Financial Impact Of Kristaps Porzingis Blockbuster

Besides having a huge impact on the on-court prospects for the Knicks and Mavericks for the foreseeable future, Thursday’s Kristaps Porzingis trade will also drastically reshape each team’s cap situation for the coming summer.

With that in mind, we’ll use this space to take a closer look at the financial impact of Thursday’s blockbuster, exploring how salary-matching worked in the trade, how it will affect each team’s long-term cap outlook, and much more.

Let’s dive in…

Hardaway gets a trade bonus:

As one of nearly two dozen players with a trade kicker in his contract, Tim Hardaway Jr. is in line for some bonus money as a result of being traded on Thursday. A player with a trade kicker can opt to waive the bonus if he wants to, but there was no reason for Hardaway to do so, since collecting that extra money didn’t affect either team’s ability to complete the swap.

Hardaway’s trade kicker was for 15% of the money left on his contract, not including any option years. That meant that the bonus would apply to the rest of this season’s prorated salary ($6,851,695) and all of next season’s salary ($18,150,000). Those figures add up to $25,001,695, and 15% of that amount is $3,750,254. That’s the amount of THJ’s bonus.

For salary cap purposes, a trade bonus is split up and applied equally to each non-option season, meaning Hardaway’s cap hits for this season and next season each increased by $1,875,127. Here’s what those changes look like, as Jeff Siegel’s cap sheet at EarlyBirdRights.com shows:

• 2018/19
  • Old cap hit: $17,325,000
  • New cap hit: $19,200,127
• 2019/20
  • Old cap hit: $18,150,000
  • New cap hit: $20,025,127

If Hardaway is traded again before the end of his contract, his trade kicker will no longer apply, since he has already collected it.

How salary-matching worked in the trade:

Each team involved in a trade can organize the pieces differently in order to maximize their ability to match salaries and generate traded player exceptions. In this deal, the Mavericks were able to create a sizable trade exception while the Knicks were unable to create one.

Here’s how the trade worked from the Mavericks’ perspective:

• Using DeAndre Jordan ($22,897,200) and Dennis Smith Jr. ($3,819,960), the Mavs had the ability to take back up to $33,496,450 in salaries (125% of $26,717,160, plus $100K).
• Hardaway’s post-bonus cap hit ($19,200,127) and Courtney Lee‘s cap hit ($12,253,780) add up to less than $33,496,450, so the Mavs used Jordan and Smith to match those players’ salaries.
• The Mavs used the minimum salary exception to take on Trey Burke‘s minimum salary contract.
• That left the Mavs with Wesley Matthews‘ salary ($18,622,514) to trade for Porzingis’ salary ($5,697,054). The difference between those two figures is $12,925,460. Therefore, Dallas creates a new traded player exception worth that amount, as cap expert Albert Nahmad tweets. That exception will expire on January 31, 2020.

From the Knicks’ perspective, salary-matching is trickier. Per CBA rules, they have to use Hardaway’s pre-bonus salary ($17,325,000) for matching purposes, and combining that figure with Lee’s and Porzingis’ salaries totals $35,275,834.

The Knicks are permitted to take back up to 125% of that figure, plus $100K, which works out to $44,194,792. Unfortunately, the three incoming salaries from the Mavs total $45,339,674. That’s why Burke had to be included in the trade. His $1,795,015 salary helps make up the difference, allowing the Knicks to use their four salaries to take on Dallas’ three.

Because the Knicks had to aggregate all four of their players’ salaries in the transaction, they don’t generate a traded player exception. That’s probably not a big deal though — they intend to use cap room this summer, so they would have had to renounce any trade exceptions at that point anyway.

The Knicks’ salary cap outlook:

For all the talk this season about the Knicks going after star free agents like Kevin Durant, Kemba Walker, or Kyrie Irving, the team didn’t actually have enough projected cap room for even one maximum-salary contract prior to the Porzingis deal. Now, New York has a clear path to two max slots.

[RELATED: Early Maximum Salary Projections For 2019/20]

Clearing the multiyear contracts for Hardaway and Lee, along with Porzingis’ cap hold, increases the Knicks’ cap space projection to $70MM+. The exact amount of New York’s cap room will hinge on a few factors: Will the Knicks exercise Allonzo Trier‘s $3.55MM option? Do they want to lock in Damyean Dotson at $1.62MM? Where exactly will their first-round pick land?

Hypothetically, let’s imagine the Knicks hang onto Trier and Dotson and get the fourth overall pick. In that scenario, assuming a $109MM cap, the team would have just enough cap room to squeeze in one max contract for a veteran with 10+ years of experience (like Durant) and one with between 7-9 years of experience (like Walker or Irving), as Nahmad tweets. The team could theoretically add those players while retaining Smith, Trier, Dotson, Kevin Knox, Frank Ntilikina, and Mitchell Robinson.

