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How are the Cavaliers Spending So Much Money?

David Richard/USA TODAY Sports

The Cleveland Cavaliers are spending money like the U.S. government, and it has people asking me, “How are they allowed to do all this? Is it legal?” The simple answer is “Yes, it’s legal, but it’s not without penalty.”  The details are a little more complicated.

Let’s start at the beginning. The Cavaliers started the offseason with six players under contract. Here’s how much they’re making:

Table 1
Cleveland had the Bird rights to all of its free agents except LeBron James, meaning they could give each up to a max contract for four years.  Even though they didn’t all spend their entire career with Cleveland, they weren’t waived, and they had all been under the same contract for at least three years, which is the minimum to qualify for Early Bird rights. Also, they had rights to certain players: LeBron James, Tristan Thompson, Kevin Love, Matthew Dellavedova, Iman Shumpert and J.R. Smith. While each player met various exceptions, they all had “exceptions.” And the first thing fans need to understand is that an exception is called an exception because it allows a team an exception to the cap.

Ergo, even though it ballooned Cleveland well over the cap, there’s absolutely no problem with the rules. It’s just extremely rare to have that many players have their contract up for renewal at the same time.

So Love agreed to a five-year, $110 million deal.

Thompson reportedly agreed on a five-year, $80 million deal, though, that’s been held up for some reason.

And Shumpert agreed to a four-year, $40 million contract.

We don’t know the exact figures for the first year of these deals, but we can estimate. This is what the Cavaliers’ salary situation looks like, assuming that the Thompson deal gets ironed out:

table 2

So, they’re now over the cap, over the tax and even over the apron.

That’s including Dellavedova, who, per Shams Charania of RealGM.com, is negotiating a deal for between $3 and $5 million. Add in the conservative side of that and the Cavs are over $93 million.

They still only have nine players and James isn’t included in the salaries, yet. And a lot of people wonder, “How are they able to afford him?”

The CBA also includes “non-Bird” free agent rights. Per Larry Coon’s CBA FAQ:

This exception allows a team to re-sign its own free agent to a salary starting at up to 120% of his salary in the previous season (not over the maximum salary, of course), 120% of the minimum salary, or the amount needed to tender a qualifying offer (if the player is a restricted free agent — see question number 44), whichever is greater. Raises are limited to 4.5% of the salary in the first year of the contract, and contracts are limited to four seasons when this exception is used.

For James, the maximum salary is $21,676,620.

When we factor in those salaries, here’s what the cap situation looks like:

table 3

As you can see, now we’re getting close to $115 million, and there’s still absolutely nothing illegal. Well, almost nothing anyway. The Cavaliers still don’t have a minimum roster! It’s only 11 players:

So, when people start wondering, “How can they go after David West,” that’s how. And the one thing you’ll notice is that they haven’t used their mid-level exception yet. Being as they’re poking $30 million over the tax level now, that means they’re only going to be able to use the taxpayer mid-level exception, which is $3.376 million this year.

But what’s this noise about Joe Johnson? Aren’t we just getting silly now? Yes, we’re getting silly, but we’re still legal. If the Cavaliers send the Brooklyn Nets Anderson Varejao and Brendan Haywood, they can take back Johnson’s nearly $25 million contract.

However, in doing so, they would forfeit a roster spot, meaning they’d have to add yet another veteran. Assuming about $1 million for each of the two veterans the Cavs would need to add, this is what their salaries would look like after West and Johnson:

table 4
That would put them roughly $40 million over the cap. And that’s where we get into the penalty aspect of things. Remember that the tax is increasingly punitive. The further a team goes over, the heavier the tax rate gets. If the Cavs spend about $125 million and the tax starts at around $85 million, this is how their tax bill would look:

table 5

Combined, that would put the total taxes and salaries for the Cavaliers at $259 million.

Read that number again.

That’s over a quarter of a billion dollars!!! So, to say that it’s without penalty is a bit short-sighted.

And remember that’s just one season. Over the next three years, Cavaliers owner Dan Gilbert is likely to part with well over half a billion. And while the roster is certainly enough to make the Cavs one of the favorites to win the title, it’s not a guarantee.

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