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Evaluating the options for Carmelo Anthony’s potential buyout

A few details on Anthony’s upcoming buyout negotiations.

NBA: Atlanta Hawks at Oklahoma City Thunder Mark D. Smith-USA TODAY Sports

On the heels of a trade involving Dennis Schroder and Mike Muscala, it has been reported that the Atlanta Hawks plan to waive newly acquired forward Carmelo Anthony and he will not suit up for the organization. Anytime a player is released from his contract, they are placed on waivers for 48 hours to allow any other team to claim the player. If unclaimed, the player is no longer bound to their contract and free to negotiate with any other team.

The player also receives any guaranteed salary remaining on their contract. A team can claim a player on waivers with either cap space or a trade exception. There are currently no teams with the ability to claim Carmelo Anthony’s $27,928,140 contract so he will clear waivers with no problem.

A simple waive is when there is no adjustment to a player’s guaranteed compensation. However, when a player agrees to reduce a portion of their guaranteed compensation, that is referred to as a “buyout” because the player is agreeing to take less money in order to receive the ability to sign with another team. We know that Anthony will be waived, but we do not know if he is going to accept a buyout. And if Atlanta does not secure a buyout from Carmelo, they completely screwed up.

Right of Set-Off

It has been widely reported that Anthony is planning to sign with the Houston Rockets after clearing waivers. He could sign for his veteran minimum of $2,393,887 or for Houston’s Taxpayer Midlevel Exception of $5,337,000. Let’s just say he signs at the minimum for the sake of argument. If that happens, Atlanta is entitled to the Right of Set-Off which allows Atlanta to recoup some money from Carmelo’s next contract.

The literal calculation for the amount that Atlanta can recoup is equal to:

The amount of the reduction in the First Team’s liability (the “set-off” amount) shall be calculated for each Salary Cap Year covered by the term of the First Contract as follows: STEP 1: Calculate the total compensation earned by the player (for services as a player) from the Subsequent Team(s) during the Salary Cap Year. STEP 2: Subtract from the result in Step 1 (i) if the player had zero (0) Years of Service at the time the First Contract was terminated, the Minimum Annual Salary applicable to such player for the Salary Cap Year in which the First Contract was terminated, or (ii) if the player had one (1) or more Years of Service at the time the First Contract was terminated, the Minimum Annual Salary applicable to a player with one (1) Year of Service for the Salary Cap Year in which the First Contract was terminated. STEP 3: If the result in Step 2 is zero or a negative amount, there is no reduction in the First Team’s liability for unearned Base Compensation in respect of the relevant Salary Cap Year. If the result in Step 2 is a positive amount, the reduction in the First Team’s liability for unearned Base Compensation in respect of the relevant Salary Cap Year shall equal fifty percent (50%) of such amount.

That’s a lot of lawyerspeak to say that any contract above the 1-year veteran minimum contract ($1,349,383) will have one-half the difference above the 1-year veteran minimum that Atlanta is entitled to recuperate form Carmelo.

If Carmelo signs a minimum contract, Atlanta can recoup $522,252 in cash. If Carmelo signs at the Taxpayer Midlevel Exception, then it is $1,993,809 that Atlanta can get back.

While Atlanta is able to recoup these amounts, they do not actually get the money back until after the regular season. And further, they would not see any addition to their cap space.

No matter what Carmelo does, both Atlanta and Carmelo knows that there will be some amount of money with the Right of Set-Off in place. But Atlanta does not gain any cap space when the Right of Set-Off is in place, it is just a financial gain at the end of the Season.

A Buyout Usually Implies Waiving The Right of Set-Off

The Right of Set-Off applies to all NBA contracts, but it does not have to. An NBA Team has the option to waive the Right of Set-Off if they are inclined to. And why would an NBA Team be willing to waive this right? Well, if the player agrees to a buyout then it typically implies that the Right of Set-Off is waived.

What is so important about this is that when a buyout is agreed to, the NBA Team will actually realize gains in cap space at the time that the contract clears waivers. This important for Atlanta because they currently only have $495,596 in cap space after their most recent trade. A team cannot do anything with this small of an amount seeing that the minimum salary for a rookie is $838,464.

However, if Atlanta gets a buyout from Carmelo of at least $342,868 then Atlanta is free to sign a player to a rookie minimum contract. And this is important because when a team signs via cap space they can sign a player to a contract for up to four years. If instead Atlanta were to use the Minimum Player Exception or their Room Midlevel Exception ($4,449,000), then they are limited to two years for the contract.

Don’t get me started on what is problematic about two-year contracts. The problem is that a team will only have Early Bird Rights at the end of two years, while if the contract goes for three years, then a team can gain Bird Rights.

But given that we know that Atlanta will be able to recoup at least $522,252 in cash from a Anthony contract due to the Right of Set-Off, it only makes sense that the former All-Star would agree to a buyout of at least this amount in exchange for the waiving of the Right of Set-Off.

It’s mutually beneficial.