David West Declines Option: The Salary Cap Ramifications

Coming into the summer, whether or not David West and/or Roy Hibbert would exercise their player options was a question to which everyone assumed they knew the answer. The two players sending in the memo necessary to allow them to collect a combined $28 million seemed a foregone conclusion.

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With Candace Buckner‘s report that David West will be declining his player option for this year, the Pacer off season has taken a hard left turn.

West’s option would have paid him $12.6 million in the upcoming 2015-2016 season. The technical cap mechanics would actually increase his hit on the Pacer cap from $12.6 million to an $18.0 million cap hold. (See Larry Coon’s CBA FAQ for an explanation of cap holds.) However, that’s something of a paper exercise, and only matters if the Pacers wish to retain West’s Bird rights – read: re-sign West. In that case, this move is unlikely to make any meaningful difference to the Pacer cap situation. If, however, the relationship between West and the Pacers is over, then a stroke of a pen (or a click of a mouse) will remove West entirely from the Pacer cap.

Still, that doesn’t mean Indiana has $12.6 million of found money to spend as they please.

As of today, the Pacers have $36.0 million in guaranteed contracts on six players – Paul George, George Hill, C.J. Miles, Ian Mahinmi, Solomon Hill, and Damo Rudez – and another $15.5 million pending related to Roy Hibbert’s player option. Combined, that puts them at $51.5 million. The most recent projection I have for the 2015-16 Salary Cap is $67.1 million, and those seven contracts put the Pacers more that $15.5 million below that.

But…not really. The CBA, being a legal document, has a ton of rules – cap holds, roster requirements, etc – and those things have to be accounted for before getting the full picture.

On top of the $51.5 million, there will be a hold for the Pacers first round pick at the rookie scale. For the #11 this year, that is just under $2.0 million. Additionally, teams with fewer than 12 players (under contract, free agents hitting their salary, first round picks, or offer sheets) are subject to an Incomplete Roster Charge equal to the minimum contract (third year player) for each open slot. In this scenario, the Pacers would incur $3.8 million in charges. (This charge could be lowered by as much as $0.5 million by signing Shayne Whittington to the second year minimum and their second round pick to the rookie minimum.) All in all, that puts the Pacers at just under $57.3 million in cap hit.

But, wait…there are more caveats.

As noted above, David West would create a cap hold – no matter how temporary – by becoming a free agent. This is true of the other Pacer free agents this summer. As I type this, the Pacers have just over $19.9 million in cap holds on Luis Scola, Chris Copeland, C.J. Watson, Shayne Whittington, Donald Sloan, Rodney Stuckey, and Lavoy Allen.

Once again, most of these issues are easily solved. Whittington can be quickly and easily re-signed and fit into the $57.3 million above. The holds for Sloan, Stuckey, and Allen are all at the minimum, so they are interchangeable with the roster charges in the $57.3 million. Renouncing Copeland ($4.1 million) and Watson ($2.7 million) – virtual certainties – clears $6.8 million. Finally, renouncing the $9.3 million tied to Scola would still leave the Pacers able to re-sign the veteran forward using either a Minimum Player exception or the “Room” Exception (up to $2.8 million).

By jumping through all those hoops and performing all of those gyrations, the best case scenario – payroll wise – is for the Pacers to be about $10.0 million below the cap.

By jumping through all those hoops and performing all of those gyrations, the best case scenario – payroll wise – is for the Pacers to be about $10.0 million below the cap. Had both West and Hibbert picked up their options, the Pacers would have been above the cap, but still had their Non-Taxpayer Mid-Level Exception ($5.5 million) and their Bi-Annual Exception ($2.1 million). Those two exceptions are lost, once you drop below the cap, and potentially replaced with the $2.8 million Room Exception.

However, the benefit lies more in the flexibility offered than in the gross dollars. Having cap room, instead of an exception allows the Pacers to pursue players with higher starting salaries. It also can be used in unbalanced trades – taking back far more money than you send out. What the Pacers get in this situation is more options.

But the options are not limitless. David West’s departure makes pursuit of Monta Ellis or another higher-priced free agent a more realistic alternative, but at a cost. First, of course, is that you lose the services of David West, and those will have to be replaced in some manner.

From a cap management perspective, signing a higher-priced free agent or making a salary-absorbing trade may mean the Pacers will also have to make hard decisions on other players they may want. For example, if the Pacers want to keep Rodney Stuckey at a price higher than the Room Exception, they’ll have to use part – maybe as much as half – of that $10 million to do it.

At the end of the day, David West walking away from his $12.6 million option could give the Pacers just enough wiggle room to do a difference-making deal. More likely, though, it won’t create enough altitude for Bird and his team to do anything breathtaking.

If Hibbert follows West, however, it will be a brave new world.

Next: REPORT: David West Opts Out of Contract

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