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How the Sixers did — and didn’t — turn a profit last year

  By Derek Bodner | August 28, 2014 - 9:00 am | ,
8 Comments
thabeet

It has been known for quite some time now that the Sixers, despite finishing the season 29th out of 30 NBA teams in attendance, turned a profit last year.

This has led some to speculate that they did so by gaming the system by just barely meeting the league’s minimum salary requirements, then turning a profit on the backs of the league’s revenue sharing program.

Last year the NBA was projected to redistribute over $231 million to its needy teams through their revenue sharing program, a huge jump from the $40 million or so that was distributed under the previous CBA, which came entirely from luxury tax payments. Two teams were scheduled to receive in excess of $20 million each to help them remain competitive financially, with an additional 5 teams scheduled to receive $17 million each.

Except, the Sixers weren’t one of these 7 teams. In fact, the Sixers are not eligible to receive one cent from the league’s revenue sharing program, a fact first reported by Zach Lowe of Grantland, and one that John Gonzalez followed up on.

The exact details of who is eligible for revenue sharing are clarified by Larry Coon, where he states that teams with more than 2.5 million TV households cannot receive a revenue sharing payment.

This list, according to the Nielsen group, would include teams in the New York, Los Angeles, Chicago, Philadelphia, Dallas, and San Francisco media markets.

Beyond that, since teams contribute to the revenue sharing pool an amount equal to a percentage of their revenue, the league actually makes teams accountable for hitting revenue benchmarks based on market size. If a team falls short on revenue they have to make up that difference. While I don’t have the exact figures of the Sixers revenue sharing contribution, it stands to reason that the Sixers didn’t hit their revenue benchmarks, and thus ended up sending a higher percentage of their revenue towards the league’s revenue sharing program than they normally would have, while getting nothing back from it.

In short, the Sixers did not turn a profit based on the league’s revenue sharing program.

(Note: All teams do, however, receive roughly $31 million per season as part of the league’s national television deal, which is an 8 year, $7.5 billion deal between the NBA and ESPN/Turner that expires after the 2015-16 NBA season. The national TV deal is separate from the revenue sharing program, and all teams, regardless of market size, receive a portion of this. The value of the next national TV deal could increase substantially.)

Salary cap floor

The salary cap floor is a  topic that comes up frequently in Sixersland.

The league mandates that each team must spend 90% of the salary cap towards player salaries. With a salary cap set at $63.065 million for the 2014-15 season, that means a team must pay at least $56.759 million in team salary for the season.

With the Sixers currently at just around $32 million in committed salary, that sounds like a potential issue.

Except it’s really not. The “penalty” for not hitting the salary floor is virtually non-existent, as the Sixers would just have to distribute the amount they’re under the floor to the players on roster. So, should the Sixers be $20 million under the floor at the end of the season, the players on roster will get a significant bonus.

The goal of the floor, and of the penalty, is that teams will essentially pay a fixed minimum amount to players, even if team salary falls below there.

But there is a loophole.

First, the teams salary is calculated at the end of the season. The team being below the salary cap floor at any point before then is irrelevant.

Second, team salaries are calculated based off of the full season salary of all players on the roster at the end of the season, even if that player was acquired during the season.

So, let’s say the Sixers acquire, oh, I don’t know, Danny Granger and his $13 million salary at the NBA’s trade deadline, and that salary brings them over the salary cap floor. Granger’s impact on team salary would be $13 million, even though the amount that they have to pay him is based on the amount of time he’s with the team (or, in this case, amount of games after he was waived), or roughly 1/3 of the season. So Granger’s cap hit would be $13 million, but the Sixers would only be on the hook to pay for roughly $4.3 million of that.

In theory, this discrepancy between how much Granger counted towards the Sixers end-of-year salary calculation and how much the team actually paid him could be considered a loophole to save money, although with how many lawyers looked over the NBA’s CBA, it’s hard for me to believe that this wasn’t a scenario they predicted would happen, and something that was intentional and accounted for.

Still, the longer the team goes into the season with upwards of $24 million between them and the salary floor, the potential cost savings grow. With the offseason virtually wrapped up there doesn’t seem like there will be all that many opportunities to add gobs of salary until the trade deadline, where a situation could present itself where a roughly $8 million expenditure could prevent the team from spending $24 million in salary floor penalty.

