What a difference a year makes.

Those two guys in the middle weren’t with the Rockets this time last year

At this time last year, the Houston Rockets sported a young roster long on trade assets but short on star talent.  The marquee name on the roster was the recently-acquired Jeremy Lin (whose track record consisted of a few short weeks of “Lin-sanity” and not much else), and the roster was otherwise headed by the likes of Kevin Martin (scorer extraordinaire and “everything else” not-so-extraordinaire), Chandler Parsons (a solid second round pick with “quality role player” potential) and new starting center Omer Asik (he of the 3.1 point-per-game average the prior season in Chicago).  Add in a slew of young power forwards, including one (Royce White) making news for not showing up to training camp, and the Rockets weren’t exactly looking like playoff contenders, let alone title contenders.

Then, everything changed.

Rockets GM Daryl Morey pulled off a blockbuster trade with Oklahoma City for James Harden (cashing in several of those aforementioned trade assets) and immediately signed Harden to a five-year maximum salary extension (by no means a “no-brainer” to all at the time but an educated gamble on Harden’s upside).  Morey and the Rockets were rewarded for their faith in Harden, as he put together an All-Star season and repeatedly flashed the offensive talents that will keep him in the All-Star Game for years to come.  Parsons continued to exceed expectations and established himself as a young player on the rise with potential to become far more than just a role player.  Asik also surpassed all expectations, averaging a double-double and providing the Rockets’ defense with the anchor it so badly needed.  Lin, after a rough start while trying to recover from off-season knee surgery, gradually improved and played at a high level during the final few months of the season.

Add all that up, and the Rockets–with one superstar already in tow and the salary cap flexibility that Morey and his staff worked so hard to maintain–established themselves as a desirable free agent destination for other star players.

After a recruiting effort the likes of which has never been seen in Houston pro sports history, the Rockets successfully landed Dwight Howard to continue the franchise’s long line of dominant centers.

With the Rockets now sporting two superstars and legitimate title hopes for the first time since those two weeks when both Tracy McGrady and Yao Ming were healthy way back when, let’s take a look at the team’s current salary cap situation.

The Rockets’ Latest Moves
Since my last update, the Rockets have made the following roster moves (which include updated details from my last blog post on July maneuvers):

• Traded Thomas Robinson to the Portland Trailblazers in exchange for the draft rights to Kostas Papanikolaou (regarded by many as a first round talent) and Marko Todorovic, a 2015 second round pick being the lesser of Minnesota’s or Denver’s, and essentially Portland’s 2017 second round pick.
• Dumped… er, traded Royce White, the draft rights to Furkan Aldemir and enough cash to cover White’s 2013-14 salary to Sam Hinkie and the Philadelphia 76ers for a 2014 second round pick (not-so-shockingly, that pick is top-55 protected and has pretty much zero chance of amounting to anything).
• Renounced the rights to free agents Francisco Garcia ($9.15 million cap hold) and Earl Boykins ($884,293 cap hold).
• Waived James Anderson and Tim Ohlbrecht, both of whom were claimed off waivers by Hinkie and the 76ers.
• Signed that Howard guy to a four-year, $87.6 million deal with a player option in Year 4.  You may have heard about the signing.
• With respect to the three remaining incomplete roster charges, Houston used an equivalent amount of room ($490,180) to sign each of Robert Covington, B.J. Young and Jordan Henriquez to three-year contracts, each starting at the rookie minimum.  Covington’s deal is reportedly fully guaranteed in Year 1 and partially guaranteed in Year 2 for $150,000; Young’s deal has a $40,000 partial guarantee in Year 1; and Henriquez’s deal is totally non-guaranteed.
• Signed 2013 second round draft pick Isaiah Canaan to a three-year deal using every last penny of cap room remaining after the Howard signing.  Canaan’s deal pays him $570,515 in Year 1 (paying the league minimum thereafter), is fully guaranteed in Years 1 and 2, and is 80% guaranteed in Year 3.
• Signed Omri Casspi to a two-year league minimum deal.  Year 1 is fully guaranteed; Year 2 is non-guaranteed if Casspi is waived by August 5, 2014.
• Signed Reggie Williams to a two-year league minimum deal.  Year 1 is 50% guaranteed (until January 10, 2014); Year 2 is non-guaranteed if Williams is waived by September 1, 2014.
• Re-signed Garcia to a two-year, fully guaranteed league minimum deal, with a (gulp!) player option for Year 2.  The player option was presumably to reward Garcia for not demanding that the team use its Room Exception to re-sign him.  The Rockets will have full Bird rights to Garcia after this season if he does not exercise his player option; and, as a player playing on a (potential) one-year deal who could lose his Bird rights if traded, Garcia possesses the right to veto any trade involving him this season.
• Re-signed Aaron Brooks to a one-year, fully guaranteed league minimum deal.  Brooks will be paid $1,027,424 this season.  However, as a veteran with more than two years of service playing on a one-year deal, the Rockets will only pay Brooks–and he will only count against the cap for–the two-year veteran’s minimum ($884,293).  The NBA will pick up the rest of the tab.  Also, the Rockets will have Early Bird rights to Brooks after this season; and, just like Garcia, Brooks has the right to veto any trade involving him this season.
• Signed Marcus Camby to a one-year, fully guaranteed league minimum deal.  Camby will be paid $1,399,507 this season.  However, as with Brooks, the Rockets’ payment and cap hit for Camby will only be $884,293, with the league picking up the rest.
• Signed Ronnie Brewer to a two-year league minimum deal.  Year 1 is partially guaranteed for $100,000, and Year 2 is presumably non-guaranteed (with the guarantee date not yet known).

