Rubio Buyout Question

[shrink]

Somebody help me! I had this pointed out to me today on another board, and mentioned it in the rubio thread:

The following are also treated like signing bonuses for the purpose of determining a player's salary:

* Payments in excess of $500,000 that are made to non-NBA teams or federations to release rights to a player. Note: It is a common misconception that teams cannot pay more than $500,000 to release a foreign player. They can, but any amount above $500,000 is applied to the team's cap.

http://members.cox.net/lmcoon/salarycap.htm (#64)

I've been telling everybody that MIN was limited to paying Joventut $500,000, and with Ricky being picked 5th, together we simply couldn't swing the buy-out because of the CBA restriction, like ESPN says in this clip:

http://sports.espn.go.com/nba/news/story?id=4435861

Is that a pile oh manure? If the total buy-out was within CBA rules, I assume we'd have paid it immediately if Rubio was willing to come over to be a Timberwolf!

[ritt0093]

Somebody help me! I had this pointed out to me today on another board, and mentioned it in the rubio thread:

The following are also treated like signing bonuses for the purpose of determining a player's salary:

* Payments in excess of $500,000 that are made to non-NBA teams or federations to release rights to a player. Note: It is a common misconception that teams cannot pay more than $500,000 to release a foreign player. They can, but any amount above $500,000 is applied to the team's cap.

http://members.cox.net/lmcoon/salarycap.htm (#64)

I've been telling everybody that MIN was limited to paying Joventut $500,000, and with Ricky being picked 5th, together we simply couldn't swing the buy-out because of the CBA restriction, like ESPN says in this clip:

http://sports.espn.go.com/nba/news/story?id=4435861

Is that a pile oh manure? If the total buy-out was within CBA rules, I assume we'd have paid it immediately if Rubio was willing to come over to be a Timberwolf!

I think you may be right. Here is the wording that I think Larry Coon is addressing in his comments.

Any amount in excess of $500,000 paid or to be paid by or at the direction of any NBA Team to (i) any basketball team other than an NBA Team, or (ii) any other entity, organization, representative or person, for the purpose of inducing an international player (as defined in Article X, Section 1(c)) to enter into a Player Contract or in connection with securing the right to enter into a Player Contract with an international player shall be deemed Salary (in the form of a signing bonus) to the player.

I don't see any text around the issue of 500,000 USD maximum.

[LordBaldric]

I've known about this for a while. The problem is that the most a signing bonus can be is 20% of your contract. So 20% of Rubio's 3 year rookie deal is what, around $2 million? Still far short of his buyout and still money out of Rubio's salary.

[tvwolves7]

Somebody help me! I had this pointed out to me today on another board, and mentioned it in the rubio thread:

The following are also treated like signing bonuses for the purpose of determining a player's salary:

* Payments in excess of $500,000 that are made to non-NBA teams or federations to release rights to a player. Note: It is a common misconception that teams cannot pay more than $500,000 to release a foreign player. They can, but any amount above $500,000 is applied to the team's cap.

http://members.cox.net/lmcoon/salarycap.htm (#64)

I've been telling everybody that MIN was limited to paying Joventut $500,000, and with Ricky being picked 5th, together we simply couldn't swing the buy-out because of the CBA restriction, like ESPN says in this clip:

http://sports.espn.go.com/nba/news/story?id=4435861

Is that a pile oh manure? If the total buy-out was within CBA rules, I assume we'd have paid it immediately if Rubio was willing to come over to be a Timberwolf!

I think you may be right. Here is the wording that I think Larry Coon is addressing in his comments.

Any amount in excess of $500,000 paid or to be paid by or at the direction of any NBA Team to (i) any basketball team other than an NBA Team, or (ii) any other entity, organization, representative or person, for the purpose of inducing an international player (as defined in Article X, Section 1(c)) to enter into a Player Contract or in connection with securing the right to enter into a Player Contract with an international player shall be deemed Salary (in the form of a signing bonus) to the player.

I don't see any text around the issue of 500,000 USD maximum.

I am quickly responding to this so I could be wrong.

