Statistical Analysis. Humor. Knicks.

Friday, December 19, 2014

MONEY MONEY MONEY!

Remember when the Knicks were like, “We didn’t match Lin’s offer sheet because of all that luxury tax!” and fans were all like, “Shah, you paid $124 million for a 23 win team!” Well, the Knicks may not have been lying. With each passing day it’s looking more and more like there is one factor to the Knicks’ thinking (if you can call it that) that is even more important than retaining Carmelo Anthony: the new luxury tax structure.

Consider Carmelo Anthony’s choice to announce he intends to opt out this summer and the interesting choice he made by publicly broadcasting his intentions.

If he was willing to wait until 2015 for the Knicks to build with cap space, his best option would have been to simply opt in, make more money in 14/15 than he could get with a new contract, and see what free agents were available and willing to come to NYC. He could then fly away if the best free agents went elsewhere. So Melo most likely isn’t interested in the summer 2015 plan, and based on his play, (confusingly worded) statements from LaLa and his own public comments, it seems like he would prefer to play in New York what gives?

The likely logic is like Kobe said (and did back in 2007), Melo is trying to send a message to the front office: “I’m not going to wait around. I want to play here but I want a championship even more, so you have to upgrade the roster now if you want to keep me.”

Well, what is stopping the Knicks from trading Shumpert, Hardaway Jr. and their 2018 pick for upgrades? Every game that goes by increases the risk of a first round matchup and almost guaranteed loss to Miami or Indiana, which could result in Anthony bailing no matter how well the team closes the season. There is no time to waste, and more than any time in the recent past, the Knicks actually have a sensible reason to believe that adding talent could push them into contention: They won 54 games last year, their most since the 96/97 season.

One problem is matching salaries. The Knicks lack expiring contracts, so that means trades for higher salaried players require a team willing to take on Stoudemire or Bargnani’s contracts, forcing the Knicks to sweeten the pot and making it unlikely for the them to come out much ahead from a talent standpoint.

The other sort of player who often becomes available midseason is the expiring cheap or rookie scale contract. Teams that don’t plan to re-sign these players will often sell them for a bargain. One such player is All-Star snub Kyle Lowry for whom the Knicks reportedly could have given two of Hardaway Jr., Shumpert and a pick. What held the Knicks back from making this trade?

The most likely explanation is that Dolan fears the incremental tax. The Lin decision and the Lowry decision really may have come down to money. To illustrate, say the Knicks were able to trade for probably the two best available, cheap expiring players: Gordon Hayward and Kyle Lowry (with Toronto getting the 2018 pick).

Everything goes about as well as could be hoped, and the Knicks make a run up to the sixth seed and even manage to beat the Heat before losing to the Pacers in the conference finals. Now it’s free agent time, and Hayward and Lowry get maybe $23 million/year combined. The Knicks, having fallen just short of making the finals, are obligated as well to use their mini MLE money to get some help for the increasingly unreliable front court.

Well, they just added $16 million in salary, putting their total salary up to about $107 million, which doesn’t sound so bad compared to the $124 million team that won only twenty-three games… until you look at the tax situation, which could get pretty outrageous with the Knicks entering repeater territory in 14/15. Take a look:

2005-06: $124 million in salary, $62 million in tax, $186 million total
2013-14: $88 million in salary, $32 million in tax, $119 million total
2014-15 with no changes: $91 million in salary, ~$45 million in tax, $136 million total
2014-15 with Hayward, Lowry, mini MLE: $107 million in salary, ~$114 million in tax, ~$221 million total
2014-15 with $20 million in salary cuts (the “blow it up!” hypothetical): $71 million in salary, no tax, $71 million total

That’s $150 million that Dolan could save just next season if he committed to a rebuild, and that doesn’t even take into account the risk of losing Anthony were the Knicks to disappoint even after those trades. What do you do with Lowry and Hayward if Melo leaves? Re-sign them and give up on having significant cap space for another four years or so, or trade them for pennies after giving up dollars (or at least half-dollars) just months earlier? Furthermore, Dolan just added Bargnani, quite possible in an attempt to placate Anthony. His $12 million salary added $7.5 million in 14/15 salary compared Novak’s salary and Camby’s $1 million of guaranteed money, which will cost the Knicks $30 million next season (tax and salary combined) assuming the Knicks stay at $91 million in salary. Bargnani’s failure to contribute as well as Novak did last year has to have left the typically trigger happy Dolan a wee bit gun shy.

