[BimaThug Memorial Thread] The Myth of the Rockets and the McGrady Trade

There's been a lot of debate on what the Rockets will or will not take on, and will or will not be able to do in a Tracy McGrady trade. So I though I'd consolidate some of the math information here in this thread in the BimaThug tradition.

Basic Premises:

First, here are some basic facts and assumptions:

A. As BimaThug pointed out, the Rockets will have about $42.7 million combined in continuing contracts next season assuming they pick up Carl Landry's team option ($3 mil) and Chuck Hayes' team option ($2.3 mil). This does not cover the potential salary of FAs Scola and Lowry.

B. The Luxury tax threshhold is likely to be a shade under $66 million, if not less. My rough estimate is based on the the fact that some agents are using $54 mil as the "working number" for the salary cap for next year, down from $57.7 mil this season. A proportional decrease in luxury tax threshold would take it down from $69.9 mil to $65.4 mil.

C. To make the math a bit easier (since we are playing with estimates anyway), the Rockets will have about $23 million to spend next season before they hit the luxury tax threshhold, which is the "real salary cap" for Les Alexander and Daryl Morey.

D. The Rockets have said publicly many times that, unless it is for a "special player," meaning a true superstar (think Chris Paul, not Kevin Martin or Andre Iguodala), they won't go over the tax limit. I tend to believe them.

E. The "superstar rule" makes sense because they are generally grossly underpaid (for example, somebody should probably pay Lebron $30 mil+ a year if not for the cap on individual salary) and it's worth paying even millions in tax consideration (and "crap contract" burden) in additon to their max scale salary to get them. For pretty much any other player whose trade would take the Rockets over the threshhold, the math doesn't work out that way.

F. The Rockets actually like their rotation players a lot, probably more than anyone else like the Rockets rotation players. Ryen Russilo said Morey was famous for making "bad trade" proposal to other teams because he values his players so much (probably based on objective evidence).

It will take quite a bit for the Rockets to either trade away a rotation guy either (1) to get an incoming player, or (2) to reduce salary/tax burden if they get too much crap contract obligations.

I think out of the 9 continuing contracts, plus Scola and Lowry, the most expendable ones are probably Taylor (hasn't played much) and David Andersen (4th big now, likely 5th if Yao and Scola return).

The Rockets may start dumping salary if a "superstar trade" put them over the tax limit, starting with Taylor and Andersen, then perhaps Battier (makes the most, excellent player, not worth tax plus salary, though) or Scola (probably will get a good sized pay increase) to reduce tax burden. But again, this is a "superstar only" rule. I don't think they dump their guys for something a couple levels below that.

G. As BimaThug's Myth of 2010 FA thread indicates,the Rockets will have to renounce Lowry and Scola and/or trade away Battier for no continuing money this year in order to have any kind of meaningful "cap room" to straight up sign a star FA. It is probably not going to be a desirable option for Morey when you compare the speculative prospect of free agency bidding wars to the certainty of losing a productive player. So, for all intents and purposes, the Rockets will have only up to the MLE to spend on a Free Agent.

H. It is unlikely for Yao Ming to be giving up almost $17 million in guaranteed money next season to sign a smaller contract. Even if he does, I doubt the pay cut is going to be more than a few million dollars.

I. Given the foregoing, the Rockets have generally the following 4 main ways to spend money for next season to fill up at least 4 roster spots (NBA minimum roster size is 13):

1. Resign Scola and Lowry.

2. Sign a free agent up to the MLE ($5.5 mil?)

3. Take back continuing salary from a Tracy McGrady Trade (which can be as much as nearly $30 million)

4. Sign a rookie (I am assuming the pick won't be that high or that low and will cost $1.5 mil for first year).
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J. These 4 types of uses will have to add up to no more than approximately $23 million. There might be some wiggle room added without affecting the "core" guys if the Rockets managed to take no money back in an Andersen trade or convince Yao to take a small pay cut (rather unlikely, but possible).

K. I am assuming that Scola and Lowry will combine to take up about $10 million in salary next season. I think Scola takes an Andre Miller-type contract (average $7 mil, which can start at about $6.5 mil) and Lowry takes something similar to the Landry's current deal (starting at about $3 or $3.5 mil for 2-3 years). I think these are reasonable assumptions, but if you have better comparables, we can always change the numbers. I think the restricted status of both players, and Scola's age will somewhat depress their market value.

McGrady Tracde Implications:

So, based on the above, heres my take on what the Rockets has to give up to take back money in a McGrady trade to stay under the luxury tax threshold if they take back a certain amount of continuing money from the trade. To simply the cases, I am assuming the Rockets will make the 1st round pick, since it's cheap talent. I am further assuming that the MLE use is a all or nothing thing-- which of course it is not, but considering partial MLE makes things complicated and I am assuming most "partial MLE" signings are not all that exciting anyway:

1. If the Rockets take back $0 to approximately $6 million, the Rockets should be able to keep their continuing contracts, sign back Scola and Landry, sign a FA for up to the MLE and sign the not-too-high 1st round draft pick.

2. If the Rockets take back approximately $6 to $9.5 million in continuding contracts, the Rockets will have to give up Lowry, but can retain Scola, use the MLE and sign a 1st round pick.

