Impact of Smith's next contract on Pistons' cap

[Laimbeer]

So Smith was due a total of 26M for this season and next. The Pistons stretched it over five seasons, for a hit of just over 5M a season for five seasons.

Is Smith a UFA this summer and how will his next contract impact that annual 5M hit for the next four seasons?

[Smitty731]

So Smith was due a total of 26M for this season and next. The Pistons stretched it over five seasons, for a hit of just over 5M a season for five seasons.

Is Smith a UFA this summer and how will his next contract impact that annual 5M hit for the next four seasons?

From the FAQ:

If another team signs a player who has cleared waivers, the player's original team is allowed to reduce the amount of money it still owes the player (and lower their team salary3) by a commensurate amount. This is called the right of set-off. This is true if the player signs with any professional team -- it does not have to be an NBA team. The amount the original team gets to set off is limited to one-half the difference between the player's new salary and the minimum salary for a one-year veteran (if the player is a rookie, then the rookie minimum is used instead).

For example, suppose a fifth-year player is waived with one guaranteed season remaining on his contract for $5 million. If this player signs a $1 million contract with another team for the 2011-12 season, his original team gets to set off $1 million minus $762,195 (the minimum salary for a one-year veteran in 2011-12), divided by two, or $118,902. The team is still responsible for paying $4,881,098 of the original $5 million. Note that between his prior team and new team the player will earn a combined $5,881,098, which was more than he earned prior to being waived.

Teams and players may negotiate a waiver of the team's set-off rights. Typically this is done when a contract is altered as part of a buyout (see question number 67), but not at other times.4

The challenge is that we don't know what the Pistons and Smith agreed to in set-off rights. I haven't seen that information anywhere. I'll do some digging and see what I can find.

[HartfordWhalers]

So Smith was due a total of 26M for this season and next. The Pistons stretched it over five seasons, for a hit of just over 5M a season for five seasons.

Is Smith a UFA this summer and how will his next contract impact that annual 5M hit for the next four seasons?

From the FAQ:

If another team signs a player who has cleared waivers, the player's original team is allowed to reduce the amount of money it still owes the player (and lower their team salary3) by a commensurate amount. This is called the right of set-off. This is true if the player signs with any professional team -- it does not have to be an NBA team. The amount the original team gets to set off is limited to one-half the difference between the player's new salary and the minimum salary for a one-year veteran (if the player is a rookie, then the rookie minimum is used instead).

For example, suppose a fifth-year player is waived with one guaranteed season remaining on his contract for $5 million. If this player signs a $1 million contract with another team for the 2011-12 season, his original team gets to set off $1 million minus $762,195 (the minimum salary for a one-year veteran in 2011-12), divided by two, or $118,902. The team is still responsible for paying $4,881,098 of the original $5 million. Note that between his prior team and new team the player will earn a combined $5,881,098, which was more than he earned prior to being waived.

Teams and players may negotiate a waiver of the team's set-off rights. Typically this is done when a contract is altered as part of a buyout (see question number 67), but not at other times.4

The challenge is that we don't know what the Pistons and Smith agreed to in set-off rights. I haven't seen that information anywhere. I'll do some digging and see what I can find.

Since Detroit got zero salary back from Josh Smith in his waiving, I don't see any reasonable explanation for them to agree to a set off of less than the maximum allowed.

[Smitty731]

Since Detroit got zero salary back from Josh Smith in his waiving, I don't see any reasonable explanation for them to agree to a set off of less than the maximum allowed.

Yeah I agree. Especially since Smith isn't a fringe guy whose contract terms may cause a team to sign or not sign him. He'll have suitors no matter what his situation is.

[Joe Berry]

So Smith was due a total of 26M for this season and next. The Pistons stretched it over five seasons, for a hit of just over 5M a season for five seasons.

Is Smith a UFA this summer and how will his next contract impact that annual 5M hit for the next four seasons?

From the FAQ:

If another team signs a player who has cleared waivers, the player's original team is allowed to reduce the amount of money it still owes the player (and lower their team salary3) by a commensurate amount. This is called the right of set-off. This is true if the player signs with any professional team -- it does not have to be an NBA team. The amount the original team gets to set off is limited to one-half the difference between the player's new salary and the minimum salary for a one-year veteran (if the player is a rookie, then the rookie minimum is used instead).

For example, suppose a fifth-year player is waived with one guaranteed season remaining on his contract for $5 million. If this player signs a $1 million contract with another team for the 2011-12 season, his original team gets to set off $1 million minus $762,195 (the minimum salary for a one-year veteran in 2011-12), divided by two, or $118,902. The team is still responsible for paying $4,881,098 of the original $5 million. Note that between his prior team and new team the player will earn a combined $5,881,098, which was more than he earned prior to being waived.

Teams and players may negotiate a waiver of the team's set-off rights. Typically this is done when a contract is altered as part of a buyout (see question number 67), but not at other times.4

The challenge is that we don't know what the Pistons and Smith agreed to in set-off rights. I haven't seen that information anywhere. I'll do some digging and see what I can find.

