ESPN’s Adrian Wojnarowski is the man with all the answers as free agency approaches and he dropped another massive report on Tuesday afternoon: the Houston Rockets are going to go after Jimmy Butler in a sign-and-trade with the Philadelphia 76ers. The machinations of the sign-and-trade are complicated and get into all sorts of issues for both sides, so I’ll try to lay out the various options both teams have, how Philadelphia, Houston, and perhaps a third team could structure the deal to make things work, and the ramifications of the trade on the two primary teams involved.
The first hurdle for this deal is, of course, that Butler himself has to agree to it. He has the opportunity to re-sign with the 76ers for a five-year max contract worth $189.66 million, a figure that drops to $140.61 million over four years if he signs with any other team, including the Rockets in a sign-and-trade. Even though he’d technically be re-signing with Philadelphia before being immediately traded to Houston, Butler is still limited to the four-year maximum with 5% raises by the CBA’s sign-and-trade rules. There’s no extra financial incentive for Butler to work a sign-and-trade with Philadelphia versus just leaving in free agency to a team with cap space, which makes things somewhat harder on Houston.
Houston cannot do this deal without a sign-and-trade. Even if they were to completely empty their roster except for Chris Paul and James Harden, those guys make so much money that the Rockets would only have $23.25 million in cap space, which isn’t nearly enough to bring Butler into the squad. Of course, that would also require them to find trades, with no returning salary, for literally everyone on the team outside of Paul and Harden, which isn’t realistic or particularly smart from a team-building perspective.
Assuming Butler is interested in Houston and willing to sign the four-year max for $140.61 million with the Rockets, now comes the difficult part: figuring out the trade with Philadelphia. Houston has to send out at least $26.08 million in 2019-20 salary in order to satisfy the league’s rules regarding trades; whether the 76ers take all that salary back or not is irrelevant. The construction of this trade would likely include Clint Capela and Eric Gordon, who make a combined $28.95 million next year. Subbing either player out for P.J. Tucker, a construction that has also been discussed, per Wojnarowski, would require additional salary to be added to the trade, as Tucker only makes $8.35 million for next season. All three players being involved, from a cap perspective, works for Houston, though that gets into other issues with Philadelphia’s returning salary and simply the basketball side of things – losing all three of Capela, Gordon, and Tucker in a sign-and-trade deal for Butler might not be appetizing for Houston, despite Butler’s star stature within the league.
The most likely construction of the trade, in my view, is Butler to Houston, Gordon to Philadelphia, and Capela to a third team, plus whatever draft assets are needed for a third team to take Capela’s lengthy contract and for Philadelphia to agree to the sign-and-trade to help Butler get to the Rockets. There are obviously thousands of permutations of this deal, but I would imagine that Philadelphia would want to include a third team to take Capela, as they probably aren’t interested in his services for the next four years. Joel Embiid is their unequivocal starting center and best all-around player; paying Capela $66.21 million (plus up to $8 million in incentives) over the next four years to play as a backup makes very little sense for the 76ers. There are teams who should be very interested in Capela at that number, though, particularly if they can take him on for free or even get paid with a small asset for their part in making the trade work.
Atlanta is currently without a starting-level center with Dewayne Dedmon’s future up in the air. Boston will be looking elsewhere after it was reported, again by Wojnarowski, that they and Al Horford were not close on contract talks. Dallas has been chasing a center for years and may have been interested in signing Capela last summer before he returned to Houston. The Clippers have a whole bunch of cap space and a hole at starting center Capela could fill. New Orleans has positioned themselves to have max space, though they just drafted their own version of Capela in Jaxson Hayes. New York has been linked with nearly every free agent center this summer. Orlando, should they lose Nikola Vucevic, would be an interesting home for Capela. Sacramento has next to nothing at the center position and was previously thought to be in on Vucevic, but they’d be much better served going after Capela at his price than maxing out Vucevic.
Routing Capela to a third team is the best outcome for Philadelphia, as they could retain a lot of their post-Butler cap space and still bring back Tobias Harris, J.J. Redick, and others, but it depends how they want to structure the sign-and-trade from their side of things. They may run into Base Year Compensation issues in this deal, though that will be based on their other summer business. As I ran through in their offseason preview, the 76ers have a lot of different ways they can go about this offseason, from zero cap space all the way up to nearly $60 million, depending on the results of Butler’s and Harris’s free agency. Butler opting for the sign-and-trade path with the Rockets would make things interesting for the 76ers, as they can still go in a few different directions with their overall cap space.
Base Year Compensation triggers when a team is going to sign-and-trade one of its incumbent free agents to another team, gives that player a raise of more than 20% over his previous salary, and uses the Bird or Early Bird Exception to re-sign that player before trading him to his new team. On the face of it, a Butler deal seems to automatically trigger BYC for Philadelphia, as they have full Bird rights on him and he’s clearly getting at least a 20% raise; a max contract would be a 60% raise over his $20.45 million salary for the 2018-19 season. Base Year Compensation puts a limit on the salary Philadelphia can take back in a Butler trade – his outgoing salary, for trade purposes, is limited to the greater of his previous salary ($20.45 million) or half of his new salary ($16.35 million). Using that $20.45 million number for Butler’s outgoing salary limits what Philadelphia can bring back to $25.57 million, which would not be enough to trade for both Gordon and Capela, if they were to take both players into their team before perhaps finding a new home for Capela later in the summer. As a result, if BYC were to apply to this trade, then a third team would have to be involved, as Philadelphia would only be able to take in up to $25.57 million but the Rockets have to send out at least $26.08 million in salary to satisfy their part of the deal.