Maybe it’s a fool’s errand to speculate about the thinking of an owner who rarely makes logical choices, but Dolan seems a bit more rational when it comes to money. If the price of keeping Anthony is maintaining annual tax/salary costs that are higher than even the worst of the mid 2000s and three or four times those of four of the top five NBA teams this season — illustrating more clearly than ever the weak relationship between spending and success — Dolan may blow the team up or at least call Anthony’s bluff. Whether Dolan’s mood shifts again or Anthony chooses New York City over joining a team that is ready to contend right now we’ll have to wait and see.

7 comments on “MONEY MONEY MONEY!

  1. Owen

    Nice post!

    I really don’t see how Melo staying makes sense for either of the parties concerned. Dolan saves a crapload of money and gets a chance to rebuild properly. Melo gets to play for a better team.

    My fear is that Melo can’t find a better situation and defaults to the Knicks who don’t have the courage not to re-sign him.

  2. ephus

    It’s true that the new CBA makes exceeding the salary cap much more expensive than it used to be. We ran the numbers ad naseum when Jeremy Lin got the poison pill offer from Houston.

    There are a couple of important corrections to the article:

    1. Knicks will not pay the repeater tax next year. For 2014-15, only a team that has been a tax payer for all three prior seasons gets hit with the repeater rate. The Lakers and the Heat are the only two teams that could fall into that category. Knicks did not pay the tax in 2011-12.

    2. Because the Knicks will not pay the repeater rate next year, the extra $7.5 million in 2014/15 salary that the Knicks will pay Bargnani (over Novak/Camby guarantee) will cost the Knicks an extra $25.625 MM in tax, if you assume the Knicks will end up at $91 million ($20 million over the tax line).

    3. The tax threshold may move up a little next year to around $72 million, which would move down the tax burden a little.

    4. I doubt that Melo is going to use his leverage to get the Knicks to bring in Lowry and Heyward. Lowry is not CAA, he is with Andy Miller of ASM. Heyward is with Mark Bartelstein.

    5. Utah controls Heyward for at least the next two years. He is a restricted free agent after this season, so Utah could match any offer. If Heyward really wants out of Utah, he could take the qualifying offer, which would make him an unrestricted free agent after 2014-15. I don’t see Utah engaging in a fire sale, even if they have decided they don’t want to build around Heyward.

    6. The big play for Dolan is the franchise value, which has gone through the roof in the last five years, not the cash flow. The big threat to franchise value would be if the Nets could supplant the Knicks as New York’s team. If the Nets were riding high, Dolan would be more likely to make a panic move.

    I don’t know what Dolan will do. Those who know will not tell and those who would tell do not know.

  3. DRed

    the extra $7.5 million in 2014/15 salary that the Knicks will pay Bargnani (over Novak/Camby guarantee) will cost the Knicks an extra $25.625 MM in tax

    Hahahahahaha.

  4. max fisher-cohen Post author

    @ephus, thanks for the correction about repeater tax next year. That’s a big error…

    Hayward and Lowry were just names — examples of players who could bring NY up into a higher echelon, not necessarily players Melo/CAA would ask for, but the best players who are rumored to be available in trade for the amount of salary NY can trade before it has to start bribing teams to take on Stoudemire or Bargnani. My point in general is that Melo is asking for the team to get better, not for the team to bring in these specific players, and the most efficient way for them to get better is to trade for expirings and then re-sign them. It would be really hard for Melo to rationalize re-signing with NY if they miss the playoffs, which is still very possible.

    I’m sure you’re right that franchise value is more important, but you have to figure Dolan is conflicted for some reason or else that Lowry trade or something like it would have happened.

  5. max fisher-cohen Post author

    Also @ephus, I’m getting a $22.5 million extra tax cost for the $7.5 million extra salary from Bargnani – $5 million charged at the $15-$20m tax rate of $3.25 and $2.5 million charged at the $10-$15m tax rate of $2.50. Combined, that makes for a total cost of $30 million next season. Am I missing something?

  6. Jack Bauer

    How can anyone know what’s going on inside Doan’s dome??? That is a very dark, irrational, unpredictable, scary place.

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