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Houston Rockets Salary Cap Update
An Overview of Houston's New Deals and Their Impact On Next Summer
MONDAY, JULY 19, 2010   8:09 AM CST
By BimaThug
Copyright 2010
Well, that happened a lot faster than I expected.

After a 2008 restricted free agency "negotiation" with Carl Landry that lasted well into September, the Rockets have come to terms on new deals with both Kyle Lowry and Luis Scola before the second half of July.

With the signing of Patrick Patterson to his rookie deal, and with the recently reported signing of Brad Miller, the Rockets are essentially "capped out", with only their Biannual Exception ($2.07 million), a minuscule portion of their Mid-Level Exception (MLE) and the veteran's minimum salary available to offer other free agents.

Given that the Rockets' big free agent moves now appear to be over for this summer (trades, however, are still a distinct possibility), I thought I'd take a moment to analyze the contracts recently handed out by the team and their impact on the Rockets' salary cap situation for both this season and next.

The New Deals
Patrick Patterson
Patterson was signed to a four-year deal starting at about $1.82 million, which is 120% of the 2010-11 rookie scale salary slot for the 14th pick (the maximum allowable salary for Patterson). The second year is for approximately $1.96 million. The Rockets have team options on both the third year (at about $2.1 million) and the fourth year (at about $3.1 million), each of which must be exercised before October 1 of the season prior to the option year (i.e., a full calendar year in advance).

This contract was a no-brainer. Unlike Memphis--which is trying to low-ball Xavier Henry with a less-than-maximum rookie contract and is becoming more of a laughingstock franchise in the process--Houston is happy to pay the maximum allowable for the guy they admit was #6 overall on their draft board. At that salary, he's a bargain.

Kyle Lowry
Lowry accepted a four-year, $23.46 million offer sheet from the Cleveland Cavaliers, which the Rockets have elected to match. Kyle will make $5.75 million in each of the first three years of his contract. The fourth year (with a cap figure of $6.21 million) is apparently only guaranteed for $1 million.

This deal was a little higher than I had expected. I thought somewhere in the $4 million to $5 million range was still within reason. The fact that Lowry ended up with $5.75 million per season, though, does not shock me. Given that lesser point guards like Steve Blake, Jordan Farmar and Chris Duhon were all getting sizable contracts, Lowry appeared to have gotten "market value" this summer.

Luis Scola
Scola received a five-year deal worth up to approximately $47 million. According to reports, the fifth year (with a cap figure of about $11 million) is only partially guaranteed and will gradually become more and more guaranteed based on the number of games in which Scola plays and the number of wins the Rockets accumulate.

Working backwards, in order to get to the reported $11 million partially guaranteed fifth season, the Rockets must have provided Scola with maximum 10.5% annual raises during the life of the deal. This should make his starting salary approximately $7.77 million, followed by salaries of approximately $8.58 million in the second year, $9.4 million in the third year and $10.22 million in the fourth year. This would put that fifth, partially-guaranteed year at about $11.03 million.

Houston Rockets Brad Miller
That the Rockets committed $5 million a year to Brad Miller was a touch surprising
I was frankly a little surprised that Scola got a deal this big. Even with the threat of him returning to play in Spain, no Spanish club could (or would) have offered him nearly this much money. While this deal may actually reflect Luis' true value, I had expected that his restricted free agent status would have allowed the Rockets to get a fairly substantial discount on his services. I guess it goes to show that restricted free agency doesn't always turn out how the team hopes it will.

Brad Miller
Miller received a three-year deal worth up to $15 million. Brad will make $5 million in each of the first two seasons of his contract. As with Lowry, the third season is apparently only guaranteed for $1 million. This deal uses up all but a small portion of the team's MLE.

Again, I was surprised that the Rockets were willing to commit $5 million per season to Miller for two seasons. While I was hoping that Brad would be so kind as to accept the team's Biannual Exception, I wasn't holding my breath on that. I figured that somewhere in the $3 million to $3.5 million range was a more realistic expectation for Miller. But with several other playoff-caliber teams interested in him, the Rockets needed to offer more money. So, they did.

