Raptors Trade Deadline: Understanding the Cap, the Tax, and the Future

With the NBA trade deadline coming on February 7th at 3pm EST, it’s worth taking a look at the Raptors’ cap situation to understand what they can do, what they might not be willing to do, and what they might want to think about doing with an eye for the future.

First off, let’s take a look at their current salary cap picture.

2018-19 Salaries

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
Greg Monroe $1,512,601
Patrick McCaw $777,665
Lorenzo Brown $800,000
Justin Hamilton $1,000,000

Total salaries: $140.6M
Salary cap: $101.9M
Luxury tax line: $123.7M

The Raptors are currently far above the cap, and well into the tax as well. At $16.8 million above the tax line, they are lined up to owe $34.7 million in taxes at the end of the year.

Before we get into options going into the deadline, we should look ahead to the next couple of summers for some important context for any moves this deadline.

2019-20 Salaries

Kyle Lowry $33,496,296
Serge Ibaka $23,271,604
Jonas Valanciunas $17,617,976 (PO)
Norman Powell $10,116,576
Fred VanVleet $9,346,153
C.J. Miles $8,730,158 (PO)
Pascal Siakam $2,351,839
OG Anunoby $2,281,800
Justin Hamilton $1,000,000

Total salaries: $108.2M
Salary cap: $109.0M (projected)
Luxury tax line: $132.4M (projected)

Here I have both Miles and Jonas Valanciunas opting into their player options, as both seem very likely to opt in.

As you can see, the Raptors have a lot of expiring contracts this year, mostly at the end of the bench, but also including some extremely important pieces in Kawhi Leonard and Danny Green. Re-signing Leonard will obviously be a priority for the team. Green will likely be a target to re-sign as well. Delon Wright is also a free agent this summer, though restricted unlike the other two, and his re-signing is less clearly desirable. Mostly because of the tax situation.

Let’s pencil in Kawhi Leonard at his max salary in a fit of optimism. His projected $32.7 million next summer brings the team total salary to about $141 million. Throw in filling out the roster to the minimum 14 spots (using the minimum salary for each spot to find the absolute lowest total team salary), and the team salary climbs to $149 million. That’s $16.6 million above the tax line, an almost identical tax situation to this year’s team. Unfortunately, that’s with five minimum salary players used to fill out the roster, meaning both Danny Green and Delon Wright are let go in free agency, marking a significant talent hit for the team.

It’s a hit the team would gladly take if they manage to keep Kawhi Leonard, but one would imagine the pitch to Kawhi would involve putting the best team possible around him, not saving money by letting talent walk. So, let’s make up some numbers to demonstrate the tax cost of adding salary when a team is already this far into the tax. Remember, they are starting out $16.6 million above the tax line, meaning a tax bill of an additional $34 million.

Let’s assign $10 million in salary to each of Green and Wright, even if one might make a bit more, one might make a bit less, just for demonstration purposes. So, if the team keeps Green, their team salary increases by about $9 million (as Green replaces one of those assumed minimum salaries), putting them $26.7 million above the tax line. That makes for a tax bill of $66.5 million. No, that’s not a typo — luxury tax rates in the NBA increase very quickly the further above the tax line a team is, so as you add salary to a team already in the tax, the cost increases dramatically.

Now say they keep Wright as well. That brings them to $34.7 million above the tax line, and sets them up to pay $105 million in taxes. Meaning Wright alone at $10 million in salary would cost the team nearly $50 million in actual outgoing cash. Even keeping one of the two makes that player’s cost effectively $40 million. These are the sorts of numbers that make even the richest teams, and even the teams most desperate to impress their free agent superstar, flinch.

So, that’s lesson one for the coming trade deadline. Although the team would probably love to add talent, and would probably be alright with increasing their tax bill this year by a small amount to do so, they have to be careful about adding salary in the future unless they have future salary outgoing in the trade as well. And they may consider moves that don’t really increase the team’s talent level if they can shed some future salary.

Before we really circle back, though, we should look ahead one more season. Because the summer of 2020 may well play a role in the pitch the Raptors can make to Leonard to re-sign.

2020-21 Salaries

Norman Powell $10,865,952
OG Anunoby $3,872,215

Total salaries: $12.4M
Salary cap: $116.0M (projected)
Luxury tax line: $140.9M (projected)

Yeah, that’s right. The Raptors currently have two players under contract for 2020-21. Pascal Siakam is a restricted free agent with a cap hold of $7.1 million. If we assume Leonard re-signs this coming summer for his maximum salary and a multi-year contract, he would earn $35.3 million. Along with the roster slot holds for eight empty roster spots, the team would have a salary cap hit of just under $65 million. That means they are looking at $51 million in cap room.

