Cap Holds and You

For fans looking at sites like Hoops Hype that show the Denver Nuggets with nearly $30 million in cap space and wondering why on earth Denver is not making plays for some of the big names on the free agent market I have two words for you.

Cap hold.

Personally I had not factored the various cap holds oppressing the Nuggets until I noticed that John Hollinger, in his piece analyzing the free agent signings on Saturday, noted that Denver signed Luc Richard Mbah a Moute using their mid-level exception.  The mid-level exception is for teams over the cap.  How can Denver use it when they are so far under the salary cap?  It is due to the immense power of the cap hold.

The Nuggets have several cap holds that even though Denver does not have salary committed, is accounting for more than all of their cap space.  Nene, Kenyon Martin, J.R. Smith and Wilson Chandler are technically still on Denver’s books until they sign with Denver, sign with someone else, or the Nuggets renounce them and the total number of these cap holds is quite astounding.

According to this article by Larry Coon the percentages used to determine cap holds have been altered in the new CBA.  The highest level in the old CBA was 300% of a player’s previous year salary and now it is reportedly 250%.  We will use a hybrid of that report along with the data in Mr. Coon’s Salary Cap FAQ.

If a team holds a player’s “Bird Rights”, he was paid more than the league average in the last year of his contract and he is not on his rookie contract, his cap hold is 150% of their previous salary.  Hello Nene, Kenyon and J.R.  Affording to this article by Mr. Coon the league has altered If a player is coming off the fourth year of his rookie contract whose salary is under the league average has a cap hold of 300% of his last year’s salary.  However, as mentioned above, the 300% figure is replaced with 250%.  I will assume since Wilson Chandler and Arron Afflalo would have fallen under the 300% cap hold calculation they will now have their previous year salary multiplied by 250%.

If you do the math, and I have, here are the cap holds for those five players:

Kenyon Martin $24,818,181
Nene $17,040,000
J.R. Smith $10,136,777
Wilson Chandler $5,326,205
Arron Afflalo $4,898,943

Add all of that up and you get $62,220,106!  Sum up their holds along with their committed salary the Nuggets have a team payroll for cap purposes of nearly $100 million dollars.

In order for the Nuggets to make an offer to someone like DeAndre Jordan starting at $10 million a year, as Golden State is reportedly ready to do, Denver would have to renounce Kenyon, Nene and either J.R. Smith, Chandler or Afflalo.  Renouncing is not the worst thing in the world, but if they renounce Afflalo or Chandler, they would sacrifice their restricted status.  Renouncing Nene would mean they would no longer have his bird rights to add an additional year with higher raises than other teams.

I understand fans are frustrated as they see free agent after free agent snatched up and other teams dominating the rumor mill.  The Nuggets are demonstrating patience, which is a tremendous asset as has been made obvious over the years by teams who react and jump into bad contracts without thinking.

The front office is very much aware of what they are doing and there is no need to renounce anyone at this point.

I also realize there is frustration over the fact Afflalo has not been resigned as of yet.  The front office is ensuring they do not get caught in the common sin of bidding against themselves and artificially driving up the price.  I believe Afflalo will get a five year contract starting at just above the $5.0 million MLE starting salary.  Unless someone offers Afflalo an offer sheet or he threatens to sign the one year qualifying offer all he can do is wait.  Sure Denver could offer him a five year pact starting at $7 million just to get him in camp, but the expedience is not worth the extra cost.  Call it cheap if you want, I believe it is wise.

In the past Nuggets management has spent whatever money they had at their disposal and they have lost flexibility because of it.  This regime so far is looking to avoid the mistakes of the past.

As fun as rumors and splashy signings are, avoiding mistakes is the most important thing.

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  • FinazzAus

    Great read jeremy and very handle for everyone scratching there heads as to why we havnt had a crack at the FA this year. It also should be noted that this years class of FA isn’t strong so why tie yourself down. I don’t like re-building (as I’ve said one or twice before) but building towards a championship team or a serious contender doesn’t mean you have to bottom out. It now make sense that the exec’s are playing it smart, getting quaily players while not over commenting to a bad contract and filing the gaps when they come along.
    Like you said this franchise has always spent the money so we have to keep reminding ourself that when it comes to it they WILL spend.

    Thanks for the in site jeremy

    • FinazzAus

      Handle = handy. Oops

  • Jim

    Great post, thanks.

