What are the salary cap ramifications of the Kawhi Leonard trade?

There’s plenty to cover on the Raptors after trading DeMar DeRozan for Kawhi Leonard. We need to figure out whether the team is way better now (it is), and whether that is worth the risk inherent in this deal (it totally, definitely is), but let’s take a minute to clear up what this means for the salary situation.

As I’ve covered, the Raptors coming into this summer were lined up to pay a significant tax bill, and that was cemented once they re-signed Fred VanVleet to his deal.

A quick note on that deal for Fred — the Raptors gave him more money in these two upcoming years than any team could have offered him, and with the market cooling very quickly shortly before they signed him, they really weren’t avoiding much risk. So for any who think the Raptors are unwilling to pay tax, they basically signed up to a bigger tax bill voluntarily for the sake of longer term flexibility.

Going into the Leonard deal, the Raptors had just waived Alfonzo McKinnie and signed Lorenzo Brown, the combination of which had no effect on their salary situation. They were sitting at $138.3 million in team salary (in terms of committed contracts, plus a minimum salary deal to get to the 14 roster players required). Meaning a tax bill of $27.7 million, bringing the total salary cost on the team to about $165 million. This is by far the most the team has ever spent, even adjusting for salary cap increases.

But that’s heading in. How do they look now?

The Trade

Raptors send:

DeMar DeRozan, Jakob Poeltl, 2019 TOR 1st round pick

Raptors receive:

Kawhi Leonard, Danny Green

The pick is protected for selections 1-20 in 2019, and if it doesn’t convey, it changes to two 2nd round picks. This is as low a pick return as is imaginable in a deal like this. Very impressive stuff.

The Raptors technically create a small trade exception (TPE) from this trade, as DeRozan alone is enough to match the incoming salaries. So a TPE for Poeltl’s salary ($2.9 million) is generated, allowing the Raptors to absorb a small salary without matching it in a trade sometime in the next calendar year. They add this to a similar small TPE from the Bruno Caboclo trade that is good until February.

The roster:

Kyle Lowry $31,200,000
Kawhi Leonard $23,114,067
Serge Ibaka $21,666,666
Jonas Valanciunas $16,539,326
Danny Green $10,000,000
Norman Powell $9,367,200
Fred VanVleet $8,879,850
C.J. Miles $8,333,333
Delon Wright $2,536,898
OG Anunoby $1,952,760
Malachi Richardson $1,569,360
Pascal Siakam $1,544,951
Lorenzo Brown $1,512,601
Justin Hamilton $1,000,000

The Raptors are sending a total of $30.7 million in the trade, allowing them to absorb up to $38.5 million in return. The players received total $33.1 million, so the deal works easily enough. The Spurs send out $30.1 million and can absorb up to $37.8 million in this trade, so you can see it works for them as well. The amount the teams send out and receive are different because Leonard had a trade kicker, raising his salary by 15%, but only for the receiving team.

Importantly for the Raptors, this trade increases their committed salary to $140.7 million, and their tax bill to $35.2 million, when you consider adding minimum salary players to fill out the roster. The Raptors also have their tax-payer’s mid-level exception ($5.3 million starting salary, up to three years in length) to add a player, but with the tax bill so high, the minimum is far more likely.

What About Next Summer?

Next summer, the Raptors will be looking to re-sign Kawhi Leonard. Obviously. Now, whether they can or not is out of their control. He has a player option for the 2019-20 season that he will certainly be opting out of, leaving him an unrestricted free agent next summer.

The Raptors will offer him his maximum salary (currently projected at a $32.7 million starting salary) for whatever term he would most desire, whether that is a longer term deal, or a shorter term deal to line him up with the raise that comes at the 10 year experience mark (so a three year deal with a third year player option could be a possibility). The Raptors will have his Bird Rights, so they will be able to offer him eight percent raises and five years of term, while other teams will be limited to five percent raises and four years.

As we’ve noted in the past, the Raptors were already lined up for an even more significant tax bill in 2019-20 than this year, and this move does not change that. If we assume the players on the roster now stay there, Kawhi gets his max, and the Raptors fill any holes with minimum salary players, they are currently projected at $150.2 million in team salary. The tax line next summer is projected at $132.4 million, so that puts the team well into the tax with a tax bill of $37.9 million.

There are several complicating factors, such as which free agents the Raptors re-sign (both Delon Wright and Danny Green walk in the above numbers), and whether Jonas Valanciunas opts into his player option for that season (I would expect he would with the way centre markets have gone), but that at least gives us an idea.

Now, there is also the case where Kawhi bolts after a year, a very real risk to this trade. In that case, the Raptors would probably want to shed salary quickly, and maybe trade some of the other core players for a return before they expire the following year. If so, they are looking like there is little risk of having to dodge the tax, as without Kawhi, the committed salary is under $120 million. But by that same measure, the team will also have no cap space just because Kawhi and Green walk, so in that scenario, brace for a slow rebuild of at least a couple seasons, rather than a quick bounce back to competitiveness.

I think that about covers it. Please let me know if you have any questions at all, I’ll do my best to answer.