Salary Cap Machinations for the Hawks Staying Above The Cap

The typical path for an off-season is for a team to decide if they want to clear cap space in order to sign free agents or stay over the cap and use their Mid-Level Exception. Clearing cap space can also open up a few other avenues like being able to acquire contracts without sending out much in return (see last off-season: Tiago Splitter) as well as re-negotiating current contracts on the roster. Moves of this nature would be considered Salary Cap 101 or possibly 201, they're the straight-forward transactions that a fairly educated fan could figure out.

But what about some potential moves this off-season that are more complicated and require a deeper understanding of the Collective Bargaining Agreement?

We've got that covered. So let's look at a potential path for Atlanta to stroll down this off-season.

Kirk's Bird Rights

Kirk Hinrich has Bird Rights which means that the Hawks can sign him to a 5 year contract with up to 7.5% raises and exceed the Salary Cap in doing so (provided his cap hold is not renounced). At first glance, it is preposterous to see much value in re-signing Kirk and you'd likely be right from a basketball perspective. But I don't like to pontificate on team or player evaluations nor do I think you're reading anything I write for my basketball opinion. I'll leave that to the experts on this site like Brad to handle player reviews. I'm here to talk about the nuts and bolts of contracts and Kirk's Bird Rights provide the Hawks with some value in itself.

An interesting feature in the deadline deal for Kirk is that Kirk's cap hold for this off-season is $5,692,416. This will add on an additional $2,243,386 to Atlanta's cap sheet compared to having kept Shelvin Mack ($2,433,334) and Justin Holiday ($1,015,696). The trade also generated a $947,276 traded player exception from Justin Holiday and allowed the team to sign Kris Humphries, which comes with a $1,200,000 cap hold. Combining these together means that Atlanta will start the off-season over the cap. Without this trade, the Hawks would have $90,055,153 in cap holds to start the off-season. This would imply that any Salary Cap for 2016--17 above $90 million would force Atlanta to start under the cap and lose the ability to use the Bi-Annual Exception or the non-Room Mid-Level Exceptions.

Atlanta has the ability to operate over the Salary Cap, which is helpful in scenarios where Atlanta would like to utilize the Non-Taxpayer Mid-Level Exception and/or Bi-Annual Exception. One particular scenario where this would arise is if Al wants to leverage a sign-and-trade. I briefly discussed this option previously, so allow me to repeat myself on this issue:

Al Leaves Atlanta, But Via Sign-And-Trade

This is an unlikely scenario to occur because it needs to make sense for Al, Atlanta, and the team that Al wants to sign with. So taking these step by step, Al would need to some sort of non-money factor (or potential marketing opportunities) to drive him to search out a destination which cannot sign him via cap space. The team which wants to acquire Al would need to be sending out $19.92 million in salaries in order to receive a $25 million Al Horford contract. This amount could change if the team only needs to send out a certain amount of salaries in order to receive Al Horford with cap space. But then for Atlanta, they would need some sort of an asset in return for Al. It is possible, but finding a scenario where this works is a tall task.

...

Complicating this sign-and-trade route is that Al could be a Base-Year Compensation player if the Hawks are operating over the cap because he will have received a raise of greater than 20% and the team would be using their Bird Exception on Al. If Al is signing for $25 million, then Atlanta would view his out-going salary as $12.5 million and could only receive up to $17.5 million in return. Atlanta would have the option to aggregate Al's salary with other players in a trade in order to take back more salary, but this becomes a messy situation.

Clearly, Atlanta would prefer to aggregate other salaries in a sign-and-trade due to this "Base Year Compensation" (BYC) issue. This could be conventional salary filler in the form of another player traded away or we could get a little more complicated and use Kirk.

So let's do that.

Kirk Sign-And-Trade

Kirk's contract could be packaged with someone else to complete a sign-and-trade whereby Atlanta could receive a substantial amount of salary in return. This situation would only be relevant if the Hawks end up over the Salary Cap in a trade and need to balance out the incoming salary with some salary filler. Kirk could fill this role.

One limiting feature of signing-and-trading Kirk is that pesky BYC, which happens when a player is given a greater than 20% increase in starting salary. Signing Kirk to a contract that starts above $3,595,210 will trigger this mechanism and means that Atlanta would use Kirk's previous salary of $2,996,008 (or half his new salary if it is above $5,992,016) in cases where they need to match salaries in a trade. This particular situation happened in 2013 with Keith Bogans being a "center-piece" of the infamous Boston-Brooklyn trade. Of note, if Kirk signs a contract at $3,595,209 or below then that would be the salary used for matching salaries. So this may be the cost-conscious value used as salary cap filler.