3. If the Rockets take back approximately $9.5 mil to $11.5 Million, they have to either give up Scola or give up using the MLE, but can do one or the other and keep Lowry and sign a 1st round pick.

4. If the Rockets take back approximately $11.5 to $12.5 mil, they will have to give up Scola, but can use the MLE, bring back Lowry and sign a 1st round pick.

5. If the Rockets take back $12.5 to $15 Mil, they will need to give up Lowry and the use of the MLE, but can keep Scola and pay the 1st round pick.

6. If the Rockets take back $15 to $16 mil, they will need to give up Lowry and Scola, but can use the MLE and pay the 1st round pick.

7. If the Rockets take back $16-18 mil, they need to give up Scola, not use the MLE, but can keep Lowry and the 1st round pick.

8. If the Rockets take back $18-$21.5 mil, they have to give up Scola, Lowry, and the use of MLE, but can sign the 1st round pick.

9. If the Rockets take back $21.5 to $23 mil, they have to give up Scola, Lowry use of the MLE and signing of 1str round pick.

10. If the Rocket take back more than $23 Mil, they are pretty much paying the tax no matter what. ​

L. Some might propose that the Rockets trade Battier for expiring to create additional space. Then, just throw his $7.4 mil number into the scenario and treat him like another Scola or Lowry in calculating the "give up scale."

Conclusion and Prediction:

In any case, taking back salary in a McGrady trade means that the Rockets will have to give up existing talent, approximately in the order set forth above, in order to remain under the luxury tax limit. The "give up scale" should inform fans as to what the Rockets will likely require in return in order to take on increasing level of salary. While getting back up to $6 million in salary is essentially "pain free," any amount above that begins to require sacrifices.

As I stated in another thread, I think the Rockets will take back up to $6 million in salary (or whatever level ending up being essentially "pain free") for the fair consideration for that level of take back (see Maynor trade to dump Hapring's $7 mil insured deal). Taking back less than the "pain free threshold" appears to be a wasted opportunity to add assets. (Sidenote: BimaThug mentioned one thing they can do is to simply use McGrady to get under the tax for this season and use money saved to buy pick. I don't know if the Rockets wouldn't just buy picks anyway with or without the saving. They got money.). Taking back more than that begins to require that the Rockets make sacrifices.

If the Rockets take back more than the "pain free" threshold, I believe they will take back close to $11.5 million-- the amount that would allow them to retain Scola and Lowry, but not allow them to use the MLE. Whatever comes back for that $11.5 better be pretty good, though.

Anything beyond the $11.5 mil-- i.e. when Morey has to give up one of his players that he "overvalue" -- will be difficult because the value of the existing guys (Scola/Lowry) to the Rockets at RFA prices will need to be outweighed by the incoming player. Not sure if the other team would give up sufficient value from Morey's view, considering the sacrifices, to make a trade worthwhile.

 

I agree there can be more moves. But further moves are to be done from the state in which the Rockets will be in after the initial McGrady trade. So, the question for the moment is whether the Rocket are better off after a particular trade or now than they were before that trade.

For instance, the Dalembert + Igguodala for McGrady scenario has been kicked about a lot. Sure the Rockets can use a subsequent move to get rid of Dalembert's salary, but it's gonna cost them quite a bit in light of the facct that the team taking over Dalembert would know what he means on the pain scale for the Rockets (i.e. preventing Lowry/Scola return or costing huge amount of money). So, when you think about this deal, even if you think there can be later moves, the pain scale should still be considered. (And again, some say: why not trade Battier for expiring-- but that's again also giving up value. Some may not think it's a lot, but Morey certainly have acted like Battier has value and Adelman seems to play him a lot).

 

Please see my point after that.

A "special player" would be one whose value as a basketball player (and probably as a marketing tools, too) outweigh the combined salary, tax considerations, and crap contract take backs that the Rockets would have to pay for them. It is possible a "speical player" is not a superstar whose value is significantly more than the max salary, but there aren't many examples of "special players" outside of such superstars.

One that I can think of is may be someone who is locked into a rookie deal for multiple upcoming years (say, OJ Mayo or Eric Gordon) but whosse play is worth, say, $10 million. Then maybe you gladly pay something like $5 mil in tax consideration plus the rookie salary to get him. Otherwise, it's hard to justify the expenses.

 

I agree that if Scola agrees to take $6 mil instead of $6.5 mil, your scenario works. I just use the assumpiton that Scola will require $6.5 mil to sign as an easy placeholder to make the analysis.

All these numbers are approximate anyway, mostly my intention is to illustrate that, once you get past some point (the "pain free" threshhold) taking money back for TMac begins to require sacrifices of some kind... the exact point of each sacrifice, I am sure, is different than my simplified numbers above.

 

There really are two main assumptions. The rest are just details thrown in there as placeholders to make the analysis more simple. And I think the main assumptiosn make sense.

The main assumptions really are:

1. No luxury tax except for special player. This something that Morey and Alexander said many times and followed during the past years:

2. That the team considers Scola, Lowry (and Battier/other rotation guys) to of some significant value. Giving them up is not impossible, but they'd want value in return, probably significant value in return.

Otherwise, the numbers I put there are just for illustration purposes. I am not sayin the Rockets will or will not do a certain move and I am not come up with a formula that governs all trade transactions.

All I am trying to provide is a general framework for thinking about what taking back salary in a TMac Trade means.