Question About Buyouts

Wizenheimer · Post #1 » by **Wizenheimer** » Fri Mar 16, 2012 5:01 pm

I'm not sure how to word this but I'll give it a try:

The Blazers traded for Shawne Williams in the Wallace trade yesterday. Reports are they are working a a buy-out agreement. His salary for this season is 3 million and for next season it's a shade over 3.1 million

question: if the Blazers offered to buy him out for the balance of his contract less say, 100K, would the then approximate 4 million be split over two 'years' even though there's just a portion of this season remaining? (I understand the amount are allocated according to contract salaries...just trying to simplify)

in other words, could the Blazers effectively reduce the cap-impact of the 12/13 Williams salary from about 3.1 million to 2 million using a buyout? or would the rules mandate that this season's amount be 'pro-rated according to the portion of the season remaining?

answerthink · Post #2 » by **answerthink** » Fri Mar 16, 2012 7:55 pm

The aggregate reduction in a bought out player’s compensation is allocated pro rata over the then-current and each remaining season on the basis of the remaining unearned protected base compensation in each season.

If you give me a bit of help interpreting your words, I can provide you with the cap hits. In your example, the player is making $3.0M this year and $3.1M next year. He has already earned $2.0M. What is not clear to me is how much of the $4.1M he has yet to earn will be paid to him as per the terms of the buyout. Will he be paid all of it except $100k, or will he give back all of it except $100k?

Wizenheimer · Post #3 » by **Wizenheimer** » Fri Mar 16, 2012 8:36 pm

assume the total balance due of his contract is 4.1 million and that the total agreed buyout was 4 million, a 100K reduction

answerthink · Post #4 » by **answerthink** » Fri Mar 16, 2012 8:59 pm

Ok. The player is making $3.0M this year and $3.135M next year. He has already earned $2.0M, and is being bought out of the $4.135M he has yet to earn for $4.035M.

This $100k reduction would be allocated $24k for this year and $76k for next year. The cap hit would therefore be $2.976M for this year and $3.059M for next year.

Bear in mind that the figures above reflect the cap hit, which would deviate from the player’s actual compensation due to the shortened 2011-12 season.

Wizenheimer · Post #5 » by **Wizenheimer** » Fri Mar 16, 2012 9:35 pm

answerthink wrote:Ok. The player is making $3.0M this year and $3.135M next year. He has already earned $2.0M, and is being bought out of the $4.135M he has yet to earn for $4.035M.

This $100k reduction would be allocated $24k for this year and $76k for next year. The cap hit would therefore be $2.976M for this year and $3.059M for next year.

Bear in mind that the figures above reflect the cap hit, which would deviate from the player’s actual compensation due to the shortened 2011-12 season.

so in other words, there is no real advantage for Portland in a buy-out as far as increasing the amount of their cap-space.

In fact, it would be a net negative because if Williams was bought out and off the team, the Blazers would incur a roster charge of nearly 500K due to one less player

answerthink · Post #6 » by **answerthink** » Fri Mar 16, 2012 9:59 pm

The impact of a buyout on a team’s cap space depends on the amount of the buyout.

In your example, the player was only willing to sacrifice $100k of the $4.1M still to be paid on his contract in order to be set free, so the cap savings for the team for next season was minimal. But if, for example, he were to sacrifice all of the $4.1M still to be paid on his contract, the cap hit for next season would be wiped away completely.

If maximized cap space for next season is what you’re after, bear in mind also that in lieu of this standard cap treatment, for contracts signed after the new CBA went into effect the waiving team may elect to have the waived player’s salary stretched (as it is for cash purposes). In this case, his cap hit for this year would remain the same and his cap hit of $3.059M for next year would be stretched over three years, at $1.020M each.

The roster charge you speak of is a temporary charge for teams carrying fewer than 12 players in the offseason. They get wiped away as the team builds back up to 12 players. Therefore, roster charges don’t reduce cap space, but rather only change the way in which a team’s cap space can be allocated.