Buying out contracts
- Thread starter King James
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The best site on the Internet for all questions about the CBS and salary caps is:
http://members.cox.net/lmcoon/salarycap.htm
Here's what it says about buyouts:
59. What is a contract buy-out?
Sometimes players and teams decide to divorce each other. They do this by mutually agreeing that:
•The team will waive the player;
•If the player clears waivers, the compensation protection for lack of skill (see question number 90) will be reduced or eliminated;
•Optionally the payment schedule for the remaining salary may be shortened or lengthened.
For example, the Celtics did this with Dino Radja prior to the 1997-98 season. They mutually agreed to reduce Radja's compensation protection to 50% of its value, and then the Celtics waived him. When he cleared waivers he was paid the 50% he was owed, and he was then free to return to Europe.
But there's a twist, which needed an arbitrator's ruling during the 1999-00 season to resolve. As detailed in question number 90, on January 10 all contracts become guaranteed for the rest of the season. Compensation protection insures the player against loss of salary after being waived for lack of skill. But if he is waived after January 10, then he doesn't lose his salary, so the compensation protection does not kick in. Even though the team & player can mutually agree to reduce or eliminate the player's compensation protection, he is still owed his full salary if waived after January 10.
This was challenged by John Starks during the 1999-00 season. Starks had been traded to the Bulls, and wanted to sever ties with the team after January 10. The arbitrator ruled that in the last season of a player's contract, the team and player could choose to eliminate the contract guarantee that kicked in on January 10. Starks and the Bulls were therefore free to agree to a divorce (with no money owed to Starks) as described above.
There is one other type of buyout described in the CBA. When a contract contains an option year, a buyout amount for the option year can be written into the contract. The buyout amount may be up to 50% of the salary for the option year, and is payable with the exercise of an ETO or the non-exercise of an option.
60. How do buy-outs affect a team's salary cap?
The agreed-upon buy-out amount (see question number 59) is included in the team salary instead of the salary called for in the contract. If the player had more than one season left on his contract, then the buy-out money is distributed among those seasons in proportion to the original salary. For example, say a player had three seasons remaining on his contract, with salaries of $10 million, $11 million and $12 million. The player and team agree to a buyout of $15 million. The $15 million is therefore charged to the team salary over the three seasons. Since the original contract had $33 million left to be paid, and $10 million is 30.3% of $33 million, 30.3% of the $15 million buyout, or $4.545 million, is included in the team salary in the first season following the buyout. Likewise, 33.33% of $15 million, or $5 million, is included in the team salary in the second season, and 36.36% of $15 million, or $5.455 million, is included in the team salary in the third season.
The distribution of the buy-out money is a matter of individual negotiation. Changing the number of years in which the money is paid does not change the number of years in which the team's team salary is charged. In the above example in which the player's contract is bought out with three seasons remaining, the buyout amount is always charged to the team salary over three seasons. It does not matter if the player is actually paid in a lump sum or over 20 years (a spread provision).
http://members.cox.net/lmcoon/salarycap.htm
Here's what it says about buyouts:
59. What is a contract buy-out?
Sometimes players and teams decide to divorce each other. They do this by mutually agreeing that:
•The team will waive the player;
•If the player clears waivers, the compensation protection for lack of skill (see question number 90) will be reduced or eliminated;
•Optionally the payment schedule for the remaining salary may be shortened or lengthened.
For example, the Celtics did this with Dino Radja prior to the 1997-98 season. They mutually agreed to reduce Radja's compensation protection to 50% of its value, and then the Celtics waived him. When he cleared waivers he was paid the 50% he was owed, and he was then free to return to Europe.
But there's a twist, which needed an arbitrator's ruling during the 1999-00 season to resolve. As detailed in question number 90, on January 10 all contracts become guaranteed for the rest of the season. Compensation protection insures the player against loss of salary after being waived for lack of skill. But if he is waived after January 10, then he doesn't lose his salary, so the compensation protection does not kick in. Even though the team & player can mutually agree to reduce or eliminate the player's compensation protection, he is still owed his full salary if waived after January 10.
This was challenged by John Starks during the 1999-00 season. Starks had been traded to the Bulls, and wanted to sever ties with the team after January 10. The arbitrator ruled that in the last season of a player's contract, the team and player could choose to eliminate the contract guarantee that kicked in on January 10. Starks and the Bulls were therefore free to agree to a divorce (with no money owed to Starks) as described above.
There is one other type of buyout described in the CBA. When a contract contains an option year, a buyout amount for the option year can be written into the contract. The buyout amount may be up to 50% of the salary for the option year, and is payable with the exercise of an ETO or the non-exercise of an option.
