After yesterday’s part one, we’ve established what we think the league will do to normalize their salary cap and revenue situation after a highly unusual season thanks to the pandemic. To a certain extent, much is still up in the air, but yesterday’s review set up what we think the Raptors will be working with in terms of financial commitments in their short and long term plans.
Read up on our salary cap review here if you want to get a sense of the latter — the long term vision in the off-season of 2021 — and then let’s turn to the more immediate concerns for the Raptors. What will they do this fall now that their season is over and a handful of key decisions involving significant players on the team have to be made?
First, it’s time to understand who exactly is now a free agent in Toronto. Let’s review.
The Free Agents
Let’s just go ahead and list the guys the Raptors need to make a decision on.
2020 Raptors Free Agents
Quite a list, and some pretty big fixtures in the rotation. Most notably, you’ll notice the Raptors’ starting, backup, and third string centres are free agents, with only Dewan Hernandez, who spent most of the year either injured or with the 905, still on the roster at the pivot.
Oh, and then there’s that Fred VanVleet guy.
Now we use that information we waded through for summer 2021 in yesterday’s post. If Toronto signs any players for deals longer than one year, they probably want those deals to add up to less than $18.5 million or, ideally, less than $13.1 million. (Seriously, read yesterday’s column to understand how we got to those numbers.)
Right away, looking at the free agents there, that amount looks like maybe just enough to fit VanVleet and no one else.
The good news is the Raptors are able to buy themselves a little room by structuring that long term contract a little differently than usual. Contracts have a maximum raise amount — for players with Bird Rights (the Raptors have full Bird Rights for all of the above except Rondae), that maximum raise (or drop) from year to year is set at eight percent of the first year salary of the contract.
So, for example, if Fred was to earn the biggest contract the Raptors could fit, they could structure it with a dip in year two before rising again thereafter, so that the second year stays at that $18.5 million number. Most contracts either stay flat, or just have raises every year — but teams can be creative if they want to be. For example, a potential five-year VanVleet contract could be structured to look like this:
That makes for an average salary of just under $21 million for VanVleet, with a total compensation of $104 million. It’s also a very competitive offer even if the market for VanVleet is very strong. To compare: a max offer for Fred from another team would be $117 million over 4 years, or an average salary of $29.3 million. That would be out of reach for the Raptors, but I don’t think they’d be interested in giving him a max salary anyway. I also don’t expect such an offer will be out there in any case (not even from the hapless Knicks). Recent rumours (and common sense) would indicate Fred is more likely to be in that low 20 million range in terms of average salary. So at least the Raptors would be in a position to make a competitive offer for him to stay.
It certainly makes the scenario where they can afford a guy like, hah, Kawhi Leonard pretty far-fetched. It is very doubtful Fred’s market would be anywhere near $13 million — he’s played too well over the past year. Even with the second year dip scheme above, over a five-year deal the best Toronto could offer to meet that threshold is a 14.7 million average, which I think would be considered the floor for a deal for VanVleet. There are too many teams that should (and will) be interested for that low-ball outcome to be likely.
Now, if the Raptors do get outbid for Fred, and he walks (this would be problematic for building the roster but not a complete disaster), Toronto would at least reserve some ability to then offer contracts with some term to their other free agents.
But if we assume that Plan A is to keep VanVleet at approximately that sort of larger price tag, that would mean the Raptors will have to use all their extra cap room for 2021. That means, no matter how cheap a player is, they cannot be offering any multiple season contracts. This includes even minimum deals, as the second year of a minimum salary is significantly higher than the first year. The Raptors would need to have room for that extra half-million or so — and that would come out of the space already assigned to Fred’s hypothetical contract.
So if Toronto plans to sign, say, their second round pick this year to a multiyear deal, they’d have to adjust that amount back down a bit for Fred’s deal. Doing that once for a minimum deal doesn’t make a big difference to the Fred offer. But doing it with multiple deals or any deal significantly above the minimum would drastically change that situation.
That leaves us with the simplest course of action for the Raptors: re-sign as many of those free agents to one-year deals as possible so that they will become free agents again the year after that, for the 2021-22 season.
The problem with that approach, of course, is that the players have to want to sign the contract you offer. Typically for a one-year deal, this means offering a signficant overpay to make up for the security that would come with a longer term deal. (Coincidently, this is how the Raptors ended up here in the first place: they technically overpaid VanVleet at $9 million per season, but it was a shorter two-year contract which fit their timeline.)
Let’s take a look at Serge Ibaka, for example. He had a great year off the bench and seems primed to at the very least get a longer term offer of three or four years at the MLE (the Mid-Level Exception: about $10 million average salary). If Ibaka has a $30 million contract waiting for him, how much would the Raptors need to pay him to get him to agree to a one year deal? A $10 million deal for one year won’t cut it — at 31 years old (as of today; happy birthday big guy!), what if Ibaka gets hurt or drops off this year? Now, given Ibaka’s role, age, and performance, it won’t be as high as $30 million per year — but the price tag is probably $20 million or maybe even higher to get Ibaka signed for just one season. And that assumes no team with cap room is going to throw him a deal for, say, $15 million average salary (or higher) per season in a multi-year contract, which is possible. This would equate to an even higher one-year equivalent — and at a certain point, there no longer exists a one-year equivalent.
