The financial ramifications of trades involving Dwight Howard and Chris Paul

Regarding Dwight Howard and Chris Paul and their respective trade desires, it is worth explaining in dollars and sense why they’d prefer to be dealt sooner rather than later.

In order for them to get the most possible money, they’ll need to finagle a way into landing in their desired destinations prior to the trade deadline.

And despite all the hand-wringing over the owners’ capitulation in negotiations over the so-called Carmelo Anthony rule, neither of those guys is likely to do an extend-and-trade.

Here’s why:

From the NBA memo sent out to general managers regarding terms of the new collective bargaining agreement:

_ Extension-and-trades permitted, except maximum length of such contract is 3 years (e.g. 2 new years if player during last year of his old contract and max annual increases are 4.5 percent. If a player signs a contract extension for a longer period or higher amount that would have been permitted for an extension-and-trade, then the team is prohibited from trading the player for a period of six months following the date of the extension. If a team acquired a player in a trade, then, for a period of six months following the date of the trade, the team is prohibited from signing the player to a contract extension for a longer period or higher amount than would have been permitted for an extension-and-trade.

Let’s look at this in a little more detail:

Both Howard and Paul are under contract for two more years but have opt-outs that would allow them to become free agents July 1, 2012.

Any extensions they signed between now and June 30, 2012, could only take them through the 2013-14 season because of the above-noted 3-year rule (the upcoming 2011-12 season counts as one year, the 2012-13 option years on both players’ contracts count as Year 2, and the extensions they would receive as part of the extend-and-trade deals would count as Year 3).

If the Magic decided to fast-track a Howard trade (as Marc Stein reports they are strongly considering), Orlando could only give him a one-year extension (and the maximum raise would be 4.5 percent off his 2012-13 salary) in an extend-and-trade deal. So Howard, who is due to make $19.54 million in 2012-13 if he does NOT opt out, could sign an extension that would pay him $20.415 million for the 2013-14 season, after which he would be a free agent.

He would be much better served to opt out of his contract and sign a five-year deal with 7.5 percent annual raises with the team that acquired him for a total of $110.8 million over 5 years.

The trick is getting to his desired destination. If he was traded somewhere he wasn’t happy, he could leave as an unrestricted free agent but would be limited to a 4-year deal with 4.5 percent annual raises.

Paul is on the books for $16.36 million this season and $17.8 million next season (player option) — the same money that Deron Williams is due to make from the New Jersey/Brooklyn Nets. (This is why Williams’ agent said Thursday his client is not going to sign an extension with the Nets. If he did, he would guarantee himself $57.34 million through 2014-15. If he opts out and then re-signs with the Nets, he makes $100.2 million over five years on his next contract.)

If Paul is traded to the New York Knicks or another preferred destination (is there a choice 1A for CP3?) before the deadline in late February, he would be eligible to get the same $100.2 million that Williams is going to be offered by the Nets.

But again, he would have to be traded to a team he wanted to stay with. (Also, it is worth noting that Paul has a 15 percent trade kicker that would NOT kick in because it would raise his salary above the maximum permissible amount).

If Paul stays in New Orleans or is dealt someplace he doesn’t want to stay, the max he could reap by leaving is $75.8 million over 4 years — either through a sign-and-trade or an outright unrestricted free agency signing.

Similarly, if Howard plays out the season with the Magic and opts out, the best deal he could get in a sign-and-trade or an outright unrestricted free agency signing would be $80.5 million over four years. (A team would need $18.9 million in cap space to make him a max offer.)

So, to summarize, here are the options and the financial implications for each player.

Howard:

_ Plays the entire season in Orlando, opts out and ends up elsewhere (either by signing as a free agent or through a sign-and-trade): $80.5 million for 4 years.

_ Gets traded in February, opts out, then re-signs with the team that acquired him: $110.8 million for 5 years.

Paul:

_ Plays the entire season in New Orleans, opts out and ends up elsewhere (either by signing as a free agent or through a sign-and-trade): $75.8 million for 4 years.

_ Gets traded in February, opts out, then re-signs with the team that acquired him: $100.2 million for 5 years.

Do the math, add up the differences, and there are 55 million reasons why both those guys might want to be wearing different uniforms by the time March 1 rolls around.

 

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  1. says

    Isn’t it true that with the new CBA, a team can only sign to the 5 year max if the player is on the team for over 6 months? That would mean CP3 or Howard have to be traded by Jan 1st. No sense in keeping them for a week. So if they want their money, they’ll probably be traded before the season starts. Otis Smith has reportedly been considering exactly such a move. Waiting until the deadline leaves them the same option as waiting until free agency, 4 year max deals with smaller raises. They will lose leverage in about a month.

  2. Garrett Devon Linger says

    While the Clippers have been a doormat for most of their existence and while it has been considered a graveyard I believe that even the ass hat Donald Sterling wants the Clippers to be a winner. He has made moves and spent money to do so. It just has not worked out so far.

    The Clippers have a young and solid team building toward something much more than a doormat. Even if they give up several assets for CP3 I think they can still compete. Also having Chris Paul in LA, no matter which LA team, will lure other marketable players to the city. The days of the Clippers being whipping boys would be well on their way to ending. Making the Lakers a real rival would be great for Blake Shelton and Chris Paul and any other marketable name that would come to LA to play for the Clippers. Being part of a sea change in LA with the Clippers would be good for endorsement money as well as how history will view said players.

    By the way I am a Denver Nuggets and Charlotte Bobcats fan so personally I would rather Chris Paul and any other big name player come to my teams. None the less I see a real future with Chris Paul in LA with the Clippers. “EVEN WITH DONALD STERLING OWNING THE CLIPPERS!!”

