How Rockets manipulated the salary cap to create a trade asset out of thin air, become favorites for Andre Iguodala

How Rockets manipulated the salary cap to create a trade asset out of thin air, become favorites for Andre Iguodala





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The Memphis Grizzlies want to trade Andre Iguodala. This much was made obvious when The Athletic‘s Shams Charania reported that they would not engage buyout talks for the veteran forward, but making a trade work with the teams most closely linked to Iguodala came with complications. Iguodala is set to make nearly $17.2 million this season. Any team acquiring him would need to send out at least 80 percent of that figure in a trade, but most contenders don’t have $13.8 million or so in salary lying around to trade. 

That changed on Wednesday when Bobby Marks of ESPN reported the details of one of the most creative contracts in NBA history. The Houston Rockets signed 36-year-old backup big man Nene, who only played 13 minutes per game last season, to a two-year, $20 million contract. If that number looks suspicious to you, it should. The Rockets aren’t really going to pay him $20 million. They just exploited an obscure rule in the league’s collective bargaining agreement to inflate his salary number to such a degree that a player who went unsigned in free agency for over two months could serve as legally acceptable cap filler in a potential Iguodala trade. 

So how did they do it? Here are the three basic tenents of the contract, which we will break down in more depth one by one. 

  • Only $2.56 million of the contract is guaranteed. While Marks did not give a complete number, it can be assumed that the exact figure is $2,564,753, the minimum salary for a veteran of Nene’s experience. 
  • The remaining $7.44 million of Nene’s $10 million cap figure is based on incentives that the NBA deems “likely.”
  • The second year of the contract only becomes guaranteed on Feb. 15, 2020, nine days after the trade deadline. 

Let’s start with incentives. They are, for many smart teams, the salary cap’s greatest cheat code. There are two kinds of contractual incentives in the NBA: likely incentives, and unlikely incentives. An incentive is deemed likely if the criterion was met in the previous season. If it wasn’t, the incentive is deemed unlikely. That is the only determining factor for an incentive’s likeliness, and it is how teams exploit incentives to manipulate the cap. 

For most of the past decade, that meant exploiting unlikely incentives. This was a strategy popularized by the Miami Heat during the summer of 2010. In the previous season, they had won only 47 games. But with LeBron James, Chris Bosh and Dwyane Wade signing up during the offseason, it could be safely assumed that they would win more a year later. 

The fact that they didn’t during the 2009-10 season, though, allowed the Heat to build hilariously low unlikely incentives into the contracts of their superstars. Up to 15 percent of a player’s salary can be based on unlikely incentives, so the Heat set such an incentive into the contracts of Wade, James and Bosh. The criterion that needed to be met? The Heat had to win 48 games. 

They obviously did, but that extra cap space was what allowed the Heat to sign Mike Miller. So long as a team has the cap space to sign a player to a contract worth 100 percent of that player’s salary, they can then deduct 15 percent in unlikely incentives once that player has signed to create extra cap space so long as the player has agreed. The Brooklyn Nets and Los Angeles Lakers both used this trick this offseason to maximize their own cap space. It is how the Nets signed DeAndre Jordan, and how the Lakers fit their cavalcade of additions under a fairly tight cap. 

The Rockets, however, went in the other direction. Rather than building unlikely bonuses into Nene’s contract, they gave him several likely incentives, and unlike unlikely bonuses, there is no cap on how many likely bonuses a team can give a player provided they fit within the rules of the cap. Nene has been with the Rockets for three seasons, giving them full Bird Rights and the ability to pay him anything up to the max within the cap. So naturally, the Rockets went wild to inflate Nene’s salary figure. Here is how those incentives break down, according to Marks: 

  • Nene gets $2.435 million if he plays in at least 10 games and the Rockets win at least 52 games. 
  • Nene gets $2.5 million if he plays in at least 25 games and the Rockets win at least 52 games. 
  • Nene gets $2.5 million if he plays in at least 40 games and the Rockets win at least 52 games. 

The Rockets won 53 games last season, so 52 would be considered likely, and Nene played in 42 games, so playing in 40 or fewer would be considered likely. All of those bonuses therefore factor into Nene’s cap figure, the number that matters if they want to trade him for, say, Iguodala. 

Here’s the catch, though. The Rockets don’t need to pay those bonuses if they don’t want to. Why? Because they are all tied to playing time. If ownership does not want to pay Nene those bonuses, it can simply give Mike D’Antoni a mandate never to put Nene in a game. If he doesn’t play, he doesn’t get those bonuses, but they remain baked into his cap number. 

That means that when the time comes, the Rockets can trade him as if he has a $10 million salary. The acquiring team, though, will barely have to pay him anything. That is where the non-guarantee date comes into play. So long as he is waived within nine days of the trade deadline, he is not guaranteed any money during the 2020-21 season. He is only paid what he is guaranteed for this season, which is the minimum. 

That is also why Nene would accept this sort of contract. He knows that he is going to get waived in order to prevent that second season from guaranteeing, but he is already guaranteed the minimum. He is essentially getting paid for less than four months of work rather than a full season. 

It could even be argued that the structure of this contract will motivate the Rockets. As of this moment, the Rockets are around $353,000 below the luxury tax line. Last season, the front office made a furious series of moves at the trade deadline to stay below the tax, but trading Nene’s fake salary in exchange for the real salary of another player would push Houston well above that line. If the Rockets are championship contenders, ownership may be willing to swallow that extra expenditure. If they are not, then Houston will likely waive Nene and pocket the savings. No harm, no foul. The Rockets players now know that the team has a method of improving provided the team proves it is worth it. 

To tie this all back to Iguodala, the Rockets would need to send out at least $13,748,178 in salary to acquire him with no other players attached. Nene now represents $10 million of that salary, though he can only be traded as of Jan. 15. They could now fill in most of the gap by including promising wing Danuel House, who will make $3.54 million this season. His presence would also likely serve as acceptable asset compensation in the deal, meaning that the Rockets would not have to include a first-round draft pick in the deal. Considering the picks they sent out to acquire Russell Westbrook, that is hugely significant. 

The best part? Most of the teams in the running for Iguodala cannot copy this strategy. Doing so would mean keeping the cap hold of a free agent with full Bird Rights on the books this summer. But the Lakers, Los Angeles Clippers, Milwaukee Bucks and Philadelphia 76ers all used cap space this offseason, meaning they cleared away all of their unnecessary cap holds. 

This situation was a perfect storm for the Rockets. One of their free agents happened to opt-out of a contract that he shouldn’t have (Nene would have made around $3.8 million if he had opted-in). He found a more tepid market than he expected, so he wasn’t stolen away, and the Rockets never needed to renounce his cap hold to conduct other business. He happened to have full Bird Rights, so they were able to give him this creative contract. 

And now, the Rockets have solved the salary matching problem in a potential Iguodala trade. Unless the Lakers or Clippers are willing to trade valuable players to acquire him, they have not. That makes them the favorites in the race to trade for Iguodala during the season. 








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