Now, is turning a profit why the Sixers aren’t using their salary cap space? I’m not sure I believe that. I think Sam Hinkie values salary cap flexibility immensely. I think that he wants to keep himself in a position where he can pounce on an opportunity if one presents itself, and the deals that have been presented to the Sixers thus far have simply not been worth giving up that flexibility for, in his mind. I think that this inability to find many opportunities has largely been influenced by the rising salary cap (which increased by over $4.3 million this summer) along with teams decreasing willingness to part with quality first round picks.

I also think that Sam Hinkie is not likely to make moves that add long term salary yet, thus limiting the amount of moves that he could make with that cap space. I think the Sixers brass realizes that, as the team is not yet a destination, luring players is going to be a difficult proposition. Using that cap space on stars is not feasible, and in order to use it to acquire complementary pieces they’re likely going to have to considerably overpay for their services. And they don’t want to start that process until they know what superstars those players are going to be complementing.

So, I think that at this point the salary cap flexibility is going to be largely kept in Sam Hinkie’s back pocket, used to facilitate deals by taking on short term contracts, while gaining relatively small assets in return.

Now, if the team is sitting at the trade deadline and no opportunity to acquire assets has presented itself, might they then look to take on enough salary to reach the salary cap floor rather than pay out the difference to their players, thus spending, in essence, $8 million rather than $24 million? This is when I believe the salary cap floor becomes relevant. But I do believe the Sixers lack of moves at this point in the offseason is because an opportunity hasn’t presented itself that is good enough to lose cap flexibility, rather than a desire to maximize their savings potential by using this loophole in the salary cap floor and team salary calculations.

(If you’re interested in the parts of the CBA that make this possible, I took a look at that here).

The signing of Joel Embiid

Earlier this week, Joel Embiid announced that he had signed his rookie contract.

My initial reaction was one of surprise, as it came almost a full month earlier than when Michael Carter-Williams and Nerlens Noel signed during last years offseason.

Why the surprise? It has to do with the salary cap.

For 1st round draft picks, the NBA has a set rookie scale, which basically slots what an incoming rookie can earn during his rookie contract based on where he was drafted. Teams and players have a little wiggle room — 20% above or below the rookie scale — but, in practice, virtually every 1st round draft pick signs for 120% of the rookie scale. For the 3rd overall pick in the 2014 NBA Draft, the NBA has slotted a first year salary of $3,689,700.

However, before a rookie signs his contract the amount he counts against a teams salary cap is 100% of the rookie scale contract. So, before signing a contract, Joel Embiid would count $3,689,700 against the Sixers salary cap. After signing the contract, assuming the Sixers gave Embiid the customary 120% of the rookie scale, his cap hit would rise to $4,427,640.

In essence, the Sixers gain an additional $734k in salary cap space by delaying the signing of Joel Embiid.

Now, the Sixers have roughly $30 million in salary cap space, so adding another $734k might seem inconsequential. And it most likely will turn out to be so. But, for a general manager like Sam Hinkie to give up *any* flexibility, even if there’s almost no chance of it being used, without getting anything in return, came as a surprise.

And there really isn’t anything to be gained by signing Embiid now vs signing him in late September. NBA players do not begin receiving pay checks until November 15th, so it’s not costing Embiid anything at the moment. It’s not that Sam Hinkie used up $734k of the Sixers cap space that surprised me, it’s that he did it when there was no real reason to do so.

It turns out, my initial suspicions were correct.

Bob Cooney wrote that the team isn’t ready to announce Embiid’s signing yet, and a source confirmed to me that the Sixers have yet to put their name on the dotted line. The contract will not be filed with the league (and, thus, not increase the Sixers salary cap commitment) until both parties have signed.

The reason the contract is not yet official? Likely that previously mentioned $734k in additional cap space. I would guess that the contract becomes official about a week before training camp starts up, or right around the same time that Michael Carter-Williams and Nerlens Noel signed last offseason. To this point, Embiid is the only top 10 pick that has not yet officially signed, but don’t be alarmed: I would expect this to be a standard practice any year where Sam Hinkie has salary cap space.