The common theme in the deals for Lowry, Scola and Miller is the partial guarantee in the final year. That partially guaranteed extra year makes each of these contracts an attractive trade asset down the line, allowing a financially-strapped team to instantly dump payroll rather than trading for a "normal" expiring contract and having to wait months--or even a full year--to be rid of salary obligations. These partial guarantees help make up for what many view as the Rockets "overpaying" for these players.

Impact on 2010-11 Team Salary
With all of these deals, the Rockets' total team salary now stands at approximately $81.65 million.

Anyone who has ever said that Les Alexander would never pay the luxury tax needs to eat his words right now. Based on the new luxury tax threshold of $70.307 million, if the 2010-11 regular season ended today, Alexander would be paying approximately $11.34 million in luxury tax. Unlike in years past, when the Rockets were slightly over the tax threshold prior to making a crafty trade at the February deadline in order to sneak under the threshold, there is no avoiding the tax next season. That bill will come next July. And it will be painful.

From a financial standpoint, Alexander has gone "all in" for next season in the hopes of bringing a true title contender to the City of Houston. He will leave it up to Daryl Morey to make any further moves to improve the roster via trade, but the money has now been spent. Regardless of how next year's Houston Rockets squad fares on the court, Mr. Alexander is to be applauded for his willingness to spend on a winner.

The Rockets are helped, ever so slightly, by the fact that the salary cap figure for Chuck Hayes has now been reduced from approximately $2.33 million down to about $1.97 million, thanks to certain performance incentives being reclassified as "unlikely" to be reached. This is already baked into the team salary figure above.

The Rockets also now carry two non-guaranteed contracts, those of Mike Harris ($854,389) and Alexander Johnson ($885,120). Of course, cutting those salaries is not going to help the Rockets' bottom line much.

The Summer of 2011
With the larger-than-expected deal for Scola and their use of almost the entire MLE on Miller, the Rockets have essentially killed any chance of having considerable salary cap room next summer.

As I wrote in an earlier article, the salaries handed out to Lowry and Scola and the Rockets' use of their MLE would be largely determinative of how much cap room they could hope to have next summer. While I never saw the Rockets signing a superstar like Carmelo Anthony outright in free agency, I figured that being significantly under the cap would at least allow the Rockets flexibility not to have to match salaries in trades. For instance, the team could send out $5 million in salary while being able to take back over $15 million from the other team, either in a straight-up trade or in a sign-and-trade deal.

With the current salary commitments for the 2011-12 season (including the $6.05 million cap hold for Aaron Brooks, who will be due a large raise next summer), the Rockets will have a cap number next summer of approximately $53 million BEFORE including the cap hold for Yao Ming or the other Rockets free agents. Assuming that the salary cap stays the same as this season (which is a big "if" given the impending new collective bargaining agreement), the Rockets would only have about $5 million or so in total cap room. Again, that's WITHOUT Yao Ming. Assuming that the MLE still exists under the new collective bargaining agreement, the likely outcome is that the Rockets would simply opt not to take their cap room and instead utilize the MLE and keep their Bird rights on Yao, Shane Battier, Jared Jeffries and Hayes.

So, anyone who thinks the Rockets should just dump Yao Ming next summer in favor of a "better" player, think again. Unless you honestly think a better player can be acquired for $5 million, the Rockets are simply better off re-signing Yao to a new deal.

In order for the Rockets to make a major move, it looks like it will have to be at the February trade deadline. Armed with several young players, expiring contracts and draft picks, the Rockets have plenty of ammunition to get a deal done. But in the end, it takes two to tango. Morey will need to find a willing trade partner, one willing to part with a star player in exchange for whatever the Rockets are offering.

Could a player like Chris Paul be acquired come February? It's certainly possible, but it will take a lot of arm-twisting and will likely involve the Rockets taking back a ton of bad contracts.

Could someone like Andre Iguodala or Danny Granger be attained? Probably, at the right price.

With these recent signings, the Rockets have given clear indications that they do not view 2011 free agency as something worth saving for at the expense of competing next season.

Let's hope they're right.

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