60. How do buy-outs affect a team's salary cap?
The agreed-upon buy-out amount (see question number 59) is included in the team salary instead of the salary called for in the contract. If the player had more than one season left on his contract, then the buy-out money is distributed among those seasons in proportion to the original salary. For example, say a player had three seasons remaining on his contract, with salaries of $10 million, $11 million and $12 million. The player and team agree to a buyout of $15 million. The $15 million is therefore charged to the team salary over the three seasons. Since the original contract had $33 million left to be paid, and $10 million is 30.3% of $33 million, 30.3% of the $15 million buyout, or $4.545 million, is included in the team salary in the first season following the buyout. Likewise, 33.33% of $15 million, or $5 million, is included in the team salary in the second season, and 36.36% of $15 million, or $5.455 million, is included in the team salary in the third season.
The distribution of the buy-out money is a matter of individual negotiation. Changing the number of years in which the money is paid does not change the number of years in which the team's team salary is charged. In the above example in which the player's contract is bought out with three seasons remaining, the buyout amount is always charged to the team salary over three seasons. It does not matter if the player is actually paid in a lump sum or over 20 years (a spread provision).
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Kenny Thomas has three years and $23.7 million left.
If we, for example, agree to a buyout of $12 million, it will count against the cap for the three remaining years at approximately $3.7 million in 2007/08, $4 million in 08/09 and $4.3 million in 09/10 instead of the $7.3 million, $7.9 million and $8.5 million he'll get otherwise.
If we, for example, agree to a buyout of $12 million, it will count against the cap for the three remaining years at approximately $3.7 million in 2007/08, $4 million in 08/09 and $4.3 million in 09/10 instead of the $7.3 million, $7.9 million and $8.5 million he'll get otherwise.
I just did this exercise last night after a heated agreement with a friend about Kenny Thomas. I ran my numbers at worst case scenario for the King’s, best case for Kenny Thomas.
So say we buy him out at $18 million, then against our cap is as follows,
Kenny Thomas is owed $23,826,562 in the next three years.
2007-2008 = $7,331,250 (30.7%)
2008-2009 = $7,942,187 (33.4%)
2009-2010 = $8,553,125 (35.9%)
Therefore, the new amount against our CAP would be
2007-2008 = $18,000,000 * (30.7%) = $5,526,000
2008-2009 = $18,000,000 * (33.4%) = $6,012,000
2009-2010 = $18,000,000 * (35.9%) = $6,462,000
Saving us in CAP space would be
2007-2008 = $7,331,250 - $5,526,000 = $1,805,250
2008-2009 = $7,942,187 - $6,012,000 = $1,930,187
2009-2010 = $8,553,125 - $6,462,000 = $2,091,125
So say we buy him out at $18 million, then against our cap is as follows,
Kenny Thomas is owed $23,826,562 in the next three years.
2007-2008 = $7,331,250 (30.7%)
2008-2009 = $7,942,187 (33.4%)
2009-2010 = $8,553,125 (35.9%)
Therefore, the new amount against our CAP would be
2007-2008 = $18,000,000 * (30.7%) = $5,526,000
2008-2009 = $18,000,000 * (33.4%) = $6,012,000
2009-2010 = $18,000,000 * (35.9%) = $6,462,000
Saving us in CAP space would be
2007-2008 = $7,331,250 - $5,526,000 = $1,805,250
2008-2009 = $7,942,187 - $6,012,000 = $1,930,187
2009-2010 = $8,553,125 - $6,462,000 = $2,091,125
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No, its only going to be marginal cap releif, and of course no chance to ever pull off a trade of it when he;s an ender or whatnot. But its no impossible Kenny would accept one. Just certianly not for pennies on the dollar. That never happens. You figure you just about always end up paying 2/3+ of the contract amount. In Kenny's case he probably figures, and correctly, that he could go sign with another team for maybe $3mil or some such (although he's kind of a strange case, because I just have a hard time imagining who wants a 6'7" grumpy PF other than Geoff?). And if he could, then he actually comes out ahead in the deal if he let;s the biyout go for $15-$18mil, although he'd porbably be asking $20 or some such.
In any case its no panacea, but when you are out of options, better than nothing?
Edit: DavisAggie did a much better job in the simulpost of illustrating it.
In any case its no panacea, but when you are out of options, better than nothing?
Edit: DavisAggie did a much better job in the simulpost of illustrating it.
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The question you need to ask yourself though is, why would KT going to walk away from 5 million dollars? He would get no more than the veteran's minimum at this point in his career - I think the buyout would need to be closer to what he's owed over the duration of his deal (maybe 21 million or so).
Even at that point, paying him all that money up front, right now, costs the Kings owners in either interest earned on having money in the bank, or not allowing them to retire more debt up front. future value of that 18 million to be paid now would be almost 21 million (assuming a rate of 6%), so the Kings really aren't gaining that much financially by buying him out now.
Even at that point, paying him all that money up front, right now, costs the Kings owners in either interest earned on having money in the bank, or not allowing them to retire more debt up front. future value of that 18 million to be paid now would be almost 21 million (assuming a rate of 6%), so the Kings really aren't gaining that much financially by buying him out now.
I thnk that's one of those things where our distaste for Kenny has him rather over-devalued around here. He's a turd in many ways, but even as a turd would be a rotation player for many teams out there and went 5pts 6rebs for us in 22min or whatever last year. In a world where Mikki Moore has a good 4 months and gets MLE, and old Joe Smith gets MLE, Kenny can still expect another contract or two at above the vet min. He's not a 12th man. Just a turd. 
