Reaction to the reaction (part 2)

Apologies in advance, this is a particularly long post.

In addition to what is a minor difference of opinion about the team’s motives for this trade, I have a more significant difference with M’s interpretation of the long-term financial ramifications. His argument for why we shouldn’t worry about Szczerbiak’s contract is as follows:

Now let's get to the money, because in the end, it's all about the money to some degree.

So what you've primarily done is shorten the length of one of your unsavory contracts. In essence, you pay $6m more one year, and save $8m the next. If the issue is re-signing your young players, I say that doesn't make a huge difference in 2008/9, but it makes an enormous difference in 2009/10. Why, you may ask?

It just so happens that LaFrentz's and Wally's contracts are both up the same year -- at the end of the 2008/9 season. Pierce's expires the year prior. Depending on how the youngsters develop and what the Celtics decide to do, they actually have a lot of options heading into the 2007/8 and 2008/9 season, and a lot more than if they had kept Blount and his $8m deal. Should they decide to deal Pierce, they could acquire young players and expiring contracts, and use the saved money to pay the young guys. (Most of the young guys have team options through 2007/8 and qualifying offers in 2008/9; Perkins is the notable exception, with his options coming up one year prior.) Alternately, they could choose to sign their young players and keep Pierce, and simply let Wally and LaFrentz go at the end of the 2008/9 season. That would put them over the cap and probably into luxury territory for one season before taking $26 million off the books in 2009/10. Or they could do none of the above and continue to overhaul and tweak the roster with trades, etc., as they go along.

I’m afraid that I don’t see the ‘sign the young players and let Wally and Raef walk’ option as nearly as easy or likely as M. does. Indeed, I think it is much more likely that Wally and Raef’s contracts, should the team re-sign Pierce to an extension, will force the team to get rid of some or most of the young talent that currently has Celtics fans optimistic.

In part this is because I think that in this passage M. misses an important implication of the way that the end of rookie deals are structured. Each of the young players we need to resign (Perkins, Jefferson, etc.) have contracts that include a ‘qualifying offer’ before their final year. This means that at the start of the final year of those deals the players are restricted free agents. They can sign the qualifying offer, play out the year, and become unrestricted free agents. They can sign a new contract with their original team. They can also sign a similar offer with a new team that their original team has the right to match. As an aside, Ricky Davis' current contract is one that he originally signed with Minnesota as such a restricted free agent. Cleveland decided to match, later traded him to Boston, and now the Timberwolves have finally got their man.

In general, teams need to be prepared to resign players that are any good (as we hope all of our young talent will be) the summer they become restricted free agents. Otherwise a team that is significantly under the salary cap, like Atlanta did with Joe Johnson, will be tempted/likely to poach them. Players that aren't any good, of course, aren't nearly the risk to jump ship. But then if our youth doesn't turn into good players we have all kinds of other problems.

The upshot of this is that our young talent, assuming they turn out to be any good and assuming we don’t trade them in the meantime, will all need to be resigned to expensive, long-term contracts a year earlier that M. suggests. This is a problem.

I apologize that this will take a while, but here’s why:

The salary cap itself doesn't really matter here. The Celtics are over it, like most other teams. They will stay over it. This gives them the right to sign one mid-level free agent (currently ~$6M/year) each off season as well as a few league minimum (~$2M) end-of-bench types, should they want.

The real limit on the Celtics payroll has been the luxury tax cap, which is currently ~$60M. Teams above this cap pay the league dollar-for-dollar for the value of their payroll in excess of the cap. This can get very expensive for owners very quickly. Some owners (Mark Cuban, James Dolan) have historically been happy to pay the luxury tax. The current Celtics owners have not. In effect, Danny Ainge operates with a hard limit on team payroll that is currently about $60M.

The luxury tax is calculated by formula as a derivation of league revenues, which have been generally flat over the last few years. Even assuming the cap grows with inflation (and some expect it to actually decrease by $2M this next season) it's reasonable to expect that in 3-4 years Ainge will continue to have a hard cap of $60-65M in team payroll. For the sake of this discussion let's say it's $65M. [Aside: Those who are interested in learning more should consult the ‘Salary cap FAQ’ among the links to the right. It is an incredibly helpful source for these things.]

Three years from now Raef LaFrentz and Wally Szczerbiak will make a combined ~$26M. Paul Pierce (assuming he stays with the team) will need to be resigned to a new contract that would presumably start somewhere north of the $16M that is his player option in 07/08. If we assume Pierce is paid roughly ~18M in three years that would put payroll commitments to those three players at $44M, or two-thirds of the team's total permissible payroll.

The problem comes when we start to contemplate resigning our current youth.

- Kendrick Perkins, if he continues to progress the way he has over the last 18 months may well command a $10M+/year contract when he becomes a restricted free agent at the end of next season. Given the rarity of young talented centers in the league there will certainly be teams willing to sign him for that.
- Al Jefferson, Delonte West and Tony Allen will all need to be resigned in two and half years. If West and Allen make average starters money they may well be paid $7-9M/year. Depending on how Jefferson progresses it's not out of the question to imagine him commanding a $10-15M/year deal.

Taking the averages of these ranges it's not hard to imagine the total salary necessary to hold on to these 7 players totaling between $80-85M in three seasons. While Wally and Raef's expiring contracts may become attractive trading chits in the final months of those deals, that won't happen until 6-18 months after the team needs to resign its current young talent.

This $85M payroll would only cover 7 players, and not include possibly another ~$10M for the remaining rookie deals and end-of-bench players on the roster. Retaining all our youth, then, may require the owners to pay ~$30M in luxury taxes, straight out of their pockets. Pause on that for a second. $30M more in taxes for one season. That's a very steep bill to pay. Once Raef and Wally’s deals end payroll would drop to ~$55-60M, which should be below the luxury tax cap again. Except then there will be the pesky matter of Gerald Green hitting free agency.

We have heard Doc Rivers and Danny Ainge say in the past that they believe that the ownership group will be willing to open the checkbook when the time comes. Whether or not this is true there is no question that they haven't shown any willingness to do this to date.

If they're not willing to pay the luxury tax in the future, or some miracle does not relieve us of Raef's or Wally's contracts in 2-3 years, and the team is serious about retaining Pierce.....

Well, with this trade the team may well have kissed some if not most of Perkins/Jefferson/West/Allen/Green good-bye.