VanVleet is a great example of that. If a player is lined up for a long term deal where he can make between $80 to $100 million total, there’s no one-year deal to which he would agree. There’s no Fred one-year option, unless his market is a complete disaster, which seems impossible at this point.
On that note, Marc Gasol did himself no favours in the Bubble, and might not have much of a market at all, given his age and where the league appears to be trending. That should mean it could be easier for the Raptors to convince him to take a loaded one-year deal if they wanted to keep him around as a big centre defender and mentor figure on the team. (And to be honest, Gasol would still probably be the best centre on the roster.)
Meanwhile, Chris Boucher offers an interesting case for Toronto. He may have a market based purely on upside and skill set, but he’s not as young as his inexperience would indicate, and not as proven as his age would suggest. Boucher might just be too pricey for the Raptors, but they do have the option of offering him a big one-year deal if they wanted a look at him for another season.
Hollis-Jefferson and Malcolm Miller are minimum salary options and won’t impact much one way or the other. Keep in mind, with two draft picks in this 2020 NBA Draft, the Raptors may want to let a couple guys go to make room on the roster anyway.
One More Hitch
But before we get carried away signing every free agent to a one-year maximum deal just to keep the band together in Toronto, while exceeding the cap with each player’s Bird Rights and leaving next summer’s plans intact, there’s one more consideration.
The luxury tax.
We all exclaim that good owners spend into the tax, but in reality it’s important to be smart about exactly how, when, and by how much a team spends into the tax. If the team plans on making a big addition in 2021, they will want to be able to immediately enter into some high spending patterns to surround that star with as good a supporting cast as possible.
As such, said team will want to avoid starting the repeater tax clock too early. The repeater tax adds an additional cost on top of the luxury tax — an additional 100 percent tax on salary above the tax line — so it can get pretty daunting very quickly. The repeater tax kicks in when a team goes into the tax three of the previous four years (so that fourth season in five years gets the extra penalty applied. That then stays in effect until the previous four years don’t meet the three years of tax requirement.
Now, the Raptors did not pay the tax this past year. And they will likely not pay the tax the year they make their big signing in 2021, as they will need to operate with cap room. Still, they might end up in the tax if OG Anunoby or Terence Davis are worth big raises at the time. (They will get paid after the Raptors use their cap room so it could take them close to the tax).
That’s all well and good, but if they pay the tax for this upcoming season, they start that clock even if they skip the year after. And if they end up in a situation where this current season (2019-20) is the only one where they didn’t pay the tax, then they could be in repeater tax territory one year after their big free agent signing. Why? Because of the tax they paid in their championship season of 2018-19. They will want to avoid this.
There are some questions about what the NBA and NBPA will do with regard to the tax. If the salary cap stays flat, you might assume the tax would stay flat as well, but they may also leave it at the higher projected value to protect the high spending teams that maybe can’t afford a surprisingly high tax bill in a year with revenues way down because of the pandemic. Mind you, the NBA also has full control over where most of the tax dollars go, so they may just decide to give the tax money back to the teams that pay it. That would still start the repeater clock for the Raptors though.
Assuming the tax stays flat, it would set the limt for this year at $132.6 million. If it rises as originally projected, that would mean a likely increase to about $140 million. Let’s start with the lower number and work from there.
The Raptors, as we discussed yesterday, will have spent approximately $88.2 million on their first ten players. Then add Fred VanVleet, assuming we use that $20.2 million first-year salary, which brings that total to $108.4 million for 11 players. Right away, the Raptors are only $24 million from the tax line, or maybe as much as $32 million if it stays high. But either way, if the Raptors want to re-sign only one free agent, that means the other three slots to get to the minimum roster size of 14 players would cost $4.9 million against the tax (for luxury tax purposes, all minimum salaries are treated like veteran minimum salaries, which are about $1.6 million now). So that one well-paid player needs to get less than $19 million in that one year to avoid starting the tax repearter clock.
As we established earlier, even in the optimistic assumption that Ibaka only has the MLE waiting for him, that might not be enough to keep him. Perhaps more realistic: the Raptors could offer about $10 million each to Boucher and Gasol to get them to stick around for a year, letting Ibaka walk, and the dust settle on the rest of the market.
But, what if the Raptors don’t land their big fish free agent in the summer of 2021? What if even the Raptors’ secondary targets for that cap room go elsewhere?
That’s where having all those expiring contracts comes in handy, as compared to trading players away trying to extract some small amount of value from what remains on their deals.
If they hit the 2021 off-season and discover they’re not going to sign a big name free agent, the Raptors will also be sitting on the Bird Rights for the following players (assuming those that are free agents are re-signed this summer):
Boucher may have proven by then that he can be a real rotation big man. Gasol, meanwhile, may have tapered off completely by then. Being able to potentially bring back Lowry and Powell is not a bad backup plan to have in Toronto. They’ll need to make sure they keep the lines of communication open with those players so they don’t commit elsewhere until the Raptors have exhausted their star options. Those players may be willing to do that if the Raptors represent a potentially higher payday than other teams are offering.
Nevertheless, there are still a lot of questions in the air — some of which will be answered soon enough.
In any case, I think we’ve covered most of the stuff we need to consider for this off-season’s planning. Feel free to hit me up with questions in the comments or proposals of plans or options for the team to take, and we can discuss the cap implications of those potential moves.
All salary information from Basketball Insiders or my own calculations.