Houston Rockets Salary Cap Update: 2016 Offseason Edition

Well, that was an eventful Saturday afternoon press conference!

At that press conference, the Houston Rockets introduced their two key free agent acquisitions, sharpshooting power forward Ryan Anderson (“4 years, nearly $80 million) and dynamic scoring guard Eric Gordon (4 years, nearly $53 million). Both players are expected to add much-needed shooting, floor-spacing and shot creation to an offense that relied far too heavily on James Harden last season.

Then, in a surprise move, the Rockets also announced that they had renegotiated and extended Harden’s deal so that he will get paid the maximum salary through 2020 (the last season being a player option). I wrote more about that extension here

This seemed like as good a time as any to examine these moves (and others) and their salary cap implications for the Rockets.

Since My Last Update…

Here are some Rockets-related moves that happened since my last salary cap update:

• In the 2016 NBA Draft, the Rockets selected Chinanu Onuaku (6-10 C out of Louisville) with the 37th pick and Zhou Qi (7-1 C out of China) with the 43rd pick
  Immediately following the draft, Houston agreed in principle to multi-year partially-guaranteed deals with undrafted free agents Gary Payton II (6-3 PG out of Oregon State), Isaiah Taylor (6-3 PG out of Texas) and Kyle Wiltjer (6-10 PF out of Gonzaga)
  
• Dwight Howard opted out of his contract for 2016-17 and later agreed to a new 3-year, $70 million deal with the Atlanta Hawks
  
• The Rockets extended a qualifying offer to Donatas Motiejunas, making him a restricted free agent (no qualifying offer was made to Terrence Jones, who became unrestricted)
  
• The salary cap for the 2016-17 season was set at $94.143 million (with a luxury tax threshold of $113.287 million)
  
• On the second day of free agency, the Rockets agreed to deals with Anderson and Gordon
  
• The Rockets agreed in principle to a one-year, $2.9 million deal with Nene (Hilario)
  
• In order to clear cap room for the Anderson and Gordon deals and the Harden extension, Houston renounced its rights to free agents Howard, Jones, Josh Smith and Jason Terry and also waived Andrew Goudelock

Player Salary, Exceptions and Available Cap Room

The Houston Rockets currently have the following player salary commitments, cap holds and salary cap exceptions available for the 2016-17 season:

Player salary commitments: Harden ($26.54 million), Anderson ($18.7 million), Gordon ($12.4 million), Trevor Ariza ($7.81 million), Brewer ($7.61 million), Beverley ($6.0 million), K.J. McDaniels ($3.33 million), Sam Dekker ($1.72 million), Michael Beasley ($1.40 million – non-guaranteed until August 1), Clint Capela ($1.30 million), and Montrezl Harrell ($1.05 million).

Cap holds: Motiejunas ($5.72 million – Rockets hold full Bird rights). Second round picks (like Onuaku or Zhou Qi) do not count against the cap until they are signed. Since none of Payton, Taylor or Wiltjer have actually signed, none of them count against the cap.

Other Salary Cap Exceptions: Because the Rockets opted to drop below the salary cap in order to use their available cap room on Anderson, Gordon and Harden, they have lost the use of the “full” Mid-Level Exception and the Bi-Annual Exception. Instead, they are limited to using the Room Exception ($2.898 million), which can be utilized once they use all of their cap space. Presumably, this Room Exception has been dedicated to Nene.

Given these salary commitments, cap hold and exceptions, and based on a 2016-17 salary cap of $94.143 million, the Rockets have only a little more than the rookie minimum salary’s worth of cap room remaining. If Motiejunas leaves in free agency, Houston’s available cap room could increase to nearly $6.3 million, but for reasons described below, that probably won’t happen. As with all of these updates, these figures assume the Rockets do not make any trades; but as we all know, GM Daryl Morey is always looking for trades that can help his team.

So… What Happens Next?

The Rockets can go over the cap to re-sign restricted free agent Donatas Motiejunas

Bring Back D-Mo: It’s no coincidence that Houston waived its rights to all of its free agents except for Motiejunas. As one of the league’s top remaining free agents on the market, D-Mo will very likely receive an offer sheet (or perhaps even an offer from the Rockets) well in excess of his $5.72 million cap hold. Since the Rockets hold Motiejunas’s Bird rights, they can exceed the salary cap in order to re-sign him or to match any offer sheet. With precious few impact players willing to take $6 million or less in this market – I’m still surprised Houston got Nene for just $2.9 million – odds are that the Rockets follow through with their threats to match any offer sheet for D-Mo, even if it is somewhat excessive. In the alternative, the Rockets could conceivably sign and trade Motiejunas as part of a package for another key contributor, although (what used to be known as) “Base Year Compensation” issues with D-Mo might complicate some trade scenarios.