The confusing Hasheem Thabeet acquisition

A few hours after Sam Hinkie held the conference call to discuss the Thaddeus Young trade, the Sixers GM made another bold move: acquiring former 2nd overall pick Hasheem Thabeet.

Okay, there was a little bit of hyperbole there. It really wasn’t bold. Or even really an acquisition.

The Sixers traded a top-55 protected 2nd round pick to the Oklahoma City Thunder for Thabeet on Tuesday, although they will reportedly release Thabeet once the trade becomes official.

Why?

Hasheem Thabeet signed a 3 year, $3.65 million contract with the Thunder in July of 2012, with $2.4 million in guaranteed salary. Thabeet earned $1.2 million in each of the previous 2 seasons, leaving his entire 2014-15 salary non-guaranteed, as long as he is released by September 1st.

So, Thabeet will cost the Sixers nothing.

But Oklahoma City could have also released him, leaving them with the same $0 hit on their salary cap. So why trade him to the Sixers so they could release him instead?

A traded player exception.

By trading Thabeet’s $1.25 million salary to the Sixers, while getting back $0 of salary in return, the over-the-cap Thunder got a free $1.25 million traded player exception for a player they were going to cut anyway. For the Sixers? They received $100k in cash for a player who will count $0 towards their salary cap.

All the other moving parts are moot. The Sixers will never actually give up the 2nd round pick in the deal, which would require them to finish with one of the 5 best records in the league this year. They just had to “send something back” in order for the trade to work under the CBA. Hasheem Thabeet’s salary is fully non-guaranteed, and he will never receive one cent from the Sixers, and will not count at all against their cap. It has absolutely nothing to do with reaching the salary cap floor.

This trade was, essentially, about the Thunder buying a $1.25 million trade exception for $100k.

Looking At The Timberwolves As A Thaddeus Young Trade Partner

  By Derek Bodner | July 30, 2014 - 12:43 pm | ,
13 Comments
thad

The Sixers have long been mentioned as a potential suitor to the seemingly inevitable Kevin Love trade, and due to their cap space and willingness to absorb salary in return for assets will be rumored as a potential suitor until that trade is mercifully completed¹

It’s now being reported that not only could the Sixers help facilitate a Kevin Love to Cleveland trade, but that the Timberwovles are specifically targeting Sixers forward Thaddeus Young to replace the outbound Love.

This combination of the Sixers being able to facilitate a deal financially as well as having an asset that Minnesota is targeting is a pretty good combination for Sam Hinkie to generate leverage.  So what can Minnesota offer the Sixers?

Minnesota’s Future Draft Pick Situation

One of the assets that Sam Hinkie seems to consistently be targeting are future draft picks.  Unfortunately for the Sixers, Minnesota owes their 2015 1st round draft pick to Phoenix2.  The pick is top 12 protected in 2015 and 2016, and, if not conveyed by then, turns into a 2016 2nd round pick and a 2017 2nd round pick.  Odds are that Minnesota ends up not giving away this first round pick because of the protections, but because there’s the possibility that they will, and because they do not have any 1st round picks coming their way, Minnesota cannot trade a first round pick until at least 20173.  Not that a pick 3+ years down the road is something that Sam Hinkie isn’t willing to wait for, but it’s not something to get overly excited about at this stage of the game, unless there are virtually no protections on it from Minnesota’s side.

The 2nd round picks that Minnesota has aren’t all that much more interesting, as they owe their 2015 second round draft pick to Houston.  They do have an incoming 2015 second round pick from Denver, as well as an incoming 2017 second from New Orleans, but they both project to be much later in the draft than their own pick would have been.

Cleveland’s Future Draft Pick Situation

The more interesting picks would be the ones coming from Cleveland.  Cleveland is currently set to trade its 2016 first round pick to Boston (top 10 protected) in the Jarrett Jack salary dump from earlier this offseason.  However, Cleveland is set to have two 2015 1st round picks: Miami’s 2015 first rounder (top 10 protected), as well as the less-favorable pick between Cleveland and Chicago’s 2015 1st round picks.  Either of these could be had in a trade.

