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Tax effects of summer Cleveland Cavaliers Brendan Haywood trade

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Last Thursday鈥檚 trade deadline was a fairly quiet affair for the Cleveland Cavaliers. Sure, you can discuss the merits of Kendrick Perkins and his presence as a fourth big for this streaking team. But largely, the most impactful Cavs news from last week was a non-transaction.

After some recent speculation from the blogosphere, the Cavs decided to keep veteran center Brendan Haywood and his peculiar contract. 鈥淚鈥檝e been around a long time. I can read,鈥?the 35-year-old told the . 鈥淚 know my contract situation.鈥?
And boy, it sure is a unique situation. Haywood is earning only $2 million this season. That鈥檚 about to be expected for a player of his service time in the league. This coming summer, however, he鈥檒l be a remarkably valuable trade asset because of an unguaranteed $10.5 million figure for 2015-16.

That鈥檚 a massive deal. No team would want to pay that kind of money for what Haywood has done on the court. But many would happily trade for him to clear off another oversized deal. The issue wasn鈥檛 the desirability of Haywood鈥檚 contract during the summer. The issue was that the Cavaliers would be punished for using it to its full advantage.

, the Cavaliers are expected to be over the NBA鈥檚 luxury tax next season. That was going to be the case no matter what. With the news of keeping Haywood through the trade deadline, and some recent NBA rumblings, we can update the salary cap situation a little bit further.

The NBA Players Association will not agree to a smoothing of the cap increases. This was announced shortly before the All-Star Game. NBPA executive director that it was a unanimous vote by team representatives. This is mostly good for Cavs GM David Griffin.

With the league鈥檚 new $2.6 billion annual TV contract beginning in 2016-17, there had been speculation the league would push for a smoothing of cap increases. The current TV contract is only $900 million per year. A one-year jump like that would cause significant issues for free agency, accounting and more.

A smoothing proposal could have brought the cap from $63 million this season gradually up by $10 million each year for three years. Without smoothing, the cap is expected to jump by maybe $6 million this season and then a whopping $20 million the year after.

As I shared previously, a basic layout of the 2015-16 Cavs player salaries plots the team at about $89.4 million for 11 players:

salary situation for 2015-16 gonna get messier and messier. About $89M sans Haywood.

Jacob Rosen (@WFNYJacob)



Smoothing would have meant the Cavs would be over the tax line for 2015-16 and 2016-17, guaranteed. But without smoothing, there remains an outside chance the team could back under the line barely in two years. This is major news in avoiding the dreaded repeater tax 鈥?an added jump in tax rates for teams over the tax in three out of four years.

No smoothing also means lower possible jumps in salaries for the team鈥檚 Big Three. is based off the 2015-16 cap figure. and both hold opt-out clauses for this summer, meaning they could reset their max deal to a percentage of the new cap.

Given the approximate $6 million or 10 percent increase to the cap this summer, the combined effects for the Big Three would add $5.6 million to the team鈥檚 salaries. That brings the estimated $89.4 million number up to $95 million:

Another look at how cap increases can affect estimates/new max amounts for Cavs Big Three in 2015-16

Jacob Rosen (@WFNYJacob)



In addition, both Tristan Thompson and Iman Shumpert are restricted free agents. Their qualifying offers are for $6.8 million and $3.7 million, respectively. A sizable increase is certainly likely for Thompson after he rejected a deal this past October. There鈥檚 no knowing exactly what might be a future contract for Shumpert, who has played exceptionally well off the bench thus far.

So will the Cavs consider trading Haywood this summer? Even without jumps in salaries for Thompson and Shumpert, you can already start to see the tricky salary math for the Cavs in 2015-16. Fortunately again, this might only be a one-year stint in the tax zone. But it could get ugly.

With the estimated $69 million cap figure, the tax line would be approximately $83 million:

Another chart: Tried to estimate increase of tax line based on increases to the cap. Uses diff % of BRI.

Jacob Rosen (@WFNYJacob)



From my earlier math, I鈥檝e got the Cavs at $95 million already. Using , a non-repeater team $12 million over the tax line would pay $21.3 million in taxes back to the NBA. That鈥檚 a non-significant amount, for sure.

But what if the Cavs trade Haywood and take back $10 million in salaries? That would push the team to being $22 million over the cap 鈥?resulting in a gigantic $52.5 million tax bill. You see the issue now.

The NBA鈥檚 new progressive tax system, installed with the 2011 CBA, is the closest thing possible to a real-life hard salary cap. By just adding $10 million in player salaries, the Cavs would be paying over $30 million extra in taxes. That鈥檚 a 300% tax rate!

And again, this is without increases for Thompson and Shumpert, and the fact I previously only included 11 players. The Cavs also have first- and second-round selections in the 2015 NBA draft. These additional salaries could actually add to the tax rate increase for a Haywood-based summer acquisition.

This is again why many petitioned for during this deadline. But now, as the Cavaliers move closer to the playoffs, we know a little bit more about what to expect this summer salary cap-wise. And it鈥檚 why Dan Gilbert would have to open his wallet quite a bit to make any major roster changes in the coming months.