Save a Little Something for Nanu: Expect the Rockets to use their remaining salary cap room to make Onuaku part of a Rockets tradition that has spanned from Chase Budinger to Chandler Parsons to Isaiah Canaan to Nick Johnson to Harrell. Each of those players were early to mid-second round picks who received a multi-year (three or four seasons) deal from the Rockets with a starting salary above the rookie minimum. (Johnson’s salary was right at the rookie minimum, but he got three years, fully guaranteed.) Morey and company have always tried to lock in these second round picks to longer-term deals in order to secure talent on the cheap. They will likely try to sign Onuaku before signing or matching an offer sheet for Motiejunas. However, given the increased salaries being handed out to other early second rounders this summer (such as Deyonta Davis and Ivica Zubac), there is some risk that Onuaku might take the “K.J. McDaniels Route” and instead accept a one-year rookie minimum deal in order to hit restricted free agency next summer. The Rockets will try to resolve any such issues with Onuaku sooner rather than later.

The Undrafted Guys: While it was reported on draft night that the deals agreed to in principle with Payton, Taylor and Wiltjer were for three years each, the Rockets’ lack of cap room may necessitate that those deals become two-year contracts instead. The third year of each player’s deal was likely non-guaranteed, and each deal was likely negotiated to include a third season to the extent the Rockets had cap room available for that purpose. If there is any additional cap room that opens up, some of it may be used to sign Payton for a third year, then maybe Taylor and/or Wiltjer, too.

Gentile Will Have to Wait: Despite registering interest in playing for coach Mike D’Antoni, it appears 2014 second round pick Alessandro Gentile will have to wait at least another year to play for the Rockets. Reportedly, Gentile recently committed to stay one more year with Olimpia Milano after failing to reach agreement with Houston. With a glut at the wing positions and with little to no cap room to spare (Gentile would have probably required more than the rookie minimum to make the jump to the NBA), a fit could not be found at this time. With several other NBA teams reportedly expressing interest in Gentile, don’t be surprised if Houston trades his draft rights, whether for a future pick or as a sweetener in a larger trade.

Looking Ahead to 2017

The Houston Rockets currently have the following player salary commitments, cap holds and other salary variables for the 2017-18 season:

Player salary commitments: Harden ($28.53 million), Anderson ($19.54 million), Gordon ($12.96 million), Brewer ($7.58 million), Ariza ($7.42 million), Beverley ($5.51 million), McDaniels ($3.48 million – team option), Capela ($2.33 million – team option), Dekker ($1.79 million – team option), and Harrell ($1.09 million)

Cap holds: Nene ($3.48 million – Rockets hold Non-Bird rights), Beasley ($1.01 million – Rockets have Early Bird rights)

Other Variables: Motiejunas (if retained – 2017-18 salary unknown), Onuaku ($905,249 one-year vet minimum, fully guaranteed?), Payton ($905,249 – partially guaranteed?), Houston’s 2017 first round pick ($1.1 million to $2 million cap hold?)

With a projected salary cap of $102 million (recently revised downward from prior estimates as high as $110 million), the Rockets were not expected to have max cap room, even before the Harden extension. Add to that any salary paid to Motiejunas, and that cap room becomes relatively minimal in the grand scheme of attracting star free agents. Even if Motiejunas is allowed to walk this summer, all team options (except for Capela’s) are declined and Brewer is jettisoned for no salary in return, the Rockets wouldn’t have more than about $21 million in cap room in a summer when the lowest max salary is expected to exceed $24 million (subject to further increase in the upcoming CBA negotiations).

If the Rockets are going to add another star in 2017, it will probably need to be either via trade or with cap room created by trading pieces out. But if Houston can get back to its winning ways, there is a decent chance that teams swimming in cash again next summer would be willing to take on some of the Rockets’ role players. (For instance, a trade for Brewer with only one year left on his contract – or after a bounce-back season – would be much more palatable to other teams than dealing for him now and would require less pick compensation from the Rockets in order to move him.)

Also, if the Rockets remain above the cap next summer, they could use the Non-Taxpayer Mid-Level Exception (currently scheduled to be $5.8 million but subject to likely increase in the 2017 CBA) to add another contributor, perhaps including the long-pursued Sergio Llull.

Conclusion

The Houston Rockets have added some significant future pieces and locked up their franchise star longer-term, sending a statement to the league that they will not be in the same boat as teams like the Thunder and Kings, whose stars are (or will be) the subject to constant trade rumors. While cap flexibility may be more limited going forward, as Kevin McHale used to say, “Cap Flexibility” never scored a point or grabbed a rebound. Here’s hoping for many more points, rebounds and wins from Harden and his new crop of Rockets teammates.