It was reported on Monday that the Rockets will decline the team option on Francisco Garcia’s contract for the 2013-14 season. Oddly, by declining that option, the Houston Rockets have increased their salary cap flexibility, but not only in the way most people realize.
By making Garcia a free agent, the Rockets will likely be OVER the salary cap this July… if they want to be.
In determining whether a team is over or under the salary cap, certain items get added to team salary, such as cap holds for unrenounced free agents and certain salary cap exceptions such as the Mid-Level Exception (MLE) and the Bi-Annual Exception (BAE). A team can always renounce its rights to its free agents and waive those salary cap exceptions, in which case the team will open up that available cap room.
Sometimes, it is useful for a team with some (but not much) cap room to keep these cap holds and exceptions on its books and to behave like a team over the salary cap. This way, it will be able to re-sign its free agents and will have those salary cap exceptions at its disposal.
However, if a team is so far below the salary cap that it would not reach the cap even if the cap holds and salary cap exceptions were added to team salary, then the team loses those salary cap exceptions entirely (Read more about this in Larry Coon’s CBA FAQs here)
Now, as it relates to the Rockets:
Assuming that (a) the salary cap increases to $60 million, (b) the Rockets do, in fact, decline their team option on Garcia, and (c) the Rockets trade or waive Carlos Delfino and Aaron Brooks prior to their contracts becoming guaranteed on June 30 (taking back no salary in any trades), then the Rockets will have a team salary (minus cap holds and salary cap exceptions) of about $43.503 million.
Add to that the amount of the Non-Taxpayer Mid-Level Exception ($5.15 million) and the Bi-Annual Exception ($2.016 million). The Rockets also should have a small cap hold ($884,293) for Earl Boykins, who to my knowledge was never renounced as a free agent. That brings the Rockets’ team salary up to $51.554 million. Even if the Rockets chose to exercise the $6.4 million team option on Garcia’s contract, it would only bring their team salary up to $57.954 million. Since this is still below the salary cap, the Rockets would lose any right to the MLE or the BAE.
However, by making Garcia a free agent, his cap hold will count as 150% of his 2012-13 salary against the cap, or $9.15 million, until he is either renounced or signed (by the Rockets or by another team).
By adding Garcia’s cap hold, the Rockets’ team salary increases to $60.704 million, which puts the Rockets over the cap and thus preserves their right to use the MLE and the BAE to sign free agents.
Of course, this is only useful to the Rockets if they elect not to use their cap room, which is expected to be plentiful (if they want it to be). “Plan A” for the Rockets appears to be to take a run at a premier free agent like Dwight Howard or Chris Paul, though there is no guarantee that such a plan will be successful. While the acquisition of a superstar free agent is a distinct possibility for the Rockets, it is far from likely to happen.
So, failing attempts to nab that gem free agent, the Rockets could instead elect to make trades; to acquire players via sign-and-trade, taking back more salary than they send out (within the CBA’s salary-matching rules for teams over the salary cap); to add free agents using their salary cap exceptions; and then once much of that has been accomplished, to re-sign Garcia using full Bird rights to any contract the parties wish to agree upon.
In the end, it is far more likely that the Rockets will elect to use their cap room and that everything mentioned above will be for naught. And declining the option on Garcia’s contract was a no-brainer regardless of these additional benefits. It is also possible that the salary cap will increase enough next year that the Rockets cannot preserve their salary cap exceptions.
But the Rockets have nevertheless managed to position themselves uniquely in a situation in which they could either have max cap room OR the use of their salary cap exceptions.
Few teams have this level of salary cap flexibility.