Any new contract Josh Smith signs will lower the Pistons actual team salary but it will NOT lower the actual caphit of 5.4 mil the next few years even one cent, so any contract Smith signs has no salary cap implications - just the amount the Pistons have to pay Smith will be reduced. Can anyone confirm this?

The CBA FAQ actually makes no statement about the cap hit, but take Lin's and Asik's contracts signed with Houston for example. Their caphit was 8.4 mil $ per year for the whole contract, but they got paid over 15 mil $ in the 3rd year, none of which had any implication for their actual caphit of 8.4 mil, is that correct?

[Smitty731]

Any new contract Josh Smith signs will lower the Pistons actual team salary but it will NOT lower the actual caphit of 5.4 mil the next few years even one cent, so any contract Smith signs has no salary cap implications - just the amount the Pistons have to pay Smith will be reduced. Can anyone confirm this?

The CBA FAQ actually makes no statement about the cap hit, but take Lin's and Asik's contracts signed with Houston for example. Their caphit was 8.4 mil $ per year for the whole contract, but they got paid over 15 mil $ in the 3rd year, none of which had any implication for their actual caphit of 8.4 mil, is that correct?

The two are not related.

The Cap hit will be reduced by whatever amount they agreed to in the set off. The big thing about it though, is that it happens after the season is complete. So, it doesn't help at all in season. So, in a sense, you are right that it doesn't impact the Cap hit in season at all.

The Asik and Lin deals were an example of structuring a deal for a RFA. It wasn't related to anything to do with set off like Josh Smith. The Asik and Lin deals are covered under the Gilbert Arenas provision. The FAQ covers this in depth.

[PD10]

Two questions.

1.

The Cap hit will be reduced by whatever amount they agreed to in the set off. The big thing about it though, is that it happens after the season is complete. So, it doesn't help at all in season. So, in a sense, you are right that it doesn't impact the Cap hit in season at all.

Does this mean that for all intents and purposes, the salary cap relief obtained by the right of set-off is really of limited use? Since at best, it gives a team relief from the last regular season game through June 30.

From the FAQ:

Set-off amounts are not deducted from team salary until after the end of the regular season (when they know for sure how much the player has earned in his new contract, and that the new contract won't be affected before the end of the season by a buyout or waiver), however they apply set-off retroactively to the last game of the regular season.

Meaning that even if there was salary cap relief from the date of the last game of the regular season until June 30 (I couldn't tell for sure when it is actually calculated and applied as I found the FAQ language of "after the end of the regular season" to be a little ambiguous), this is limited in value. The time of the year when teams would most covet the cap relief would be July/August - however, every July the set-off essentially "re-sets" and no amount is set-off for that year until it is known how much the waived player will earn that year from his new contract (which can't be known until after the regular season ends). The waived player might even sign a new, large contract on July 10, but the former team can't immediately gain the salary cap relief via the set-off and has to wait (and has to go through this again each year, even if the former player signed a multi-year contract).

2. Was the original poster also asking whether or not the second contract a player signs after being waived affects set-off (i.e., does only the first new contract matter)? I wasn't sure, but if that was part of the question, I think other posters implicitly answered that all subsequent contracts are in play:

From Article XXVII of the CBA (notice it contemplates multiple Subsequent Teams):

When a Team (“First Team”) terminates a Player Contract (“First Contract”) in circumstances where the First Team, following the termination, continues to be liable for unearned Base Compensation (i.e., unearned as of the date of the termination) called for by the First Contract (including any unearned Deferred Base Compensation), the First Team’s liability for such unearned Base Compensation shall be reduced pro rata by a portion of the compensation earned by the player (for services as a player) from any professional basketball team or teams (the “Subsequent Team(s)”) during each Salary Cap Year covered by the First Contract (including, but not limited to, compensation earned but not paid during such period).

[Smitty731]

Two questions.

1.

The Cap hit will be reduced by whatever amount they agreed to in the set off. The big thing about it though, is that it happens after the season is complete. So, it doesn't help at all in season. So, in a sense, you are right that it doesn't impact the Cap hit in season at all.

Does this mean that for all intents and purposes, the salary cap relief obtained by the right of set-off is really of limited use? Since at best, it gives a team relief from the last regular season game through June 30.

From the FAQ:

Set-off amounts are not deducted from team salary until after the end of the regular season (when they know for sure how much the player has earned in his new contract, and that the new contract won't be affected before the end of the season by a buyout or waiver), however they apply set-off retroactively to the last game of the regular season.

Meaning that even if there was salary cap relief from the date of the last game of the regular season until June 30 (I couldn't tell for sure when it is actually calculated and applied as I found the FAQ language of "after the end of the regular season" to be a little ambiguous), this is limited in value. The time of the year when teams would most covet the cap relief would be July/August - however, every July the set-off essentially "re-sets" and no amount is set-off for that year until it is known how much the waived player will earn that year from his new contract (which can't be known until after the regular season ends). The waived player might even sign a new, large contract on July 10, but the former team can't immediately gain the salary cap relief via the set-off and has to wait (and has to go through this again each year, even if the former player signed a multi-year contract).

