The Warriors 2018 offseason preview Part III: The state of the salary cap

In the first two installments of this offseason preview I looked at the choices that lie before the Warriors over the coming weeks as they try to extend this dynasty.

Today I look at the salary cap implications of some of the decisions the Warriors face.

Below is a spreadsheet consisting of two potential estimates for the Warriors future salary cap over the next few years, assisted by Sham Sports magnificent ‘Capulator’.

The first sheet looks at what would happen if the Warriors’ ownership are prepared to pony up the dough. The second sheet is a more cap conscious projection but would still retain the four All Stars.

In both projections I have assumed the following:

• the Warriors sign Kevin Durant for the full amount allowed by the ‘early Bird’ rights they possess (the numbers would be the same for the 2+1 contract envisaged by Danny Leroux)
• Klay Thompson signs an extension this summer at a discount from what he could get in future years
• Patrick McCaw gets a modest contract of around $10m over three years
• Shaun Livingston’s final year is waived and stretched in the summer of 2019
• Jordan Bell receives the maximum contract they can give him next summer (it could be more if they have to match a ‘poison pill’ offer sheet or less if the market suppresses his value)
• As soon as the repeater tax hits the Warriors do not use the taxpayer mid level exception and limit themselves to veteran minimum contracts and draft picks
• Draymond Green signs for a maximum contract in 2020 (but not for the full designated veteran extension as discussed here)
• I’ve left a roster spot open in case the Warriors want to shell out for a second round pick, something they’ve been very happy to do in the past. This would add to the totals but not by a huge amount. (For reference the first year salary of a second round pick in 2017-18 was $815,615, and the second year is the same as a veteran minimum contract).

What’s the difference?

The biggest differences come next summer, when the retention of Andre Iguodala’s final year and a new contract for Kevon Looney around the level of the taxpayer mid level exception add $125m to the overall bill!

Indeed the addition of Looney’s contract has implications in year 3 as well, adding over $30m to a very large total as all four of the All Stars come on to bigger contracts. If Looney signs elsewhere this summer, then in the longer term the Warriors cap gets a little more manageable, though it comes at the cost of a valuable player.

It demonstrates something that may have played into the decision earlier this year - they can only really afford to pay two of Bell, Damian Jones, and Looney once they come off their rookie scale contracts. If they manage to retain Looney, then it may well be Jones who is on the clock.

I have previously posited that it is theoretically possible for the Warriors to dip under the tax line next summer, which would postpone the repeater tax until the 2021/22 season. This would be huge, but it requires Durant to take a discount and the market to squeeze down the values of Bell and McCaw. It remains very unlikely to actually happen in practice, but it is worth keeping an eye on the number Durant re-signs for with that in mind.

The Warriors have a lot of income coming in

The NBA is a star driven league. Ultimately if you have four All Stars in their prime, you will be a contending team. Much of the commentary on the Warriors’ future rests on the premise that the finances may break up that core.

However, these projections show that is not necessarily the case. Sure it becomes more expensive, and they would face another year costing likely even more in 21/22 until Stephen Curry’s mega deal comes off the books, but these numbers are not prohibitive when you consider the following:

• The Warriors have reportedly grossed over $350m off their playoff games alone in the last three years. Even accounting for the fact they only receive a third of that, they have still brought in more than $100m. All those five game series look a little better now!
• The Chase Center is going to increase their income massively (how much is yet to be seen but it will be significant)
• Personal Seat Licenses are slated to bring in a lump sum of $300m just at the time the bills get largest, and will effectively function like an interest free loan over 30 years
• They are due a new TV deal in the next few years that will likely reach levels only seen in the biggest markets of New York and Los Angeles
• They are among the earliest investors in innovative ventures such as e-sports, have engineered a significant spike in digital revenues, and have benefited from the largest of the new jersey sponsorship deals with Rakuten.
• As a result of all this, the franchise value has skyrocketed from the $450m the ownership group led by Joe Lacob and Peter Guber paid for in 2010 to $3.1bn in February 2018.
• The new leaguewide TV deal has inflated the amount of money going into the league - which will in turn inflate the money paid out by teams for salaries and taxes.

Make no mistake about it, this is a business model that is predicated on continued success. We’ll see how this plays out over the next couple of years, but as I’ve said before the biggest single determinant in whether ownership is willing to continue paying for this dynasty is likely to be whether or not the core can continue to compete for championships.

What about ‘Strength in Numbers’?

The much more interesting question is what these skyrocketing tax bills do to the supporting cast. The reality is that while costs can be controlled somewhat, these projections show that there is a big difference in going for the All Stars plus minimum contracts and draft picks route, versus the ‘Strength in Numbers’ approach.

A strong supporting cast has been so much part of the Warriors’ identity that they will need to continue to find veterans willing to take a discount like David West and rookies who can contribute like Patrick McCaw, Kevon Looney, and Jordan Bell.

The good news is that they have all their first round picks going forward. As an aside, those picks aren’t just valuable as a way of adding cheap, young talent. Students of NBA history will note that the Spurs managed to extend their window by trading George Hill, who they originally selected late in the first round, for Kawhi Leonard.

We will get a mini-preview this offseason into just how much ownership is willing to fork out for the supporting cast - if they use the taxpayer mid level exception, that’s about a $25m difference in the total bill.

Obviously the offers McCaw attracts will also have implications on the tax bill in future years, so it will be interesting to see how the front office handles that if it is significantly higher than expected.

Next year the numbers grow even more as they enter the repeater tax. If they keep hold of Iguodala for his final year, that will be as sure a sign as any that they are willing to pay what it takes to put the strongest possible team on the floor.

Is this the end?

Ultimately we won’t know for some time how far this thing can go. But those acting like it is inevitable this dynasty is destroyed by the financial cost in a couple of years should bear in mind Joe Lacob’s recent comments when the Athletic’s Tim Kawakami dared to mention that this might end one day:

I don’t think so, honestly, I do not. And I tell Bob every day, our job is not to let it end. It may change, just like we changed when we added Kevin and (let go of) some really good players that won the championship in ’15...

I understand that there’s change. What I’d love for us to be able to do is have a Spurs-like 20-year run of being very consistently good and competing for championships, and that’s my job.