The most enticing pick, however, might be the pick that Cleveland is owed from Memphis.  The pick has weird protections: it is not conveyed if it falls in the top 5 OR between 15 and 30 in 2015 or 2016, but becomes only top 5 protected in 2017 and 2018, before finally being fully unprotected in 2019.

This as a smart move on Cleveland’s part, as the second half of the protections (protected 15-30 for the next two years) was an effort to try to increase the chances that the pick becomes a lottery pick.  Memphis declined slightly last year, from 56-26 to 50-32, coming in as the 7th seed in a tough Western Conference.  It’s no guarantee that the Grizzlies will make the playoffs both of the next two seasons.  Combine that with little chance of them being bad and falling into the top 5, and that’s a potential lottery pick that could be available.

However, it’s the chance that Memphis does make the playoffs the next two years that really becomes interesting, as Zach Randolph enters his mid-thirties and the chance that a top 10 pick becomes a realistic scenario.  If you can delay the gratification (and Sam Hinkie has shown that he is willing to do so), there’s a potentially very attractive pick available in this three team deal.

Young players of interest

With Minnesota’s interest in obtaining Young, their willingness to include a younger player may be spiked.  What do they have to offer?

The two most interesting names are their two most recent 1st round draft picks: Gorgui Dieng and Zach LaVine, drafted 21st in 2013 and 13th in 2014,  respectively.  Dieng averaged an impressive 12.2 points, 12.0 rebounds, and 1.7 blocks in 15 starts late in the season for the Wolves. LaVine is one of the more athletic wing prospects to come out in some time.  While I’m not necessarily his biggest fan, he’s the kind of long, athletic wing prospect that I could see Sam Hinkie targeting as a guy who could eventually out-shoot his expected contribution, if he can ever figure out the game.  I would be incredibly surprised if either of these guys are moved in the trade, though, as they’re the kind of young assets Minnesota is going to need in the long rebuild they’re about to enter.

The other names to keep an eye on are Shabazz Muhammad, Alexey Shved, and Chase Budinger.  Budinger is entering the second year of a 3 year contract4.  While he’s unlikely to have too much untapped potential, he’s useful and, at $5 million per year, on a relatively friendly contract.  Shved, at 25, has thus far struggled to become an efficient option on offense, but he has the kind of size, fluidity, and feel for the game that Sam Hinkie could have an interest in, and would fit right in with the Sixers other perimeter threats who aren’t much of a threat from the perimeter.  Muhammad, who slid down the first round in the 2013 draft all the way to 14th, struggled during his rookie season and played only 290 total minutes.  It’s hard to really see Muhammad as a Sam Hinkie type of player, with his defensive indifference, poor steal rate, mid-range based game, but he has only one guaranteed year left on his deal5, and it’s possible Hinkie could take him on as a talented reclamation project, but that would be as a throw-in to the deal, not as a centerpiece.

For the most part I haven’t touched on the Cavs players, mostly in the interest of brevity, and because those have been talked about extensively over the past few weeks.  This article was mostly centered around the new information, which was the Wolves interest in Thaddeus Young.  That being said, some of the Cavs players (Dion Waiters, mostly) are obviously in play.  Anthony Bennett has been rumored as well, but I would guess he is more likely to head to Minnesota.  That being said, the incredibly disappointed (but looking much better in summer league) former #1 overall pick is somebody to keep an eye on.

What else would the Sixers have to take back?

With the Wolves over the cap6, it’s very likely that the Sixers would have to take back a less-than-desirable contract to help facilitate the deal.  From the Wolves side, that would likely be Kevin Martin, who has three years and roughly $21 million remaining, with the final season being a team option. Martin would provide the Sixers with an offensive option from the perimeter and plays the “3 point and at-the-rim” style of offense that Hinkie and Brown are likely to employ (he has shot 38.5% from three point range for his career and averaged 6.0 free throw attempts per game in just under 31 minutes), but Martin will turn 32 later this year, has struggled with injuries throughout his career, and as such isn’t likely to be a long term piece for the teams future.  Ideally you wouldn’t want him eating into the teams cap space, as the Sixers are likely to start looking to supplement their drafting with finding supporting pieces through free agency.  But taking back Martin’s contract is likely the cost of doing business in this trade, and will allow the Sixers to raise their asking price, because not only are the Wolves getting a player they want (Thaddeus Young), but they’re also shedding an undesirable contract (Martin).  Martin would at least provide a little bit of relief on the offensive end and allow Michael Carter-Williams to play a role that he’s more likely to look to fill long term than being the top offensive option.