  • JD

    Very informative post. The Nuggets have quite a unique situation on their hands

  • Andrew

    Did Nene sign with the Nets? What about making a huge offer to Deandre Jordan or some sort of offer to Chris Kaman? Sounds like Sterling had to swallow hard to pay the $10M+ a year for Jordan…maybe an offer of $12M would cause him to balk. Also, Kaman is a definite injury risk, but at least it would show Nene that the Nuggets are serious about getting him the competent, veteran Center to play beside. Would the Nuggets be able to sign-and-trade Nene to the Nets for one of their bigs and a pick? I don’t know. I’m reaching. Just want to see Nuggets do something big (though I thought the Stone signing was interesting…he seems to be a “glue” guy).

  • Amel

    I really think we should let Nene go, however, a S&T deal would fit in perfect, considering we could get some picks from NJ (Think, they’ve got a 1st rounder and 2nd rounders in the next draft). We should rely on the guys we have in the 5 spot but imo we need another PF. Afflalo is a must-sign, no doubt about it. He should be even our captain for this season as he already showed great leadership since arriving.

    • DH

      I agree with almost everything you said. But I don’t think NJ will give up anything right now, because they are in the Dwight Howard Sweepstakes and they need to hold on to all of their bargaining chips.

      • Amel

        You have a point there. But it would be worth trying, even if we only get a 2nd rounder.

  • DH

    Ouch. You would think the NBA would relax the cap holds this year, particularly in the case of players like JR, Chandler, and Kenyon, who are locked into overseas contracts. I guess what we need now is for Nene to make up his mind, so we can move forward.

    I don’t see why we wouldn’t renounce KMart and JR, as a start. They are unrestricted anyway. We could also amnesty Harrington. For those who worry about meeting the league minimum salary, the team can choose to count an amnestied player’s salary towards the minimum if they need to.

    As for Afflalo, I could easily see some team offering him upwards of $7M. I would be thrilled if we were able to sign him for $5M.

    • Michael (another aussie Nugz fan)

      I think your idea of amnesty Harrington but still count his salary against the cap is one of the worst ideas I’ve heard this offseason.
      It makes absolutely no sense to cut a guy, still pay him and have it count against your cap.

      Big Al is certainly not what he used to be, but he is still a servicable veteran with proven talent. Stan the man doesn’t like wasting money and that would be the ultimate in wasting money.

      Renouncing K-mart and JR means we have no chance of getting anything in return for them. If we don’t need to renounce them yet, then it is wise to hold onto them until someone comes calling after them and see if we can swindle some picks or other assets out of them effectively for nothing.

  • Tommy4daNuggz4ever

    Thank you Jeremy this is a really good article but I really think we should renounce KMart I really don’t even think he wants to be here and he is going to, or than likely ask for a rediculous contract

  • Peter

    Jeremy, I think I understand your article, but I don’t understand the advantage of not renouncing JR and Kmart and tying up your ap space. I thought these were 2 guys we had no intention of bringing back anyway? If they sign with someone else was our front office hoping they could make some sign and trades or get some picks out of it? That’s the only thing I could come up with.

    • Jeremy

      The advantage of not renouncing Kenyon and JR is they can still sign and trade them regardless of whether they have cap space or not by maintaining their bird rights. If they renounce them, they can only sign and trade them if they have enough cap space to cover their salary. It may not make much of a difference in the long run, but there is no reason to renounce them if you do not have to. I guarantee you the front office will not hesitate to renounce them if the cap holds stand in the way of something they want to do.

      As far as processing trades, they have the trade exception from the Melo trade to fit players like Speights from Philly on the roster.

      • John

        In addition, if my math is correct, we would have to do more than renounce K-mart and JR to get far enough under the salary cap to do anything.

  • Andrew

    Jeremy, what do you think of Speights?

    • Jeremy

      I really like Speights coming out of Florida and he had a very good rookie season, but he just never improved. He is only 24 and has some skill. Maybe a change of scenery will help him, but will playing on a potentially rebuilding Denver team heading for the lottery really provide the impetus to become more of a team player? Probably not.

      For a future second rounder though, I think it is worth it.

      • Tommy4daNuggz4ever

        I agree with you but i dont know this season might surprise us with him if we keep AAA with corey and stonr we might be good with Gallo and Jham and then spieghts, al and faried then mozzy and kofous bird we might be ok i dont know about good or great but who knows we might be a good fit for him so he learns on a team that has to play team play he will get the minutes necessary to see and it is cheap for just a second rounder you know

  • Ricardo

    Why should we be worrying about signings free agents this year when there is going to be a better class next year. And a strong free agent class is also expected. I think we should be saving our cap space for next year.

  • Ricardo

    I think the nuggets should renounce K-Mart, he made it clear that he wants to win and that means that he may not be back with the nuggets next year.