NBA Roundtable

2010 Tax Concerns: New Orleans Hornets

In Free Agency, General NBA, Trade Talk on April 21, 2010 at 8:19 am

New Orleans Hornets Salaries

Contracts Above $5 Million

  • Chris Paul – $14.94 million
  • Peja Stojakovic – $14.26 million
  • Emeka Okafor – $11.79 million
  • David West – $8.29 million
  • James Posey – $6.48 million
  • Morris Peterson – $6.2 million

A sub-total of $61.96 million for six players. Peja Stojakovic and Morris Peterson are expiring contracts. David West and James Posey have two more years on their deals. West has a player option before his final year and may choose to opt out. Chris Paul and Emeka Okafor have three and four years remaining on their contracts respectively with both players holding player options on their final seasons.

Rest Of Team’s Salaries

  • Darius Songaila – $4.82 million
  • Julian Wright – $2.86 million
  • Darren Collison – $1.36 million
  • Marcus Thornton – $760k

A sub-total of $9.8 million for four players. Songaila and Wright are both in the final year of their respective contracts. Collison is on a rookie scale contract and Marcus Thornton also has an expiring contract (restricted free agent — Gilbert Arenas provision).

Other Costs

  • Draft Pick — The Hornets own a low lottery pick, the #11 selection, which comes with a cap hold of around $1.72 million.
  • Minimum Roster Size — League mandates say that a team must have a minimum of 13 bodies on their roster. That means the Hornets will need to sign at least two more players which will come at a cost of about $1.7 million.

A sub-total of $3.42 million.

Which gives us an overall total of $75.18 million.

Luxury Tax Threshold

David Stern recently announced

NBA commissioner David Stern said on Friday that the league is projecting the cap to come in at about $56.1 million. The actual number won’t be determined until early July, before teams can begin officially signing players.

Though that figure would still be lower than this season’s $57.7 million cap, it’s far better than estimates from last summer, when the league sent a memo to teams warning them of a potential sharp drop to between $50.4 million to $53.6 million.

The luxury tax threshold for a $56.1 million cap is $68 million.

Hornets vs Luxury Tax Line

That puts the Hornets over the luxury tax threshold hold by $7.18 million.

Summer Options

Darius Songaila

Quick word on Songaila — this is why it was stupid for the Hornets to give up an expiring contract for Songaila when he had two years left on his deal. Songaila simply isn’t talented enough to make up the cost of this trade. The added year of high luxury tax pressures was too much.

A decent player? Yes. A $5 million player? No.

The Hornets still have problems with their backup big men despite adding Songaila and taking on this financial burden.

Cutting Costs

Their management team has already shown themselves to be quite resourceful in coming up with ways to cut salary as we saw over the past 12 months.

So, I would be optimistic about them continuing to find good solutions to their problems without resorting to trading away their best players in a salary dump.

A few ideas

  • Trading Julian Wright to a team below the cap or to a team with a trade exception. He is a very good defensive player with excellent defensive versatility, a good rebounder, an excellent cutter and decent all-round offensive player. He is a very valuable role player. However, Wright simply hasn’t panned out in New Orleans and doesn’t add much value to the Hornets. They should consider trading him in a salary dump.
    • Wright is a more talented version Trevor Ariza when Ariza joined the Lakers a few years ago.
  • No other small contracts. They would have to sacrifice an asset to move Peterson or Songaila without taking another contract back. Given their current lottery status, that is too big a risk to take in terms of future draft picks. I think Thornton has too much value for that too. No other direct cost cutting options.

The Hornets would be best off riding this out and keeping their talent.

Trading Time

  • Darren Collison is going to be used as the principal incentive and headline player in a trade proposal.
  • The Hornets have plenty of expiring contracts (Peja, Mo Pete, Songaila) to use alongside Collison.
  • They also have young talent in the form of their lottery pick + Thornton should they need to sweeten the package further.
  • And, finally, they have David West. A player with a big reputation and well priced contract.

There are a number of different trade proposals that New Orleans can make out of these collection of assets.

The Hornets should be able to find a very impressive influx of talent to complement Chris Paul by utilizing these assets well. In doing so, they should create a bright future in New Orleans and get back into the playoffs.

A trade here is also New Orleans’ best shot at lowering their tax bill.

Free Agency

The Hornets are unlikely to spend their MLE. They are just starting to get out from underneath all those bad contracts, a lot of which were midlevel type deals, and they will be wary or risking their new found cap flexibility.

They are too far over the luxury tax line + too far away from a title to make it worthwhile to spend further dollars.

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