Outside of that, Minnesota’s cap situation is fairly positive.  They could take back Alexey Shved, who is on the final year of his rookie deal at $3.2 million.  I talked about Shved briefly above, and his combination of inconsistency from the perimeter and struggles finishing around the hoop make it a little bit grim whether he’d ever really contribute enough offensively.  He is wonderfully creative off the pick and roll, which could help the Sixers ball movement some in the half-court.  If he could ever develop consistency as a jump shooter7 he could carve a roll for himself in the NBA, but that’s an “if” at this point.

Summary

Assets available in a trade:

  • “First available” (2017) Minnesota 1st round draft pick
  • 2015 Miami first round pick (top 10 protected)
  • “Less favorable” 2015 1st round pick between Cleveland and Chicago
  • 2015 Memphis first round pick (protected 1-5, 15-30 in 2015 & 2016, protected 1-5 in 2017 & 2018, unprotected in 2019)
  • Young players like Gorgui Dieng, Zach LaVine, Alexey Shved, Chase Budinger, and Shabazz Muhammad.

In my opinion, the Memphis pick, as well as a future Minnesota pick (depending on the protections) are the two most intriguing assets that might actually be viable for the Sixers to obtain, although it would be difficult for me to see Minnesota giving up that high of a pick, even far down the line, in such a trade.

I haven’t mentioned Andrew Wiggins up to this point because I don’t think there’s any real chance the Sixers have in prying him away from Minnesota.  He is Minnesota’s prize in giving up Kevin Love, and nothing the Sixers have to offer can get him away from them, in my opinion.  Of course, I’d love to be wrong.

Unfortunately, because of the Andrew Wiggins signing, this is a rumor/situation that will drag one for quite a bit longer.

Footnotes:

1With Cleveland signing Andrew Wiggins, the trade (assuming Andrew Wiggins is involved in it) cannot be traded until 30 days have passed.  Wiggins signed on July 24th, meaning the earliest that he could be traded is August 23rd.  It also means that when Wiggins is traded his outgoing salary will count for roughly $5.5 million, assuming he gets 120% of the rookie scale contract for the #1 pick.  Had he previously been traded they would have been trading his draft rights, and his (expected) salary would not have been included in matching salaries for the trade.

2The Stepien rule dictates that a team can’t fail to have a first round pick in back to back years. Two key points on this rule: 1) It only deals with future picks owed, not the past. Meaning if a team didn’t have a pick in the 2014 draft, that’s irrelevant. They can actually not have a pick in 2014 and still trade their 2015 pick, it’s just they can’t fail to have a pick in the next two upcoming drafts. 2) It only specifies not having a pick, not necessarily not having their own pick. So if a team, say Minnesota, already is set to pay out their 2015 pick. They can trade their 2016 pick as well, as long as they acquire an additional first round pick in 2015 or 2016.

3Unless Minnesota acquires another pick in the deal. Remember, the Stepien rule just specifies that they cannot fail to have first round picks in consecutive years. If they acquire another one, they can trade their own pick 2 years in a row, although the Sixers would still have to wait until the debt to Phoenix has been paid, meaning the Sixers would get Minnesota’s first available pick.

42015-16, the final season in Budinger’s contract, is a player option.

5For rookie scale (first round pick) contracts, the first two seasons are guaranteed, then season three and four are team options. Muhammad is entering his second season, and the option for his third season would have to be picked up by the end of October, similar to the situation the Sixers were in when they acquired Royce White last summer.

6Even though the Sixers are under the cap, the Wolves are not, so they have to send out money in order to take on Thad’s contract. See Larry Coon’s excellent cbafaq.com for more information.

7So far Shved has shot 29.5% from nba three point range on 390 attempts in his nba career. He shot 23% overall on jump shots last season, 27.7% on catch and shoots jumpers, a horrible 16.2% on jump shots off the dribble, and 22.6% when he shoots off the pick and roll. All are well below average.