First, werent we over the cap when we drafted him? So we necessarily could not have exceeded $500,000 last year since it hits the cap as though its a free agent not a draft pick. Is how I assume it would work.

Secondly, he has no buyout this summer so even though we have the cap room to take the hit. His contract would not allow it.

[ritt0093]

Here is another thought...the CBA says anything over $500,000 counts as player salary. Well as a first round draft pick Rubio's salary was limited with a cap.


So the most the wolves could pay would be 120% of the cap hold +500,000? I would think this still changes the story quite a bit, but I doubt we would have been able to still pay the entire thing.

[LordBaldric]

It doesn't change the story at all. It's little different than Rubio taking a loan against his rookie salary to pay less than half of his buy out amount. It's a non-factor.

The key language is that anythink over $500,000 counts as player salary in the form of a signing bonus.

[younggunsmn]

Nice catch Shrink, very interesting.

We weren't exactly lied to because it is effectively the same situation for players who are first round picks since they are tied to the rookie scale.

Even if what Coon says is correct (and I believe him), the Wolves can only offer 500k in a Rubio buyout. Because to offer any more than that, along with the max 120% rookie scale salary, would be violating the CBA because we would be paying above rookie scale for him, since any buyout amount beyond 500k is considered salary for cap purposes.

However, for second round picks this is interesting. Essentially, as long as you have the cap room to pay for the buyout and salary you can pay the entire buyout for a second round pick or free agent. The usefulness of this is that since you are paying the Foreign team directly, the player does not take an income tax hit on this amount, allowing the NBA team to get more value for their "buyout buck".

For instance, say Pekovic has a $1 mil buyout (the current rumor). If we pay the buyout directly, it costs us 1 million. If we pay Pekovic salary and he pays the entire buyout out of said salary, the fed government takes 35% (41.5 come jan 1st), and the state takes 7.85%. We would have had to pay him $1.75 million to cover a $1 million buyout if this was the case.

[ritt0093]

It doesn't change the story at all. It's little different than Rubio taking a loan against his rookie salary to pay less than half of his buy out amount. It's a non-factor.

The key language is that anythink over $500,000 counts as player salary in the form of a signing bonus.

I think I see what you're saying...Wolves can "contribute" upto 120% salary +500k, but then Rubio doesn't get any money since his total compensation is capped. So either the wolves pay rubio his salary +500k for buyout, or they pay the massive buyout and Rubio's salary is 0 since his total compensation is limited.

[shrink]

Ahhh ... thanks guys, that makes a lot of sense.

I appreciate you talking me down off the ledge here.

[younggunsmn]

Nice catch with the signing bonus thing. Correct me if I am wrong, but I think signing bonuses are prorated over the life of the deal too. So if we sign Pekovic and pay a 1mil buyout, 500k of that would be prorated over the length of his contract as a signing bonus, adding a small amount of cap flexibility this year.

[LordBaldric]

Nice catch with the signing bonus thing. Correct me if I am wrong, but I think signing bonuses are prorated over the life of the deal too. So if we sign Pekovic and pay a 1mil buyout, 500k of that would be prorated over the length of his contract as a signing bonus, adding a small amount of cap flexibility this year.

Yes they are prorated for cap purposes and can only be a max of %20 of the contract. If I were an ultra rich owner every contract I doled out would have a max signing bonus, if for nothing more than to make those contracts more attractive in future trades.

[shrink]

Nice catch with the signing bonus thing. Correct me if I am wrong, but I think signing bonuses are prorated over the life of the deal too. So if we sign Pekovic and pay a 1mil buyout, 500k of that would be prorated over the length of his contract as a signing bonus, adding a small amount of cap flexibility this year.

Yes they are prorated for cap purposes and can only be a max of %20 of the contract. If I were an ultra rich owner every contract I doled out would have a max signing bonus, if for nothing more than to make those contracts more attractive in future trades.

I agree - if you're right and don't mind the upfront cost of using the money now. Its funny though that CHI posters insist the reverse is true. they paid less up front for Deng, agreeing to pay future money into an annuity. Now if a team trades for Deng, while they don't have to pay his full cap space number each year, they have to pay into the annuity after he's done playing .. and reimburse some of the defered salary for when he was a Bull!