Anytime a sign-and-trade transaction is made, the player that is signed must sign for at least a 3 year contract with the first year fully guaranteed. Under this wacky scenario, Kirk would undoubtedly have his last 2 years fully non-guaranteed much like Bogans did. Kirk's contract could then be further beneficial in the 2017 off-season as a mechanism for teams to trade away salary to acquire-and-waive Kirk...or potentially keep passing him along to another team to create multiple trade exceptions. Again, much like Keith Bogans' contract.

Hypothetical

It's tough to go from abstract thought to real-world application and sometimes it's best to learn by example. So let's do this with a few purely hypothetical scenario and use round numbers.

1. Atlanta stays over the cap but a team like Chicago wants to sign Hinrich. Atlanta could negotiate a sign-and-trade where the two team swap useless 2nd round picks and Hinrich goes to Chicago, absorbed with their cap space. If this happens, then Atlanta could generate a trade exception equal to Hinrich's outgoing salary in much the same way that OKC did with Thabo Sefolosha two off-seasons ago.
   
   
2. What if Atlanta decided they wanted trade one of their players who is making around roughly $8 million? Well, the team would be roughly constrained to the 150% rule for trades which means they could receive up to $12.1 million in return. But what if they wanted more without giving up much in team quality? Enter Kirk's potentially $3 million salary.
   
   The bump in outgoing salary from $8 million to around $11 million would mean that Atlanta could now receive $16 million in return as they would then be constrained to the $5 million rule. That's one way to turn $3 million into $4 million in the eyes of the Salary Cap.
   
   If Atlanta were to try to push the limits of Kirk and his BYC limitation, they could give Kirk a max contract at $30 million and it would count as $15 million outgoing. Combining this with the $8 million player would result in Atlanta being able to acquire $26.35 million as they would then be constrained by the 125% trade rule. This is preposterous but only meant to fully explain the example.
   
   
3. Suppose Al wants to leave via sign-and-trade at his $25 million value and said other team needs to send back salary. We know that Atlanta would use $12.5 million as his outgoing salary (half of his new salary is greater than his previous $12 million salary), but the Hawks could only take back $17.5 million versus his $18 million cap hold. Enter Kirk. If the Hawks attach Kirk to the sign-and-trade at $3 million, then the Hawks would be sending away $15.5 million and could receive back $20.5 million in return.
   
   But this scenario is a bit odd as Al ($18 million) and Kirk ($5,692,416) have cap holds that total $23,692,416 which is less than the hypothetical. For Atlanta to receive excess of their cap holds, then Atlanta needs to be sending away $18,692,416 in salaries which would imply Kirk has an outgoing salary (from Atlanta's perspective) of $6,192,416. That implies a starting salary of $12,384,832 for Kirk.
   
   Basically what I'm saying is that this isn't a very likely scenario. Kirk as salary cap filler in trading away Al does not make sense. Now if other current players are involved, then that's a possibility although Al's BYC status certainly throws a wrench in plans. Although I will mention that the whole BYC issue disappears if Atlanta signs Al via cap space, which is a possibility but I don't consider this likely.
   
   
4. Suppose Atlanta scraps the whole "stay over the cap" mantra. Kirk is still valuable in possibly another sign-and-trade: Kent.
   
   Let's roll with a $92 million Salary Cap and that Atlanta clears their exceptions plus Scott and Humphries, but hold onto Al. This scenario would clear room for a contract starting at around $13.5 million for Kent. Normally, Atlanta would be able to receive up to $18.5 million in a transaction here but if they include the $3 million Kirk it does two important things: 1) bumps the starting salary of Kent up by around $2.5 million because of Kirk's cap hold difference and 2) allows Atlanta to have $19 million in outgoing salaries.
   
   With $19 million in outgoing salaries, Atlanta could receive a $24 million player. This is close enough to a maximum salaried player, which is really neat.

Hopefully these are a better description of the usefulness of Kirk Hinrich's contract. Or at the very minimum, this is article can serve as an exercise for why "basketball reasons" may not be the purpose of trades. If Atlanta knew they were not going to use Mack or Holiday with their current roster, then why not acquire a non-basketball asset?