That sounds great, but it will be interesting to see what the Knicks do with their cap room if they miss out on their top targets. While rolling over the space would make the most sense, the club will still need to fill out its roster and make an effort to reach the salary floor. Would the Knicks sign a bunch of players to one-year contracts? Take on some expiring salaries attached to assets in trades? Make a run at a second- or third-tier free agent? It should be a fascinating summer in New York.

The Mavericks’ salary cap outlook:

By moving two big expiring contracts and taking on the Knicks’ multiyear deals, Dallas will likely remain an over-the-cap team this summer, forfeiting potential max-salary space. That makes sense. The Mavs haven’t exactly been a top destination for star free agents in recent years, and Porzingis’ upside is probably higher than that of any other player the club could have reasonably hoped to land.

By my math, adding Hardaway, Lee, and Porzingis’ cap hold will reduce Dallas’ projected cap space to about $10.18MM, assuming Harrison Barnes and Dwight Powell opt in and other free agents are renounced. Cuts, trades, and option decisions could impact that figure, but if it remains in that neighborhood, functioning as an over-the-cap club would be the safe play — that would allow the team to retain its $12.9MM trade exception, the mid-level exception (worth $9MM+), and the bi-annual exception (worth about $3.6MM).

Even if they lock up Porzingis to a pricey long-term contract, the Mavs are in position to be players in free agency in 2020, when eight-figure deals for Barnes, Powell, and Lee expire. Hardaway will still have one more year left on his contract at that point, but the Mavs could otherwise have very few commitments on their books besides Porzingis and rookie contracts for Luka Doncic and Jalen Brunson.

Porzingis’ contract options:

Shortly after the Mavericks and Knicks reached an agreement on Thursday, word leaked that Porzingis intended to tell the Mavs he planned on signing his qualifying offer in the summer. This would be a nuclear option for a player with Porzingis’ earning potential — he’d have to settle for a one-year, $4.5MM contract in 2019/20 rather than potentially signing a long-term proposal worth $100MM+.

Even if Porzingis badly wants to reach unrestricted free agency in 2020, gaining the ability to freely choose his long-term home, accepting the Mavs’ qualifying offer seems like too big a gamble to take. Especially since he still hasn’t played a game since tearing his ACL a year ago. As such, it wasn’t a surprise when a subsequent report on Thursday suggested that, actually, Porzingis hadn’t made any decisions about his future in Dallas.

The Mavs remain optimistic that they’ll convince Porzingis to stick around long-term. If they make a maximum-salary multiyear offer in July, that offer could start at a projected $27.25MM and would be worth up to $158.05MM over five years. A rival team interested in signing Porzingis to an offer sheet could make an offer worth up to four years and a projected $117.18MM.

How the Stepien Rule impacts the trade:

The Ted Stepien rule, which we explain in more detail in a glossary entry, prohibits teams from completing trades that could leave them without a first-round pick for two consecutive future seasons.

That was an issue for the Mavericks, who wanted to trade two first-round picks to the Knicks in this deal after sending their top-five protected 2019 pick to the Hawks in last summer’s draft-day trade for Doncic. As RealGM’s database of traded draft picks shows, the protections on that pick extend through 2022, meaning the selection technically might not change hands until 2023.

In that scenario, the earliest picks Dallas could send to New York would be the 2025 and 2027 picks. Except a separate restriction – known as the “seven-year rule” – prevents teams from trading draft picks more than seven years in advance, so the Mavs couldn’t commit to moving any selections beyond ’25.

There was speculation that the Mavs would eliminate the protections on the 2019 pick they traded to the Hawks, ensuring that it conveys this year and freeing up Dallas’ picks starting in 2021. The Mavs took another route though. According to ESPN’s Zach Lowe (Twitter link), here’s what the terms look like on the traded picks involved in Thursday’s swap:

• The Mavericks will trade an unprotected first-round pick to the Knicks two years after the Hawks pick conveys. This could happen as soon as 2021, assuming Dallas’ 2019 first-rounder falls outside the top five.
• Two years after trading that unprotected pick to the Knicks, the Mavericks will send a top-10 protected first-rounder to New York. This could happen as soon as 2023. The pick will have top-10 protection in 2023, 2024, and 2025. If it still hasn’t changed hands by ’25, the Knicks will instead receive the Mavs’ 2025 second-round pick.

Because Dallas currently ranks 11th in the 2018/19 Reverse Standings, the odds of the club keeping its top-five protected 2019 pick appear slim. So the Knicks, for now, can probably plan on receiving an unprotected first-rounder in 2021. In that scenario, the odds of the 2023 pick changing hands would hinge on how the Mavs look four years from now.

Photos courtesy of USA Today Sports Images.

Salary information from Basketball Insiders was used in the creation of this post.