2. Was the original poster also asking whether or not the second contract a player signs after being waived affects set-off (i.e., does only the first new contract matter)? I wasn't sure, but if that was part of the question, I think other posters implicitly answered that all subsequent contracts are in play:

From Article XXVII of the CBA (notice it contemplates multiple Subsequent Teams):

When a Team (“First Team”) terminates a Player Contract (“First Contract”) in circumstances where the First Team, following the termination, continues to be liable for unearned Base Compensation (i.e., unearned as of the date of the termination) called for by the First Contract (including any unearned Deferred Base Compensation), the First Team’s liability for such unearned Base Compensation shall be reduced pro rata by a portion of the compensation earned by the player (for services as a player) from any professional basketball team or teams (the “Subsequent Team(s)”) during each Salary Cap Year covered by the First Contract (including, but not limited to, compensation earned but not paid during such period).

On point #1, you are right on. It doesn't really help at all. From the best understanding I have, it is factored in at the end of the team's season, be it Regular Season or Playoffs. So, I guess technically it could help in a period between then and 7/1 when the League Year turns over. Those are pretty slim chances though.

[DBoys]

The Cap hit will be reduced by whatever amount they agreed to in the set off. The big thing about it though, is that it happens after the season is complete. So, it doesn't help at all in season. So, in a sense, you are right that it doesn't impact the Cap hit in season at all..

"The big thing about it though, is that it happens after the season is complete."

I'm trying to figure out what you base this on. I don't see it. Obviously J Smith signed late, and his set-off will be minimal, but if he had signed on July 9 as a FA and gotten a huge deal, it seems to me the Pistons cap would have been altered immediately by a sizable amount, in accordance with their reduced obligation to him. Are you saying that's incorrect?

[Smitty731]

The Cap hit will be reduced by whatever amount they agreed to in the set off. The big thing about it though, is that it happens after the season is complete. So, it doesn't help at all in season. So, in a sense, you are right that it doesn't impact the Cap hit in season at all..

"The big thing about it though, is that it happens after the season is complete."

I'm trying to figure out what you base this on. I don't see it. Obviously J Smith signed late, and his set-off will be minimal, but if he had signed on July 9 as a FA and gotten a huge deal, it seems to me the Pistons cap would have been altered immediately by a sizable amount, in accordance with their reduced obligation to him. Are you saying that's incorrect?

I've seen Larry Coon, Eric Pincus, and Mark Deeks all confirm that any set off is applied after the regular season is complete.

I'm not sure where it is in the actual CBA, but it is in Footnote #3 of Question 66 in the FAQ. I'll try to find it in the actual CBA later if I have a chance.

3 Set-off amounts are not deducted from team salary until after the end of the regular season (when they know for sure how much the player has earned in his new contract, and that the new contract won't be affected before the end of the season by a buyout or waiver), however they apply set-off retroactively to the last game of the regular season.

[PD10]

Smitty, thanks for confirming on my question above.

On DBoys point, I had been relying on same sources as you, but tried just now to find it in the CBA and the best I could some up with is that Step 1 of the Set-Off Calculation section (p. 355, Article XXVII) states "Calculate the total compensation earned by the player (for services as a player) from the Subsequent Team(s) during the Salary Cap Year (or partial Salary Cap Year)." I'm not sure if the NBA has confirmed this somewhere, but my reading would be that you can't calculate the compensation earned during the Salary Cap Year until after the season (i.e., after it has has actually been earned) since, as Larry Coon points out, the player's compensation under his new contract could potentially be affected by a buyout or waiver.

[Smitty731]

Smitty, thanks for confirming on my question above.

On DBoys point, I had been relying on same sources as you, but tried just now to find it in the CBA and the best I could some up with is that Step 1 of the Set-Off Calculation section (p. 355, Article XXVII) states "Calculate the total compensation earned by the player (for services as a player) from the Subsequent Team(s) during the Salary Cap Year (or partial Salary Cap Year)." I'm not sure if the NBA has confirmed this somewhere, but my reading would be that you can't calculate the compensation earned during the Salary Cap Year until after the season (i.e., after it has has actually been earned) since, as Larry Coon points out, the player's compensation under his new contract could potentially be affected by a buyout or waiver.

Yeah I am on the same page as you. Set off is definitely a confusing subject for sure.

[Smitty731]

Smitty, thanks for confirming on my question above.

On DBoys point, I had been relying on same sources as you, but tried just now to find it in the CBA and the best I could some up with is that Step 1 of the Set-Off Calculation section (p. 355, Article XXVII) states "Calculate the total compensation earned by the player (for services as a player) from the Subsequent Team(s) during the Salary Cap Year (or partial Salary Cap Year)." I'm not sure if the NBA has confirmed this somewhere, but my reading would be that you can't calculate the compensation earned during the Salary Cap Year until after the season (i.e., after it has has actually been earned) since, as Larry Coon points out, the player's compensation under his new contract could potentially be affected by a buyout or waiver.

Also, and I keep meaning to say this... welcome to the Forums! Always good to have another poster on the CBA Forum. Hope you stick around!

[PD10]

Many thanks! Really happy to have found this forum.