  3. IceOnMyPinky says

    I wanna SEND out a special Thanks to Otis Smith for screwing us Orlando Fans. Thanks to you we have no chance in he!! in re-signing Dwight. One special request- next time at least use some JERGENS. IT wont hurt as bad…………..

    • ignarus says

      Well, NO doesn’t have an owner and Orlando is capped out with nowhere to go but a lengthy rebuilding project. Basically, you’ve got two “Kevin Garnett in ‘Sota Post-2004″ situations. Paul and Howard were both *magnificent* in last year’s playoffs, but both were first round losers to teams that went on to be second round losers.

      So “staying put” IS an option, but only if they want the money and don’t really care about having the opportunity to lead a team deep into the playoffs.

      If it’s about winning, they leave.
      If it’s about winning AND money, they leave before the trade deadline.

  4. Brian G says

    Chris, Great read, quick question. I was unaware that the restriction on sign and trade contracts are basically limited to being a free agent. I thought the memo says that sign-and-trades can only be 3 years but at the end you mention a 4 year sign-and-trade. Please clarify, thanks.

    • says

      Extend-and-trades can only cover 3 years. Traditional sign-and-trades can go for 4 years at 4.5 percent annual raises. Gone are the days when a player could get an extra year and higher percentage raises through a S&T.

  5. Marc says

    What happened today is that someone finally woke Chris Paul up to the reality of the numbers.

    Suddenly, holding out for a Knicks trade isn’t as important to Chris.

    The Hornets have the leverage here.

    The Hornets aren’t going to take back the Knicks package of crap to make CP3 happy. They also aren’t going to be targeting “cap room” in a trade, because they can’t attract free agents anyways… so what good does “cap room” do for them? What will happen in the end is that CP3 will be traded to a place like Boston where he can get his max money and still have a chance to talk Dwight into joining him (Celtics will have the cap room), and the Hornets can get a really good player who is under contract for several more years (Rondo) so that the NBA can at least sell a few tickets.

    Knick fans, this isn’t a charity league where the Hornets do whatever you want.

    As for CP3 as a free agent, it’s always about the money. Knick fans need to stop acting like this applies to everyone but their team. Chris Paul isn’t giving up tens of millions (particularly after being one of the top figures in the Players Union negotiations) to go play with his buddy.

    And by the way, it is humorous to think that Carmello Anthony will implore Chris Paul to pass up tens of millions after Anthony got every dime he could.

  6. says

    Excellent point! But Knick-haters are still gonna spin this any which way they can, and still cling to the idea that Pau is gonna lose a ton of money by signing with the Knicks. There’s two things that prove that completely false:

    1. He’ll be in a much bigger market, so much more potential for money outside of his contract.

    2. Everything you just explained above.

    Is it risky for the Knicks to trade a bunch of people for a guy that is gonna be a free agent this summer? Another two solid points:

    1. Not if he demanded a trade to NY and wants to be there

    2. Who would the Knicks be losing in a trade that would really matter?

    #1 Knicks Fan in Bush Alaska

    Go Knicks!

    • Patrick says

      The whole “big market” thing is completely overplayed. Anyway, he’ll have to pay both state income tax and city income tax, even more drains on his salary. If he went to Houston or another team without income tax, he could make much, much more.

      And there’s the simple fact that the Knicks don’t have the assets to make it happen. It was one thing when the Knicks couldn’t offer a stud prospect but had a ton of really solid players going to Denver for Carmelo, but the Knicks really only have Douglas and Fields as tradeable assets. No way they beat a Clippers or other deal.

      • says

        Knicks have absolute sh$t to trade, it all depends on how bad Paul wants to go to NY. If he really wants NY, no one is gonna trade their best assets for a player that will likely leave them in the Summer.

        Paul has basically screwed the Hornets by saying and hinting towards the fact he really wants to go to New York, because what team in the right mind would give up anything for a player that may not want to be there very long?

        Paul may have inadvertently made the Knicks the only trade option for New Orleans.

        • ignarus says

          Isn’t it out that Paul pretty much knows that the Knicks don’t have the assets to arrange a trade? Same article I read said he basically wasn’t trying to leave his old team with nothing if he did leave. Pretty sure that was the second-hand gist of an ESPN article, anyhow.

          Anyway… GREAT READ, CHRIS! Love the breakdown of the options. Very clear and insightful. Especially with so much BS getting thrown around.

  7. Mike Giffs says

    Couldn’t they opt out and resign with their current teams for the max money and 5 years? Why not Howard stay in Orlando and get CP3 to Orlando by February. Then in summer, amnesty Arenas and use that money to resign Paul to his max 5 year deal. Love how no one considers Orlando, or NO for that matter, a destination. How many big name FAs have gone to Orlando in the past 8 years or so? A ton.

    • says

      Mike, it depends on how CP feels about an alternate destination other than NY. If he is dead set on the Knicks and tells the Hornets he will not make a commitment to any other team (even if it means taking less than the max next summer as an UFA), that is going to limit the Hornets’ choices. But that would be a helluva financial risk for CP3, and NO could call his bluff and take their chances on trying to re-sign him for the 5 years and the max money. Either way, it’ll be some high drama.

    • Justin says

      Mike,

      You are incorrect. Even with Amnestying Agent 0, Orlando is still way over the cap. Only shot of doing that is convincing NO to take Jameer Nelson and JJ Redick for CP, which I would argue is even worse than the 0 the knicks can offer.

      • ignarus says

        So… Okafor for Howard! I guess David Stern would have to pull that trigger??

        Hard to see the other owners letting a top player go to a team that none of them own in a move that would make them legit title contenders.

        You know, even if there was some package NO could throw together.

      • Mike Giffs says

        I’m not going to write it all down, but it’s been poured over by a ton of people. The Magic could get to 44.5 million simply by declining team options AND having Bass opt-out. That includes Dwight.

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