Attempting to explain the Nuggets salary situation...

Based on the comments posted in reaction to our column on Linas Kleiza's future with the Nuggets and the Denver Stiffs reader wish list for possible new Nuggets, it seems as though a lot of Nuggets fans don't quite grasp the team's current (and future) salary cap situation. To be perfectly frank, I too get confused trying to follow the NBA's salary cap structure, as it rivals the US tax code for complexity.

But after spending a lot of time reading about the intricacies and rules associated with the NBA salary cap and studying the Nuggets current payroll, I believe I can help explain the Nuggets financial situation. For those of you who already understand how this works, bear with me. But for those who don't, before throwing out names likes Rasheed Wallace or Shaquille O'Neal or Shawn Marion or Marcin Gortat or whomever else you desire to see in powder blue and gold next season, read this...

First off, the Nuggets "fixed" payroll costs (according to HoopsHype.com) breaks down as follows:

DENVER NUGGETS 2009-10 SALARIES - fixed

Carmelo Anthony - $15,779,912
Kenyon Martin - $15,363,636
Chauncey Billups - $12,100,000
Nene - $10,520,000
J.R. Smith - $6,000,000*
Steven Hunter - $3,696,000
Antonio McDyess - $3,000,000
Renaldo Balkman - $2,036,920
Sonny Weems - $736,420

TOTAL: $69,232,888
(*J.R.'s salary of $6 million is an estimate based on having made $5.6 million in 2008-09)

Before moving forward, take a close look again at that total number: $69.2 million. And that includes one player who likely won't play again in 2009-10 (Hunter), another who will never again appear in a Nuggets uniform (McDyess) and one who will only appear sparingly (Weems).

According to ESPN.com's John Hollinger, the NBA's "luxury tax" threshold - i.e. the number over which teams are obligated to pay one dollar to the NBA for every dollar they're over the tax line - will be between $69 and $71 million for 2009-10 (the actual amount will be announced in early July). That means before the Nuggets tender a qualifying offer to Linas Kleiza for $2.7 million and/or Johan Petro for $2.9 million, or re-sign Chris "Birdman" Andersen for approximately $4+ million, or even think about re-signing Dahntay Jones and/or Anthony Carter and/or any of the players on the Denver Stiffs reader wish list, they're already at or very, very near the tax line.

Therefore, as suggested by Hollinger the first order of business for the Nuggets management brass should be to shed Hunter's contract by either a) enticing another team to take it on by throwing in a future first round draft choice, or b) using Hunter's expiring contract and their own trade exception (from the Allen Iverson-for-Chauncey Billups deal) to take back an impact player with a higher salary, like a Jeff Foster.

Assuming for now that the Nuggets could somehow jettison Hunter's contract for a future second round pick (i.e. not another contract right now), their salary total would come to $65,536,888. Not great for only seven active players, but at least they'd have some wiggle room to operate.

QUALIFYING OFFERS

If the Nuggets are to attempt re-signing Kleiza and/or Petro, they have to make a qualifying offer by June 30th. What this means is that by making the offer, the Nuggets retain the right to match any deal offered to those players by a competing team - i.e. making the players restricted free agents. The catch, of course, is that if no team makes an offer to those players the Nuggets are on the hook for their respective qualifying offers: $2.7 million for Kleiza and about $2.9 million for Petro. Thus, expect the Nuggets to tender the qualifying offer to Kleiza but pass on doing so for Petro.

MID-LEVEL EXCEPTION

Since the Nuggets are well over the salary cap (set at $58.7 million last season and could be a hair below that in 2009-10), their only chance at re-signing the Birdman and/or Dahntay would be to exercise their mid-level exception. The mid-level exception is essentially the average salary of all NBA players (it was $5.6 million last season) and can be given to multiple players. So assuming the mid-level exception is about $6 million for 2009-10 and the Nuggets re-sign Birdman for $4 million per season, they'd have another $2 million of "mid-level exception money" to spend on another free agent or use to re-sign Dahntay.

Contrary to what some of this blog's readers suggested over the weekend, the Nuggets do not have "Bird Rights" to the Birdman. "Bird Rights" (referring to the Larry Bird Exception) grant a team the ability to go over the salary cap to re-sign one of their own players. However, to accrue "Bird Rights" a player has to have played for said team for three consecutive seasons (or inherited in a trade). Neither is the case for Birdman or Dahntay and thus, they are unrestricted free agents that any team - including the Nuggets - can sign if they desire.

The bottom line is that in order to re-sign Birdman, the Nuggets will be using up a significant portion of their mid-level exception dollars, rendering the option of signing someone like Wallace or Marion via free agency a moot point.

Back to the Nuggets projected 2009-10 salaries, let's take a look assuming Hunter is traded for nobody, Kleiza re-signs for the qualifying offer and Birdman re-signs for $4 million worth of mid-level exception money...

DENVER NUGGETS PROJECTED 2009-10 SALARIES - 9 active players

Carmelo Anthony - $15,779,912
Kenyon Martin - $15,363,636
Chauncey Billups - $12,100,000
Nene - $10,520,000
J.R. Smith - $6,000,000*
Chris Andersen - $4,000,000
Antonio McDyess - $3,000,000
Linas Kleiza - $2,705,723
Renaldo Balkman - $2,036,920
Sonny Weems - $736,420

TOTAL: $72,242,611

Assuming again the tax threshold is $71 million, now we're at least $1.2 million over the tax line, meaning Nuggets owner Stan Kroenke gets to shell out an additional $1.2 million to the NBA. Oh, and we still don't have a full roster yet and have five spots to fill (three main roster spots plus two injury reserve-type spots). Welcome to NBA economics.

Since the Nuggets have to have at least 14 players on the roster, let's fill out the rest assuming another minimum salary for Anthony Carter (owed $1.3 million which is the minimum amount for a 10 year veteran) and $800,000 per player for the remaining four slots ($800,000 splits the difference between the average minimum salary of first year pro and a second year pro)...

DENVER NUGGETS PROJECTED 2009-10 SALARIES - 14 active players

Carmelo Anthony - $15,779,912
Kenyon Martin - $15,363,636
Chauncey Billups - $12,100,000
Nene - $10,520,000
J.R. Smith - $6,000,000*
Chris Andersen - $4,000,000
Antonio McDyess - $3,000,000
Linas Kleiza - $2,705,723
Renaldo Balkman - $2,036,920
Sonny Weems - $736,420
Anthony Carter - $1,306,455
Roster Spot 11 - $800,000
Roster Spot 12 - $800,000
Roster Spot 13 - $800,000
Roster Spot 14 - $800,000

TOTAL: $76,749,066

In this (likely) scenario - which doesn't even include Dahtnay Jones - the Nuggets find themselves almost $6 million north of the luxury tax line, meaning Kroenke would be on the hook for another $6 million paid to the NBA. And again, that's IF the tax line is at $71 million and assuming Hunter is traded without taking back another contract and before another impact player is added to the team. And it's fair to ask: sans an additional impact player, does that roster even guarantee another Western Conference Finals appearance?

So as you can see (if you've actually bothered reading this far), before the Nuggets deploy their trade exception from the Allen Iverson-for-Chauncey Billups trade and take on even more salary by acquiring a big name player who has become too expensive for a financially hurting franchise, they're already deep into the luxury tax. And all this just one year removed from working diligently to get under it.

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