FanPost

How the 76ers Ended up Spending $11.7 Million Below the Salary Cap Floor in 2014-2015

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Background

In order to set up the background for this post, I am going to begin with 2 separate quotes from Zach Lowe. The first one comes from his article on lottery reform and the next one on the Nets massive profit loss during the 2013-2014 season

"The Sixers actually made money last season, with projected net profit of about $10.4 million, per league documents obtained and verified by Grantland. They did so without getting a dime from revenue-sharing"

- Zach Lowe, July 31st 2014

"The NBA expects nine teams will end up having lost money once luxury-tax distribution and revenue-sharing payments are finalized. The Nets, with that monster $144 million figure, are the biggest losers. Next in line? The Wizards, with projected losses of about $13 million."

- Zach Lowe, June 30th 2014

The Sixers – a team that ranked 29th in attendance (ahead of only the Bucks), went 19-63, and received no part of revenue sharing – actually made money in 2013-2014… something 9 other teams failed to do. The question becomes… how? Derek ran a story last year that got me intrigued to go into further detail.

How mid-season transactions helped the 76ers make money in 2013-2014

At the 2013-2014 trade deadline, Evan Turner and Lavoy Allen were traded for Danny Granger and a 2015 Golden State 2nd Round Pick

On the surface, this trade looked like a relatively poor return for the 76ers. However, the true benefit to the team was the financial savings resulting from Granger’s contract. This trade sent out $6.68 million from Turner and $3.06 million from Allen while bringing on Granger’s $14.02 million contract. By completing this trade with only 55 days remaining in the NBA season (out of 170 in total), the 76ers only have to pay Grangers contract from then on while all $14.02 million of his contract goes to the salary cap floor. Conversely, Turner and Allen's contracts come off the books. Now this is important and one thing I wanted to highlight separately from Derek’s article… By being under the salary floor AND unloading contracts in which they already paid 2/3 of the season, the 76ers must bring back a large contract or it would cost the team significantly since traded contracts do not count toward the salary floor.

Overall this results in payments of 55/170*14.02 million (Granger) and 115/170*9.74 million (Turner/Allen) by the 76ers over the course of the year. This totals $11.13 million paid by the team while the full $14.02 million of Granger’s contract goes towards the cap. In other words, this trade saved the 76ers about $2.9 million and the point should be brought up again – a trade of these 2 contracts without bringing back a large contract would have a serious negative financial impact on the 76ers.

Below I have a full breakdown of players incoming and leaving during the 76ers 2013-2014 season, the contract paid, and how much went toward the salary cap floor:

Note on the assumptions in these calculations which will be used for both the 2013-2014 seasons and the 2014-2015 seasons

  • Contracts are based on a 170 day season and paid pro-rated by the # of days remaining when the player is traded/acquired
  • 10 day contracts go towards the salary cap floor
  • Specific early season cuts/replacements (i.e. Drew Gordon for Malcolm Thomas at the start of 2014-2015) implicitly are factored into the overall salary cap payroll do not factor into the calculation
  • Early season signings (i.e. Furkan Aldemir, Robert Covington) receive their full salary
Player Acquired/Outgoing Date Acquired/Outgoing # of Days Paid Contract Value Salary Paid by 76ers $ Amount Going to Cap Floor Savings below Salary Cap Floor
Earl Clark 2/20/2014 55 $ 4,500,000.00 $ 1,455,882.35 $ 4,500,000.00 $ 3,044,117.65
Danny Granger 2/20/2014 55 $ 14,021,788.00 $ 4,536,460.82 $ 14,021,788.00 $ 9,485,327.18
Eric Maynor 2/20/2014 55 $ 2,016,000.00 $ 652,235.29 $ 2,016,000.00 $ 1,363,764.71
Byrun Mullens 2/20/2014 55 $ 947,907.00 $ 306,675.79 $ 947,907.00 $ 641,231.21
Henry Sims 2/20/2014 55 $ 788,872.00 $ 255,223.29 $ 788,872.00 $ 533,648.71
Evan Turner 2/20/2014 115 $ 6,679,867.00 $ 4,518,733.56 $ - $ (4,518,733.56)
Lavoy Allen 2/20/2014 115 $ 3,060,000.00 $ 2,070,000.00 $ - $ (2,070,000.00)
Spencer Hawes 2/20/2014 115 $ 6,600,000.00 $ 4,464,705.88 $ - $ (4,464,705.88)
Total Sum $ 38,614,434.00 $ 18,259,917.00 $ 22,274,567.00 $ 4,014,650.00

As you can see based on this, the 76ers saved approximately $4 million with these moves. While they slightly exceeded the "salary floor" of about $52.65 million, only about $48.6 million was realistically spent on player salaries. They were not penalized for not reaching the salary cap floor. Considering the 76ers "only" profited $10.4 million, these transactions actually form a large portion of the profit. If they didn’t take on big contracts with the Hawes/Turner/Allen trades, the team would have seen significant financial loss resulting from going further under the salary cap floor while still paying 2/3 of their contract.

How about the 2014-2015 season?