I also really like the way Dampier has a fully unguaranteed team option tacked on to the end of his contract. The team has no risk, but can be over the lux and still offer to trade instant cap space by swapping him to another team to waive. That'd be a nice feature to put on the tail end of our future contracts as well.

[younggunsmn]

Yeah fully unguaranteed years are very valuable in the cap area.

If you're going to make a really dumb move and overpay someone, at least make him a huge trade chip on the back end by adding an unguaranteed year. Something we should have done with smith, telfair, sessions, and Hollins. A 4 year deal with the 4th year fully unguaranteed is much better than a 3 year deal for the same money over the first 3 years. Because after that 3rd year that player becomes both an expiring AND an extremely valuable trade chip from the trade deadline until 7/1, instead of just an expiring contract.

[younggunsmn]

Nice catch with the signing bonus thing. Correct me if I am wrong, but I think signing bonuses are prorated over the life of the deal too. So if we sign Pekovic and pay a 1mil buyout, 500k of that would be prorated over the length of his contract as a signing bonus, adding a small amount of cap flexibility this year.

Yes they are prorated for cap purposes and can only be a max of %20 of the contract. If I were an ultra rich owner every contract I doled out would have a max signing bonus, if for nothing more than to make those contracts more attractive in future trades.

Yeah, if you are Paul Allen it is a good thing. If you are one of the 20 owners who lose money it is not necessarily a good thing. Usually GM's are not signing guys with the idea of trading them in the future though, and that's the problem. I like the deals that start higher and go down each year, like Hinrich, David West, Nocioni, better because then you move more cap room to future years too. But the Players Association and Agents generally do not like those types of deals.

[Ricky Business]

Nice catch Shrink, very interesting.

We weren't exactly lied to because it is effectively the same situation for players who are first round picks since they are tied to the rookie scale.

Even if what Coon says is correct (and I believe him), the Wolves can only offer 500k in a Rubio buyout. Because to offer any more than that, along with the max 120% rookie scale salary, would be violating the CBA because we would be paying above rookie scale for him, since any buyout amount beyond 500k is considered salary for cap purposes.

However, for second round picks this is interesting. Essentially, as long as you have the cap room to pay for the buyout and salary you can pay the entire buyout for a second round pick or free agent. The usefulness of this is that since you are paying the Foreign team directly, the player does not take an income tax hit on this amount, allowing the NBA team to get more value for their "buyout buck".

For instance, say Pekovic has a $1 mil buyout (the current rumor). If we pay the buyout directly, it costs us 1 million. If we pay Pekovic salary and he pays the entire buyout out of said salary, the fed government takes 35% (41.5 come jan 1st), and the state takes 7.85%. We would have had to pay him $1.75 million to cover a $1 million buyout if this was the case.

Any buyout Pekovic has will be in euros and not dollars. So if it is a 1 million buyout, it is €1 million euros and not $1 million dollars.

[younggunsmn]

Of course the team will be paid in euros.
I've heard the figure is 1 million in dollars though (sketchy rubechat info though),
that must be a little over 800k euros right now. I guess we'll find out.
If greece defaults the euro could even fall to a 1:1 ratio.
It's down to almost 1:1.2 after being around 1:1.4 last summer.

[Krapinsky]

Confirmed from the man himself (via Twitter)

LarryCoon
"Can pay" and "have cap room to pay" are two different things. Any amount over $500K counts against cap or exception. In the @thebrandino

LarryCoon
...case of a 1st round pick, the exception is up to 120% of the 1st round scale amount. If they go over $500K, then it @thebrandino
40 minutes ago via TweetDeck

LarryCoon
...essentially has to come out of the player's salary (it reduces the amount the player can receive). This is how Gasol got to @thebrandino
39 minutes ago via TweetDeck

...the NBA. @thebrandino
39 minutes ago via TweetDeck
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[GopherIt!]

Rubio's buyout is one miiiiillion dollars