The Thunder is adding Caron Butler, which to most of us means our favorite roster has added a veteran sharpshooter with plenty of NBA experience. But it also means a lot financially. How much did it cost the Thunder? What does that mean for the luxury tax and future implications?
Fortunately, we have Jon Hamm to help explain. Hamm is our resident Thunder financial expert. He’s contributed to Larry Coon’s website on the NBA’s collective bargaining agreement and often chips in with valuable information and insight on the financial side of the Thunder’s quest for a championship. You can follow Hamm on Twitter @JonMHamm.
When news broke today about Butler, Hamm sent me this essay:
“According to reports, the Thunder has apparently won Caron Butler’s services for the remainder of the season. Finances just might have steered him toward Oklahoma City and away from Miami.
“Every season there is a period of time between the trade deadline and March 1 where many NBA players accept buyouts in order to become free agents. Often this happens with veteran players on lousy teams that want to join a playoff team or a title contender. In the case of a buyout, a player and the team get together and mutually agree to reduce or eliminate the remaining guaranteed salary remaining on a contract. Once an agreement has been reached, the player is placed on waivers. Assuming the player clears waivers, which is by far the most common scenario, the player is then free to sign with another team. The player often signs a new contract for the pro-rated veteran’s minimum. For example, back in the 2008-09 season Oklahoma City agreed to a buyout with Joe Smith in order to free him up to join Cleveland.
“Seems appropriate to mention this since we’re re-living that season thanks to three straight home losses.
“This is usually a win for all parties. The lousy team saves a few dollars on payroll and opens up playing time for a prospect. The player gets to join the team of his choosing. And a playoff team adds a potential impact player for minimal cost. If the contract is for the pro-rated veteran’s minimum, the cost is often under $400,000 for the rest of the season.
“But teams aren’t limited to offering just the veteran’s minimum to the freshly released. They can offer more if they have the means to do so. Some teams may have all or part of a Mid-Level Exception on hand. This exception is granted every year to teams that are over the salary cap in order to sign free agents. Teams aren’t required to spend it, but it does begin to pro-rate in value starting on Jan. 10.
“The best example of this happened two years ago. Derek Fisher and the Rockets agreed to a buyout after he was acquired from the Lakers. Oklahoma City wanted him badly enough that they offered Fisher the remainder of their Mid-Level Exception in order to entice him to join the team. Fisher wound up getting around $2.3 million from the Thunder for the final 20 games of that season.
“All of this brings us back to the subject of Butler, who was waived by the Bucks yesterday. According to reports, the Heat and Thunder were battling each other to secure his services. Miami was seen as the favorite in this derby. Not only are there more beachfront views in Miami than Oklahoma City, but Butler has ties to the organization. He was drafted by the Heat in 2002 and spent his first two seasons in South Beach. It’s said that he is close with both Dwyane Wade and Udonis Haslem, the only two players remaining from his stint with the organization.
“But the Heat are in a financial straightjacket. They are over the luxury tax line by more than $10 million. Each dollar they would have paid Butler would cost them $2.50 in luxury tax. Spending $350,000 on Butler would have cost Miami almost $1 million in additional luxury tax. Miami may have agreed to do this anyway, but the decision would have been costly.
“That’s where Oklahoma City had an advantage. The Thunder maneuvered themselves about $2.3 million under the luxury tax line when they traded Ryan Gomes to Boston back in January. Signing Butler to a pro-rated minimum salary deal would cost them no additional money. But because they still had their Mid-Level Exception available, it’s possible Oklahoma City offered some or all of that to Butler, much like they did with Fisher two years ago.”