Raptors Salary Cap Refresher: The off-season is here

With the Raptors losing in the second round of the playoffs, preparations for next season are already beginning. Conversations are starting about whether there might be a coaching change, or which players will be heading out the door (if any), or which free agents can be brought back. It’s happening.

This might seem early, but technically, since the Raptors’ season is done, they are now free to trade with any other eliminated team, which is most of the league at this point. Pre-draft trades are rare, but not exceedingly so, as long-time Raptors fans can attest to — for example, the Reggie Evans for Jason Kapono deal happened in early June.

That aside, the salary situation now will be the same at the draft, so no harm in getting the groundwork laid ahead of time.

Current Salary Picture

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
Delon Wright $1,645,200
OG Anunoby $1,645,200
Malachi Richardson $1,504,560
Norman Powell $1,471,382
Alfonzo McKinnie $1,471,382
Fred VanVleet $1,471,382
Pascal Siakam $1,312,611
Justin Hamilton $1,000,000
Nigel Hayes $166,258
K.J. McDaniels $100,000
Lorenzo Brown $8,313

The values are shown as they apply to the tax calculation (which uses slightly different values for some minimum salaries). In addition, Kyle Lowry (assuming he is not selected to the All-NBA or All-Defense teams) only achieved one of his salary bonuses, the All-Star bonus worth roughly $200,000, so the team’s total salary obligation for tax purposes is $117.6 million. That’s $1.66 million shy of the tax threshold.

The tax is calculated on the last day of the regular season, so there is no downside to making trades to move above that tax threshold now that the season is over. But the team is still hard capped until July 1st rolls around. Keep in mind that the hard cap rules mean that Lowry’s incentives still count for that calculation even though we know they won’t be fulfilled, so the team salary counts as $119.7 million, with the hard cap set at $125.3 million, meaning the Raptors have about $5.5 million in trade flexibility prior to July 1st.

The team has three Trade Exceptions (TPEs), valued at $11.8 million, $6.1 million and $2.4 million, from the Carroll, Joseph and Caboclo trades respectively. Those can be used to absorb an entire salary in a trade without having to match it, though the three TPEs cannot be combined with each other or with outgoing salary for salary matching purposes; they must each be used on their own. The two larger exceptions expire in early July, the smallest is good until around the trade deadline next season.

Several players are pending free agents and cannot be traded in this pre-July 1st window. Those would be Fred VanVleet, Lucas Nogueira and Lorenzo Brown. For the moment, Alfonzo McKinnie is on a contract for next season, but it is non-guaranteed salary. As such, he can be traded, but he doesn’t help with salary matching due to a new rule for non-guaranteed salary contracts.

Norman Powell can now be traded, with his six months of trade ineligibility after signing his extension having passed. In trades before July 1st, he counts as his current low salary in trades. After July 1st, his larger post-extension salary will need to be used in salary matching calculations.

Of course, the big questions are really what the salary situation is for next year.

2018-19 Salary Picture

Kyle Lowry $31,200,000
DeMar DeRozan $27,739,975
Serge Ibaka $21,666,666
Jonas Valanciunas $16,539,326
Norman Powell $9,367,200
C.J. Miles $8,333,333
Jakob Poeltl $2,947,320
Delon Wright $2,536,898
OG Anunoby $1,952,760
Malachi Richardson $1,569,360
Pascal Siakam $1,544,951
Alfonzo McKinnie $1,499,698
Justin Hamilton $1,000,000

The values here, just as above, are shown as they apply to the tax calculation, as the team is in no danger of having any cap room, and the tax line is more relevant to this coming year.

Lowry’s base salary of $31 million is increased by his roughly $200,000 All-Star incentive, as it becomes “likely” with him having achieved it this year. We may or may not get more accurate information on his incentives in coming months.

In all, the team has 12 players signed to a total of $127.9 million. The tax line next season is projected at $123 million. Which means the team is currently projected to be at least $7.9 million above the tax line (as they need to sign at least two minimum salary deals to hit the roster minimum of 14 players).

Unlike most years, the Raptors have no draft picks, so there are no additional cap holds to concern themselves with.

As fans, we obviously care little just how much ownership has to spend on the team. But I expect the tax line, and how far over it the team goes (if at all), will be a consideration for the front office this off-season.

So keep it in mind when constructing dream trades.

Free Agents

The Raptors also have three free agents. Lucas Nogueira is finishing his rookie scale contract, and as such will need to be issued a sizable qualifying offer (a standardized one year contract) if the Raptors want to be able to match any offer he gets in restricted free agency. Nogueira’s qualifying offer, though, is quite high — it would be for $4.14 million. With the Raptors over the tax, that’s a pretty big pay day for their erstwhile fourth centre behind Valanciunas, Poeltl, and Ibaka. I’d expect them not to extend the qualifying offer, let him become an unrestricted free agent, and maybe offer him the minimum to come back if they want him back. Obviously, any significant trades can change things there.