Salary Commitments and Available Cap Room
(All salaries and contract information courtesy of ShamSports.com.)

The short answer here is that the Rockets do not currently have any remaining cap room this season and are unlikely to have much (if any) cap room this season or next (unless a trade involving either Lin or Asik is made that brings back little to no salary, an unlikely proposition).

Barring any further roster moves (which we will see as players are cut and the team finalizes the 15-man roster), and with the maximum team salary cap set this season at $58.679 million, the Houston Rockets now have nearly $64.8 million in team salary committed for the 2013-14 season: Howard ($20.51 million), Harden ($13.70 million), Lin ($8.37 million cap hit), Asik ($8.37 million cap hit), Terrence Jones ($1.55 million), Donatas Motiejunas ($1.42 million), Garcia ($1,265,977), Brewer ($1,186,459, partially guaranteed), Casspi ($947,907), Williams ($947,907, partially guaranteed), Parsons ($926,250), Camby ($884,293 cap hit), Brooks ($884,293 cap hit), Greg Smith ($884,293, non-guaranteed), Patrick Beverley ($788,872, non-guaranteed), Canaan ($570,515), Covington ($490,180), Young ($490,180, partially guaranteed), Henriquez ($490,180, non-guaranteed), and Tyler Honeycutt (waived – $100,000 partial guarantee).

Note that the Rockets were able to exceed the salary cap to sign Garcia, Brewer, Casspi, Williams, Camby and Brooks, in each case using the Minimum Player Salary Exception.  Remarkably, Morey and company have been able to assemble this roster without dipping into their Room Exception.

The Rockets are well below the luxury tax threshold and should be able to acquire additional salary this season (within the salary cap rules) without fear of the new punitive tax (which now starts at 150% and escalates quickly).

The Room Exception
There is one type of Mid-Level Exception (MLE)–commonly referred to as the Room Exception–available to teams that get below the salary cap and subsequently use most or all of that room.  This salary cap exception rewards those teams able to manage their cap situations effectively.  Under the prior CBA, only teams operating above the cap (and which did not open up any cap room that season) were entitled to use the MLE.

The amount of the Room Exception for the 2013-14 season is $2.652 million; and teams using the Room Exception can sign players to contracts up to two years in length (with a 4.5% raise for Year 2).  Starting on January 10, the MLE (all types) begins to reduce in value by 1/170th (there are 170 days in the NBA regular season).  Unlike the veteran’s minimum salary (which prorates from the beginning of the regular season), the MLE allows a team to provide a disproportionately larger salary to players if signed in the middle of the season.

