Anunoby hurt to start the year, leaving Siakam as the only other PF on the roster behind Ibaka, this might not be the direction the team wants to go.
What do you think? Does the team duck the tax? If they use what spending power they have, are there any targets you have in mind?
As ever, thanks to basketballinsiders.com for the source data on existing contracts.