As they have Siakam’s Bird Rights that summer, they can go over the cap to sign him last and keep his small cap hold on the books while trying to sign free agents. They also have Bird Rights for a whole list of other players, but they would likely renounce them to clear their large cap holds and be able to use cap space to sign free agents — Lowry ($41mil), Ibaka ($35mil), Valanciunas ($26mil), VanVleet ($14mil) and Miles ($13mil) all have inconveniently large cap holds. They can still sign these players, but any amount they give them would eat into that cap space they have. And keep in mind, anyone else they sign this summer to a long term deal would eat into that as well.

But the key piece of information here is that the projected max salary (for mid-career UFA’s, with 7-9 years of experience) is $34.8 million. So as long as they keep that much cap space, they can go out into the market to pitch a second star on coming to Toronto to play with Kawhi Leonard, with young promising pieces in Anunoby, Siakam and Powell already on the roster.

That leaves them $16 million in unaccounted funds. This could go to VanVleet via his cap hold, or to perhaps a discounted price Lowry after his big deal is up. Or it could be salary that comes in via trade. Just keep in mind in any trade deadline deals, that to maintain that maximum salary slot, the team needs to take on less than $16 million in 2020-21 salary. That could be taking on a $16 million player, or, say, taking on a $25 million player while sending out Norman Powell, who is one of the players on the 2020-21 books.

That’s lesson number two for this deadline (and the draft, when we get to it). Not only does the team need to be careful about 2019-20 salary for tax reasons, but they also need to be careful about 2020-21 salary because of the opportunity cost of eating up that cap room.

Contingency Planning

Now, all of this has assumed that Kawhi Leonard re-signs. That’s because, if he doesn’t, then the gamble will have failed, and the Raptors are in for a rebuild. They will not have enough cap space to immediately add any real talent to bolster the team right away (leaving a declining Lowry as the sole star of the team), and in summer 2020 they will not have enough talent to pitch a star to come join them in all likelihood. The earliest the team would project to be on the upswing would be summer 2021, with OG and Siakam locked up, two high draft pick in the 2020 and 2021 drafts added to the team, and enough cap space to pitch a star (who may or may not be Greek) on coming to join a young up and coming team.

In any case, in that scenario where Kawhi bolts this summer, so long as the team doesn’t take on any salary at this deadline past the 2020-21 season, the plan wouldn’t be affected. And even if they did add salary, that’s sort of a best case scenario timeline, with perhaps the following summer being a more likely target for the end of the rebuild.

So, Trade Away

To wrap up, I’ll just note a few things that could come into play. The Raptors, being over the tax, have to match salaries to make a trade. They can bring in up to 125% (+100k) of the salary they send out in any deal. They also have two trade exceptions (both worth just under $3 million) with which they can take in a salary in a trade without having to match it. But they cannot be combined with each other or with other players to bring in a bigger salary, so this only helps in a trade for a player making less than $3 million.

It’s worth noting that there is a roster minimum (which the Raptors are just barely meeting), meaning if the Raptors send out three players for one player coming back, there is an added cost of signing two extra players to the minimum salary to fill out the roster, which increases the tax bill. Just something to keep in mind.

Finally, the Raptors are free to trade anyone on the roster expect Patrick McCaw, who signed his deal too recently to be traded by the deadline. That includes their two-way players (Chris Boucher and Jordan Loyd), who can be traded but don’t help with matching salaries (they count as $0 both towards the cap and tax calculations and in trade salary matching calculations). They are somewhat restricted in what draft picks they can trade away. Toronto has already traded their 2019 1st rounder, so they cannot trade that or their 2020 1st (consecutive future firsts cannot be traded). The protection on that 1st converts it to two 2nd rounders if the Raptors fall into the bottom 10 of the standings (obviously exceedingly unlikely), reducing the number of available 2nd rounders to trade as well, not that 2nd rounders from a team near the top of the league are all that valuable.

I guess one more thing: if the Raptors can trade for Anthony Davis, then all the lessons above go out the window. Just do it and sort out the details later, in that case. For the record, my suggested package is Serge Ibaka, Norman Powell, Fred VanVleet, Pascal Siakam, OG Anunoby and a 2021 1st round pick for Anthony Davis, Solomon Hill and E’Twaun Moore.

So, trade away! What trades would you like to see the Raptors try to make? What areas of weakness need to be addressed, or areas of strength worth doubling down on? Which teams out there are ripe for a classic Masai Ujiri swindle (looking at you, Pelicans)? Ujiri does tend to make his moves in the off-season, but he has struck at/near the deadline before, most notably in 2017 when he traded for Serge Ibaka and P.J. Tucker.

And while we are at it, do you have dream targets in summer 2020 to pair with Leonard if he stays?

All salaries per Basketball Insiders.