Given the sheer number of players under contract this summer (19 out of the maximum 20 allowed) and the need to cut down to 15 players by the start of the regular season, it is unlikely that the Rockets will add a player with the Room Exception this month.  However, expect Morey to keep close tabs on the top remaining free agents and any talented players waived or released by their teams during the season.  For instance, if a team fails to dump salary by the February trade deadline and subsequently negotiates a buyout with a solid veteran, the Rockets could use the Room Exception to sign such player on March 1 for a starting salary of $1,887,600 (compared to a prorated amount of less than 28% of the veteran’s minimum salary with teams over the cap and/or seeking to mitigate luxury tax payments).

To play on a contending Rockets club featuring Harden and Howard, almost any of the top available players will have to strongly consider Houston as a destination come February or March.

Cap Consequences Immaterial to Roster Decisions
Due to the Rockets’ aforementioned cap situation (being above the cap, with no expectation of having much cap room through the 2014-15 season), it is not expected that salary cap consequences will play much of a factor in trimming the roster from the current 19 players in camp down to the required 15-man maximum by the start of the regular season.  Other than Howard, Harden, Asik and Lin, Houston has no real cap reason (irrespective of talent) to keep any of its players on the roster over any other.

Daryl Morey grins about the Rockets once again being in “WIN NOW” mode

Unlike in years past–such as in 2011, when Jonny Flynn was kept on the roster over Lin and Hasheem Thabeet made the team over Smith–the Rockets will not be hamstrung by the need to preserve/optimize salary cap flexibility in making its roster decisions.  In 2011, the Rockets were primarily motivated to keep Flynn and Thabeet (both of whom had mid- to large-sized expiring salaries) on the roster in order to facilitate–for salary-matching purposes–a major trade for that star player Houston so desperately needed.  (Flynn and Thabeet ended up being packaged at the February 2012 trade deadline for Camby, a valuable rotation piece who helped the Rockets nearly make the playoffs.)

The following is a list of the amounts of guaranteed salary that would be owed to each Rockets player in camp (other than the Howard/Harden/Asik/Lin quartet) if that player were to be cut prior to the start of the regular season:

Garcia – $2,582,786 (including $1,316,809 after this season)

Canaan – $2,144,818 (including $1,574,303 after this season)

Jones – $1,551,840

Motiejunas – $1,422,720

Casspi – $947,907

Parsons – $926,500

Brooks – $884,293

Camby – $884,293

Covington – $640,180 (including $150,000 after this season)

Williams – $473,954

Brewer – $100,000

Young – $40,000

Smith – $0

Beverley – $0

Henriquez – $0

Cutting any of these players would not materially impact the Rockets’ cap situation.  Of these players, only Garcia, Canaan and Covington would even count against the cap beyond this season.  (If the Rockets so elected, the portions of Garcia’s and Covington’s salaries owed after this season could be stretched over 3 seasons, and the portion of Canaan’s salary owed after this season could be stretched over 5 seasons.)  Obviously, there is no way the Rockets would cut a key rotation piece like Parsons or Beverley; but talent aside, there is little financial reason to keep any of these 15 players over any other.

The result of all this is that the Rockets’ front office and coaching staff are liberated, in a sense, in making the roster decisions that will most greatly benefit the organization and the team on the floor, for this season and beyond.

Conclusion
From “rag-tag band of young kids and trade assets” to “title contender with two superstars,” the Houston Rockets have undergone a remarkable transformation over the past year.  What makes this transformation even better is that the Rockets still sport all of their future first round picks, several additional future second round picks from other teams, and the rights to at least two players currently playing overseas (Sergio Llull and Papanikolaou) who could potentially be rotation pieces.  The Rockets also have the ability to offer free agents the full Non-Taxpayer MLE next summer (for up to four years, $22.65 million) if they choose not to wait to use the potentially significant cap room they could have in 2015.

Add it all up, and the Houston Rockets are primed to contend for the next several seasons.