Kidd retires with two years left on his contract with the Knicks. He was due $3.09 million from the Knicks for both the 2013-14 season and 2014-15 season, respectively.
According to Marc Berman of the New York Post, Kidd agreed to forgo his remaining salary and as a result, the Knicks can wipe the $3.09 million due to him for each of the next two seasons off of their books.
That was not a forgone conclusion, though, as many media accounts have incorrectly intimated that a retiring player’s salary automatically comes off of his team’s books. That is simply not true.
Herein lies a thorough explanation of how a retiring player’s salary is treated, and more importantly, how Kidd’s retiring and forgoing of his salary affects the Knicks salary cap situation.
The most immediate answer is “not very much.”
But as always, the Devil is in the details.
Quid Pro Quo
The relationship between an NBA player and his team is quid pro quo. The player agrees to render himself and his body for the benefit of the team. The team is allowed to exploit the player’s talents, require him to make himself physically available for certain activities, and perform when requested to.
So, although the player’s salary is fully guaranteed, it’s not as though a retiring player can simply sign a three-year deal with a team, play one year and then say “Ah, I don’t want to play anymore, but I still want my money.”
Unless a player suffers a career ending injury, in a way, he needs the blessing of his team in order to enjoy a peaceful retirement that results in him getting paid. Why? Because if his team objects to his retirement, it can make a complaint with the league and do all in its power to force the player to continue to perform under the terms of the contract.
Again, the relationship is a quid pro quo one, so when a player decides he wants to retire, he and his team need to come to an agreement as to how the remaining years and money due to him will be settled. Typically, a retiring player agrees to take less money than he is guaranteed, and in exchange, he gets his freedom, so long as the team agrees to not contest his retirement. His team would not contest his retirement only if they are satisfied that the player is making a suitable financial concession to them.
Technically, when a player retires from the NBA, he and his team negotiate a buyout and the player is then waived.
Kidd’s Remaining Guarantee
As it relates specifically to Kidd, he had two fully guaranteed years remaining on his deal with the Knicks and simply retiring does not give the Knicks any relief from the salary owed to him.
The two parties (Kidd and the Knicks) needed to come to an agreement. In this case, it was easy because Kidd decided to forgo the money.
As a result, the Knicks can wipe Kidd’s $3.09 million off of their cap figure for the next two years.
But in case the Knicks eventually find themselves in a similar predicament with another player in the future, let’s explain how this usually works since, again, a player agreeing to forgo his remaining salary is not the norm.
Under normal circumstances, a retiring player who has years and salary left would negotiate a buyout with his team and then the retiring player would be formally waived.
To Stretch or Not to Stretch
Under previous CBAs, teams were allowed to negotiate revised payment schedules with players and were even permitted to give a player a lump sum. That is no longer the case. Under the 2011 CBA, a waived player (and a player who retires gets treated like a waived player) will not have the authority to negotiate a revised payment schedule. The money due to him will be paid out equally to him over a period of time that is two times longer than the amount of years he has left on his contract, plus one year.
In other words, a player who is waived (or, in this case, one who retires and is then waived) with one year left on his deal will be paid his salary over three years. Two years left? Paid over five years. Three years… Seven years.
As for Kidd, his remaining salary (whether it was the $6.18 million he was due or an amount less) would be paid to him equally over the next five years since he had two years left.
The money that the Knicks would have paid Kidd would have counted against their cap, but they may have chosen whether it counts over the next two years—as originally called for in the contract—or whether they want the cap hit to be “stretched” over the next five.
That’s the “stretch provision” that everyone has been talking about. A team may waive and stretch the remaining salary due to any player who signed with their team after July 1, 2011.
If the Knicks elected to stretch the remaining money that they theoretically paid Kidd, then they would have gotten some immediate—though minuscule—cap relief. Instead of having Kidd’s $3.09 million count on their payroll for the next two seasons, the Knicks—if they stretched the cap hits—could have just $1.24 million counted against them for Kidd, but over the next five.
If the Knicks agreed to give Kidd the entire $6.18 million and opted to stretch, the net result would be a $1.85 million saving on their 2013-14 payroll. That is the difference between what Kidd is owed ($3.09 million) and what the amount would be if they paid him and if they stretched ($1.24 million).
If Kidd agreed to a lower buyout number (let’s say $4.5 million), the same would hold true. If the Knicks stretched the $4.5 million, the cap hits would be just $900,000 over the next five years. In such an instance, they would have saved $2.19 million in payroll.
The bottom line is this: a player retiring does not automatically save his team money off of the cap. In this instance, Kidd made it easy, but in the future, things might not necessarily be the same.
Where Does That Leave the Knicks?
The concern with Kidd’s salary and what happens to it, I believe, is rooted in wondering whether his retiring and salary forfeiture will allow the Knicks to get far enough below the luxury tax apron to give them access to the $5.15 million non-taxpayer mid-level exception and/or put them in a position to acquire a player who is being signed-and-traded.
The answer is no.
Without Kidd’s salary, the Knicks have $71.6 million committed in 2013-14 to Amar’e Stoudemire, Carmelo Anthony, Tyson Chandler, Raymond Felton, Marcus Camby, Iman Shumpert and Steve Novak. My salary data indicates that James White is on the Knicks ledger for next season, but I exclude him because of the conflicting information out there.
That $71.6 million does not include the salary for the Knicks first round draft pick this year or re-signing any of their important probable free agents in J.R. Smith, Pablo Prigioni, Chris Copeland or Kenyon Martin.
What it boils down to is simple: even without re-signing any of those three or signing their draft pick, the Knicks $71.6 million is simply too high for a team that wants to use the full non-taxpayer mid-level exception.
The luxury tax apron for 2013-14 is expected to be somewhere between $75 million and $76 million, and the rule behind the usage of the full non-taxpayer mid-level exception is that it may only be used in full if the team is still below the apron after spending it. In other words, a team may only use the full exception if they are at least $5.15 million below the apron, and as of right now, the Knicks are not likely to be.
If Glen Grunwald manages to trade either Marcus Camby or Steve Novak without taking any salary back in return, that could change the situation, but let’s not get into “ifs.”
The other important consideration is that any team that spends the full non-taxpayer mid-level exception may not have a payroll that exceeds the apron for that season. In other words: a hard cap. So even if the Knicks somehow cleared more space, signed their first round pick and convinced Smith to opt in to the final year of his deal, it is very likely that they would still opt to not spend the full non-taxpayer mid-level exception. Being hard capped is a terrible inconvenience for an NBA team, especially one that would be a choice destination for veteran players were bought out by non-contending teams or otherwise find themselves as free agents late in the season.
Keep in mind, both Smith and Martin were exactly those types of acquisitions and Grunwald knows the importance of flexibility.
And the same considerations ring true for a team that acquires a player who is being signed-and-traded. The team is hard capped at the apron.
So, with or without Kidd, the Knicks payroll situation is pretty much the same. The major issue for the team now, is probably improving its point guard depth.
For now, the major free agency tool that the Knicks have will be the $3.18 million taxpayer mid-level exception. And that is something they may have to use to re-sign Chris Copeland… But that is another blog post, all together.
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