VanVleet and Brown are both coming off minimum deals, not rookie scale deals. As such, VanVleet’s qualifying offer (Brown is unrestricted) is just above the minimum salary. The Raptors would clearly love to have VanVleet back at that number, and there is almost no risk of him settling for that, so I’m sure they will extend him his qualifying offer at least. At that point, it’s a question of what the market decides for VanVleet.

The Raptors can match any offer sheet given to VanVleet. Those offer sheets are limited because of VanVleet’s Early Bird Free Agent status (less than three years with the team) and Restricted Free Agency (the combination of which is referred to as the Gilbert Arenas provision). As such, any deal offered to VanVleet above the Mid-Level Exception (projected to start at $8.6 million) is limited to the value of the MLE in the first two seasons. The offer can rise dramatically after that to the value it would have been if not for that restriction.

So, in VanVleet’s case, in theory he could be offered his maximum salary — which is 25 percent of the cap, just over $25 million as a starting salary, rising to $26.5 million, $27.8 million, and $29.0 million after that. But due to his Gibert Arenas status, the first two years are forced to be $8.6 million and $9.0 million instead. So his maximum deal would progress as follows:

2018-19: $8.6 million
2019-20: $9.0 million
2020-21: $27.8 million
2021-22: $29.0 million

That’s a fairly crazy offer, but it demonstrates the mechanism of any deal greater than the full MLE. In this extreme case, a team would need $18.6 million (the average value of the deal) in cap room to offer that deal to VanVleet. If the available cap space is lower, the final two years just drop in value.

Note that the Raptors do not need to use their full MLE to match the offer — their Early Bird Rights allow them to match the offer without using another exception. This is important, as the Raptors are already very close to the tax apron and if they use their full MLE they would activate a hard cap. This would not allow them to keep VanVleet unless they shed significant salary elsewhere, as they are already projected to be $4.0 million above the hard cap line of $129.1 million.

Technically, the Raptors have another restricted free agents’ rights. Nando de Colo, who is playing overseas, is still a restricted free agent of the Raptors. But like VanVleet, his qualifying offer is very low, so there is little risk in keeping him restricted for if he ever decides to come back to the NBA.

Besides their own free agents, the Raptors have various exceptions that can be used to sign another team’s free agent. As a likely tax paying team, they will likely avoid using the full MLE or the Bi-Annual Exception, both of which activate a hard cap. That leaves them with the Tax-Payer’s MLE, a smaller version (three years, first year salary of $5.3 million) to offer free agents. They can also offer any number of minimum salary deals of one or two years in length using the Minimum Salary Exception.

In theory they can also acquire free agents in sign-and-trade transactions, but doing so would also activate that hard cap. As noted above, that would be problematic as they are already above that hard cap line. If they were to sign and trade one of their own free agents to another team, the hard cap is not activated — that only applies to receiving a signed-and-traded player.

Tax Implications

As a quick refresher, one of the big concerns for the Raptors this summer and next will be whether they pay the tax, and how much they pay. The plan was certainly to pay the tax, expecting a strong playoff run this year to back that up, but with the rather ignoble exit at the hands of the Cavaliers once again, that tax-payer status may not be so concrete.

The tax rules work similar to real life taxes. There are brackets, and the higher you go, the more tax you pay in each bracket.

Teams pay a certain penalty on the amount they are over the tax line at the end of each year. The brackets are as follows:

Amount over the tax | Tax rate
$0 - $5 million: 150%
$5 - $10 million: 175%
$10 - $15 million: 250%
$15 - $20 million: 325%

And each $5 million bracket increases by 50 percent from there (so, 375%, then 425%, etc).

For example, the Raptors are currently pegged at minimum to be $7.9 million above the tax line this coming year. That would calculate to:

$5 million x 150% = $7.5 million
$2.9 million x 175% = $5.1 million

So, $12.6 million in taxes paid. Now, for example, if they matched an MLE-or-greater offer for VanVleet, where his first year would be $8.6 million, that would mean their salary increases by $7.1 million (as they need to sign one fewer minimum salary deal to fill out the roster) to $15.0 million above the tax. The same tax calculation then:

$5 million x 150% = $7.5 million
$5 million x 175% = $8.75 million
$5 million x 250% = $12.5 million

For a grand total of $28.7 million in taxes paid. That’s an increase of $16.1 million in taxes, a significant change for a single player, on top of the $8.6 million in salary. So there are questions about what the Raptors are willing to pay to bring back a contributor like VanVleet, and what they might do elsewhere to make the tax ramifications a little less onerous.

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So, that’s where the Raptors stand. In coming weeks we’ll explore some directions the team could go, but for now, there’s your baseline. In the meantime, sound off in the comments on what you want to see happen, and I’ll try to cover the various options people want explored in future articles.

(Salary details per basketballinsiders.com. Incentives details per ESPN.com.)