I thnk that's one of those things where our distaste for Kenny has him rather over-devalued around here. He's a turd in many ways, but even as a turd would be a rotation player for many teams out there and went 5pts 6rebs for us in 22min or whatever last year. In a world where Mikki Moore has a good 4 months and gets MLE, and old Joe Smith gets MLE, Kenny can still expect another contract or two at above the vet min. He's not a 12th man. Just a turd.
Agree... If KT were to lets say.... go on the IR so he couldn't dress, and was told he has to attend all the Kings games in a suit or something.... That might be enough to send him over the edge and seeing all these peopel playing BBall might make him want to persue a buyout and play somewhere else.
Or, make him dress for every game, but sit at the end of the bench? Make sure he doesn't even get PT in blowout situations. Better yet, pay a guy that is 6'1 to play PF ahead of him that has never played BBall ever in his life just to show that KT is worse than a guy that has never played before in his life lol.. God, I can think of so many ways to pee off KT.
I thnk that's one of those things where our distaste for Kenny has him rather over-devalued around here. He's a turd in many ways, but even as a turd would be a rotation player for many teams out there and went 5pts 6rebs for us in 22min or whatever last year. In a world where Mikki Moore has a good 4 months and gets MLE, and old Joe Smith gets MLE, Kenny can still expect another contract or two at above the vet min. He's not a 12th man. Just a turd.
you're probably right, I could see him getting one of those, 2 year, 6 million, or 3 year, 7-8 million type deals.
I should have finished my post. The agreement was that at an $18 million buyout, that just does not save us enough cap space to warrant a buyout. Have him seat at the end of the bench and if somebody gets hurt we have him as a backup. Moreover, you never know, some team might need a KT type player right before the trading deadline.
I say forget the buyout and trade him the summer of 2009 when he has an ending contract at $8.5 million to a team rebuilding and looking for cap space in 2010-2011.
I say forget the buyout and trade him the summer of 2009 when he has an ending contract at $8.5 million to a team rebuilding and looking for cap space in 2010-2011.
The problem with the trade him as an ender approach is the sameproblme as the buyout. the whole key to trading an ending contract is that you then take a longer term contract back in return. hence the other team sheds its own KTs or whatnots. So if you hold him to trade him as an ender, and then do trade him as an ender, that means never having caproom. And in the interim you have this short grumpy emblem of our failure clutering up your roster and your chemistry for years and years, either as the world worst 12th mna (given that the job of the 12th man is to support his teammates, know and accept his role, and be ready if ever called upon), or as a low rotation player taking minutes away from young guys who need them to develop. Just...ugh.
Yeah, because lord knows we need another malcontented, pissed off player sitting around the bench and the locker room to make sure everyone KNOWS just how much he hates it here.
You don't find a way to pee him off. You find a way to either use him or trade him or - if absolutely necessary - you pay whatever it takes and buy him out.
You don't find a way to pee him off. You find a way to either use him or trade him or - if absolutely necessary - you pay whatever it takes and buy him out.
there is one way around this i believe. if we find a team under the cap (preferably under the minimum salary requirement) and just ship KT off to them. this is of course hard to imagine any team doing unless the really needed KT's salary, and i mean all of it. Otherwise theyd just sign someone for whatever amount they actually need to get over the minimum. we could however offer incentives, a rookie player of interest (Williams?), cash, a 2nd round pick.
In other words, there's no advantage to be gained from buying out Kenny Thomas' contract.
Maybe we'll be able to move him to a team that's just beginning a rebuild before the 2009 Draft. Someone like Minnesota or Boston or New Jersey, a team that could use an extra $8.5 million in cap space at the end of the 2010 campaign. It would take a lot of work the make the numbers come together, but we still have a chance to have his contract (and the other undesirables) off our books for the Summer of '09. Slim chance, but a chance nonetheless.
I do, however, believe that he will be glued to the end of the bench for the majority of this upcoming season.
Maybe we'll be able to move him to a team that's just beginning a rebuild before the 2009 Draft. Someone like Minnesota or Boston or New Jersey, a team that could use an extra $8.5 million in cap space at the end of the 2010 campaign. It would take a lot of work the make the numbers come together, but we still have a chance to have his contract (and the other undesirables) off our books for the Summer of '09. Slim chance, but a chance nonetheless.
I do, however, believe that he will be glued to the end of the bench for the majority of this upcoming season.
Not much point in waiting until he's an ender, either, as most of the trade offers would be veterans with contracts ranging from mediocre to unconditionally regrettable. Peja, as an ender, could only fetch a permanently benched RonRon, what price do you think a 32 year old KT would command? I get queasy just thinking about it.
We already have a bench full of bad contracts until the beginning of the 2010-11 season, and Salmons for another year after that; let's not prolong the agony even further.
We already have a bench full of bad contracts until the beginning of the 2010-11 season, and Salmons for another year after that; let's not prolong the agony even further.