(h/t Bryan Toporek for succinctly pointing out that a two-team deal is impossible if BYC triggers for Philadelphia)
However, there’s a way for Philadelphia to structure their transactions that would not require them to stick to the Base Year Compensation rules – they don’t have use the Bird Exception to re-sign Butler, but instead can use cap space. The BYC rules are very specific about having to hit all three criteria: it must be a sign-and-trade transaction, the player must be getting a raise of more than 20%, and the re-signing team must be using the Bird or Early Bird Exception to sign the new contract. Using cap space would not trigger the third aspect of that criteria, which would then ensure that BYC was no longer an issue for the 76ers.
If Philadelphia were to renounce every free agent cap hold and traded player exception on their books except for Harris, they would have $38.46 million in cap space before executing the sign-and-trade with Butler and the Rockets. As their first piece of business on July 6, they could re-sign Butler to the four-year max and immediately trade him to Houston in the sign-and-trade agreement. Base Year Compensation would no longer be an issue and his outgoing salary would match his actual salary, $32.70 million, which would generate a sizable trade exception, though they would likely eschew that in order to use their remaining cap space.
If they were to take back Gordon in one of the three-team constructions I laid out earlier, their cap sheet would include Embiid, Harris’s cap hold, Gordon, Ben Simmons, Zhaire Smith, Matisse Thybulle, and Jonah Bolden and would leave them with $25.30 million in cap space to use on free agents, including Redick, before then going over the cap to retain Harris using his Bird rights. $25.30 million would be more than enough to re-sign Redick and fill out the rest of their roster, plus they would have the Room Exception at $4.8 million to exceed the cap for a player or two after using that money on other players. They would have several roster spots to fill, but with that much financial flexibility, it would hardly be a problem. They could even retain Mike Scott’s Non-Bird cap hold, if they had an agreement with him to come back at that value, which would allow them to exceed the cap further and use that additional cap space elsewhere.
Given the nature of the timing of the moratorium and the fact that teams can come to agreements with players and other teams on signings and trades, Philadelphia could get all their ducks in a row in the first five days of July and execute everything in the correct order on July 6 – renounce everybody but Harris (and Scott, if he’s coming back on less than $5.18 million), sign-and-trade Butler at his maximum to Houston and take back Gordon, use the rest of their cap space on Redick and the other players with whom they come to terms in free agency, then re-sign Harris to go over the cap using his Bird rights (and Scott, if that agreement is in place as well).
Houston’s post-trade work, on the other hand, would be much, much more limited. One of the stipulations of a sign-and-trade is that it limits overall team spending to the apron, which is projected to be $138.21 million next season. If they were to send out Gordon and Capela in the trade for Butler and make their expected cuts (Deyonta Davis, Chris Chiozza, and Michael Frazier), the Rockets would find themselves with $13.22 million separating their team salary from the $138.21 million apron threshold. In this scenario, they’d have just seven players under contract: Chris Paul, James Harden, Butler, Tucker, Nene, Isaiah Hartenstein, and Gary Clark. $13.22 million to fill out the remainder of their roster is not very much at all, considering each minimum free agent they signed would count for $1.62 million against that number, whether they were a rookie, sophomore or any other player. Team salary for the apron specifically includes all minimum free agents at the two-year veteran’s minimum, regardless of their actual years of service, which would make a significant difference for the Rockets.
UPDATED 29 June 2019: Nene opted out of his contract for 2019-20, which opens up a lot of extra room under the apron with which Houston can work. Additionally, the NBA released the official cap numbers for 2019-20, which brought the apron in at $138.928 million. The result of these two changes is that a Rockets roster of Paul, Harden, Butler, Tucker, Hartenstein, and Clark would bring Houston to $17.97 million from the apron with just six players under contract. Each minimum will cost them $1.62 million, and seven of those (to get the team to 12 players) would cost them a total of $11.34 million, leaving $6.63 million of the mid-level exception to use on a bigger-name free agent. The mid-level exception can be used to sign a single player or can be split among multiple players, including Danuel House and Austin Rivers, both of whom Houston would like to retain but will need bigger raises than what they can give them under the Non-Bird Exception. The more they split it up, the more of the exception is available, since they would no longer need an extra minimum player to reach the league’s minimum roster limits.
Houston would have to fill out at least a 14-man roster to comply with league rules in that regard; using six spots on minimum contracts would leave them just $3.51 million from the apron, which is all they’d have left of the Non-Taxpayer Mid-Level Exception. Using any more than that amount would push them over the apron and the signing would be rejected by the league as illegal. They’d be particularly top-heavy in this situation, but the Rockets’ front office has also shown a knack for finding guys who can help them on the minimum and buyout market. They’d have even less flexibility to do so this time around, but it’s certainly doable.
There are many significant obstacles between Butler and the Rockets, though none are overwhelmingly burdensome on their own. Finding a third team to take Capela may be the most difficult aspect of a potential sign-and-trade, as well as whatever draft compensation may be due to Philadelphia and that third team for their parts in the trade. Of course, if Butler decides he’d rather stay in Philadelphia or go somewhere other than Houston, all of this is moot, but in the event he decides the Rockets are his choice, there will still be plenty to work out between the two (or three) teams involved in the transaction.