Below I ran a similar analysis for 2014-2015. With almost no big money contracts to unload, the financial savings were actually much more significant this year, with the biggest move being the acquisition of Javale McGee.

Player Acquired/Outgoing Date acquired/outgoing # of Days Paid Contract Value Salary Paid by 76ers $ Amount Going to Cap Floor Savings below Salary Cap Floor
Andrew Kirilenko* 12/11/2014 29 $ 3,326,235.00 $ 567,416.56 $ 3,326,235.00 $ 2,758,818.44
Ronny Turiaf 12/15/2014 121 $ 1,500,000.00 $ 1,067,647.06 $ 1,500,000.00 $ 432,352.94
Isaiah Canaan 2/19/2015 55 $ 816,482.00 $ 264,155.94 $ 816,482.00 $ 552,326.06
Javale McGee 2/19/2015 55 $ 11,250,000.00 $ 3,639,705.88 $ 11,250,000.00 $ 7,610,294.12
Ish Smith** 2/21/2015 53 $ 923,373.00 $ 287,875.11 $ 861,405.00 $ 573,529.89
Thomas Robinson 2/24/2015 50 $ 3,678,360.00 $ 1,081,870.59 $ 3,678,360.00 $ 2,596,489.41
Glenn Robinson 3/7/2015 39 $ 507,336.00 $ 116,388.85 $ 507,336.00 $ 390,947.15
Brandon Davies 12/11/2014 45 $ 816,482.00 $ 216,127.59 $ - $ (216,127.59)
Alexey Shved 12/19/2014 53 $ 3,282,056.00 $ 1,023,229.22 $ - $ (1,023,229.22)
KJ McDaniels 2/19/2015 115 $ 507,336.00 $ 343,197.88 $ - $ (343,197.88)
Michael Carter-Williams 2/19/2015 115 $ 2,300,040.00 $ 1,555,909.41 $ - $ (1,555,909.41)
Total Sum $ 28,907,700.00 $ 10,163,524.09 $ 21,939,818.00 $ 11,776,293.91

*One extra assumption needed in the calculation was the handling of the Andrei Kirilenko situation. Since he was suspended then waived, the calculation assumes the 76ers only paid his salary from acquisition until suspension (December 11th to January 9th)... And not after he was waived. However, like everyone else acquired, his full $3.33 million salary went towards the salary cap floor.

**Ish Smith cap hit vs. salary are different on SpoTrac. I am not sure why but I used the given information

The salary cap floor was $56.759 million in 2014-2015 and the Sixers technically went over that at $56.829 million. As seen above, the team actually saved about an extra $11.7 million from what the "Cap value" of their total contracts were. This resulted in salary payments of approximately $45.052 million according to my estimates*** – significantly under the salary cap floor without any penalty.

***Thank you to Sean O'Connor for pointing out I incorrectly included Jorge Gutierrez and Jared Cunningham into my initial estimates, overestimating the value under the cap. I have not included the money received from the Clippers in the Jared Cunningham trade

Does this matter?

The simple truth is this – Hinkie and the 76ers front office are using a loophole in the CBA to generate profit. With this knowledge, people will say the 76ers front office is "cheating the players" and "billionaires making more money at the expense of the player". While these hot takes do have some merit (the players union should address this loophole in the next CBA), no player is being directly impacted by this. Each player is receiving his full salary. I am not going to ask everyone to support this, but I will provide three benefits below

1. Reinvestment Opportunity

Between Pierre Jackson’s generous contract and the active investment into the most advanced player tracking systems across the league… The management team has shown intent to reinvest money into this team. If this makes ownership more willing to go into the luxury tax in a few years when winning is the highest priority, then the benefit will be felt directly in the team’s on-court product.

2. Optionality

By leaving cap space open until the last day, the opportunity to utilize that cap space for contract dumps remains open as long as possible. Look at the Javale McGee situation. When Hinkie saw the ability to take on a contract AND receive a first round pick, he took it even though that $12 million will go against the cap next year. The Javale contract also saves the team about $7.6 million during the 2014-2015 season.

3. Basketball Value

After all, 2nd round picks are often sold across basketball for money... And cash considerations can help teams move up in the draft. In the 2013 draft, the 46th pick and cash considerations were traded by Utah to Denver for the 27th pick. With that pick, the Utah Jazz selected Rudy Gobert.

Conclusion

I do not believe saving money is the reason for the 76ers current plan, as I genuinely believe the approach Hinkie has taken is what he believes to be the best way to build a championship contender. When the time comes and the team needs to spend, I hope and believe they will be willing to do it. If they go cheap when it matters to win a title, now that will be a tough pill to swallow... but nothing suggests that to be the case at this time.

The Philadelphia 76ers are a privately owned business in the end, and businesses do look to make money. If nothing else, the exploitation of this loophole certainly bides Hinkie time with the ownership group as he continues to go through a multi-year rebuild that is unlike anything we have seen in NBA history.

*Note: I did not include any offseason trades (like the Hasheem Thabeet trade) which presumably resulted in small financial gains

*Note 2: All numbers are based on the best available public information I could find, but none of this should be taken as sourced information.

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