Financial implications of the Pierce/Garnett deal

It’s been a long couple of days.  We’re emotionally spent.  Paul Pierce and Kevin Garnett are no longer going to be Celtics and there’s definitely a lot of sadness attached to that.

But I’m going to save the retrospectives for later.  Right now, I’m going to attempt to break this trade down to show you what it means for the Celtics financially.

Outgoing salaries:

Notes:  $6 million of Kevin Garnett’s salary in 2014-15 is guaranteed

Incoming Salaries 

Notes:

Marshon Brooks 2014-15 salary is a team option.
Marshon Brooks 2015-16 salary is a qualifying offer
Keith Bogans 2014-15 and 2015-16 salaries are likely to be unguaranteed
Kris Joseph’s 2013-14 salary is unguaranteed

The Celtics exact outgoing salary is $32,992,069.  But because Jason Terry has a 7.5% trade kicker, the money being calculated in this deal is $33,392,382.  The Celtics will have to pay Jason Terry $800,625 but the hit on the Nets is spread out over two years… hence the $400,000 bump in the outgoing calculation.

Because they are trading with a tax paying team, the Nets can only take back 125% plus $100,000 of their outgoing salaries. 

This is where I’ll turn it over to Eric Pincus of Hoopsworld:

Brooklyn is short by $2,529,069.  Their total outgoing salary is $26,633,906 (which, when padded by 125 percent plus $100,000, is $33,392,383).

Bogans can be sent by Brooklyn via sign-and-trade to bridge that gap, which is why the trade has to wait until July.  Because Bogans made just $1.2 million last season, any raise greater than 120 percent triggers the base year compensation rule.  Whatever the Nets pay him, only 50 percent is credited as outgoing salary.

To get to the additional $2,529,069 required to make the deal work, Bogans needs to be compensated at least $5,058,138.  He’ll also get a three-year deal to conform to sign-and-trade rules, but the last two seasons are unlikely to have any guaranteed money.

Since Bogans just finished his second-straight year with the Nets, the team has his Early Bird Rights.  The team can pay him up to the league average salary next season (approximately $5.3 million).

A league executive, unable to comment publicly on the proposed trade, confirmed that Bogans will indeed earn about $5 million to make the blockbuster go through.

That’s a lot of numbers.  Let’s take a look at what this means year-to-year before any subsequent moves are made

In 2014

Let’s keep in mind that the tax line is projected to be $71.6 million.

If the Celtics remain under the tax, they will RECEIVE a payout from the tax paying teams.  The Nets are going to be, perhaps, the biggest of them all.  With this new money coming in their tax bill will be north of $56 million dollars, and that’s BEFORE they add any new players.

That’s correct.  Fifty Six million dollars in taxes alone.

The Celtics, if they remain a non-tax paying team next year, would get a cut of that.  A few other teams will cross the tax threshold (Miami will pay somewhere around $28 mil. in taxes as currently constituted).  So assuming the C’s are one of, say, 26 teams getting a payout, they’ll get about $3.2 million in tax payouts just from the Nets and Heat… and we haven’t even factored in what the Lakers will pay.

There’s also the little matter of the non-guaranteed guys: Kris Joseph, DJ White, Terrence Williams, and Shavlik Randolph.  With all the non-guaranteed money, the Celtics salary is at $72,190,604, which is over the tax line.  With out them, it’s $68,319,459 (numbers via Hoopsworld)

If you care to, we can factor in what the new head coach will make… let’s assume Jay Larranga gets the gig and gets $2 million a year.  That’s probably high, but screw it, it’s a round number and I’d rather skew higher than lower on this.

Here are the real financial savings for the year 2014 as of right now:

Salary:   $7.7 million without non-guaranteed contracts.  $3.8 million with non-guaranteed contracts
Tax: $4.4 million (what they would have paid had they kept Pierce and if they’re under tax line).  $3.5 million (with the taxes paid if non-guaranteed deals are included)
Coach salary: $5 million (approximate guess)
Taxes received: $3.2 million (at LEAST… if they remain under the tax line)

If the Celtics get under the tax line, their actual savings (consider it money that Wyc and the fellas pocket) is somewhere north of $20 million dollars. If they guaranteed contracts and paid a tax, it would be $12.3 million or so.

I find it hard to believe the Celtics will be a taxpayer.  They have no reason to pay taxes for this team.  Expect non-guaranteed guys to get moved.  I wouldn’t be shocked to see them make subsequent moves to further shed salary.

As Eric Pincus explains in that link above, the C’s could technically turn this into 3 separate trades and create a $7.3 million trade exception that is good for a year.  That could prove useful down the line.  I highly recommend reading that Pincus article.

2015-and-beyond

This is where we get into some dicey territory as far as money savings goes.  If the Celtics decided to waive Kevin Garnett and pay him $6 million, then they’d be on the hook for about $11 million or so with that and Terry’s deal on the books.  Next summer, the Celtics could choose to waive Bogans (assuming he’s fully non-guaranteed) and decline the team option on Marshon Brooks, thus saving themselves about a million dollars versus the non-trade scenario.

Obviously you could pretend that they’d guarantee KG and say they’d save $7 million, or you could pretend KG retired, filed papers, left that entire salary on the table.  In that scenario, the C’s would be about $5 million in the hole after the trade.

The 2016 numbers are so far off that it’s not really worth calculating.  Obviously, you can see the Celtics would have neither KG or Terry on the books at that point, but they now would, potentially, have at least $13.3 million (or $18.3 million if Bogans survives that long).  But a lot is going to happen between now and then.

In the end, the Celtics could save themselves some BIG money… and that’s even with making Keith Bogans the luckiest man of the Summer of ’13.   Their final non-player haul is:

• A potential net gain of at least $20 million
• First round draft picks in 2014, 2016, and 2018.
• A potential $7.3 million trade exception

A few final notes:

• That trade exception has to be used within a year or it expires.
• Atlanta has the right to swap picks in 2014 due to a stipulation in the Joe Johnson trade.  If Atlanta’s pick is worse than Brooklyn’s, they can switch places.
• The Celtics have a similar provision in 2017.  If the Nets have a better pick than Boston in 2017, the Celtics can switch places with them.
• The 2016 and 2018 picks are unprotected.  If the Nets implode and get the number 1 pick in each of those drafts, they’ll belong to the Celtics.
• No, sorry everyone who asked, but you cannot use the Amnesty Provision on Gerald Wallace.  Only guys under their current contracts with their current teams during the lockout are eligible.  That leaves Rondo and Bradley as the only possibilities in Boston, so don’t expect the Celtics to use it… ever.
• No, the savings do not allow the Celtics to pursue a free agent.  They’re still well over the cap.  They could turn the trade exception into something via sign-and-trade, but they don’t have any free money to pursue Al Jefferson or Josh Smith.