You want to talk about stress? Let’s talk about how the Nuggets salary cap breaks down over the next few years.
Nikola Jokic’s contract situation
When the Nuggets drafted Jokic they signed him to a three-year, $4.08 million contract with a team option for the fourth year. Since Jokic was the 41st pick in the draft, that’s a fairly standard second-round pick contract. He came over from Serbia in the first year of his contract, showed enough promise to win a starting role the next year.
The Nuggets experimented with Jokic and Jusuf Nurkic in the starting lineup, but unfortunately that combination didn’t pan out. They shipped Nurkic and a 2017 first-round pick to Portland for Mason Plumlee, then re-signed Plumlee to a three year, $41 million contract in the 2017 offseason.
Now we’re at the last year of Jokic’s contract, unless the team exercises their $1.6 million option which would allow Jokic to become an unrestricted free agent in the 2018-19 offseason. Just about everyone on Earth has assumed that the Nuggets would NOT exercise the option, opting instead to offer him a five-year, $146 million max (25 percent of the cap, 8 percent raises each year). That would trump any offer from a competitor, as they can only offer four years, $109 million. Money and years may not be the most important thing to Jokic and he could choose to sign with another team in restricted free agency but Denver could simply match that offer sheet and retain their franchise center.
The current cap situation
The Nuggets were positioned to give Jokic a max offer entering last summer but then the 2017 offseason happened. The Nuggets added $210 million to their cap sheet in three players, signing Plumlee and Paul Millsap to bolster their frontcourt while extending Gary Harris.
This created a problem for the 2018-19 season. With Kenneth Faried in the last year of his contract, Darrell Arthur holding a player option for that season, and $42 million committed to Plumlee and Millsap, the Nuggets will be about $7 million under the luxury tax that year prior to signing Jokic to a new contract.
This figure of about $114 million includes the Nuggets 2018 first round pick (projected at No. 15) but no additional players. If the Nuggets tried to re-sign Will Barton, which they could do since they have his Bird Rights, even a conservative, team friendly contract of three years, $30 million would put them $3 million over the luxury tax.
The luxury tax
The luxury tax is about $20 million over the salary cap. Teams have some wiggle room to re-sign their own players without being penalized, but once teams go over the cap and the luxury tax threshold, the CBA limits the type of contracts they can offer and they have to begin paying a penalty.
Teams begin by paying a $1.50 tax per $1 they go over the salary cap, with brackets set up in $5 million increments for higher tax rates. If the Nuggets were, for example, to go over the salary cap by $17 million, they would have to pay $3.25 for every $1 they go over. That’s a lot.
If the Nuggets let Barton walk, sign Jokic to a new contract and bring back the exact same team as they have this year, here is what their team salary breakdown would look like.
Nuggets salary cap
|2018 first (No. 15)||$2,271,400||$2,660,000||$2,786,800||$4,272,164.40||$5,972,485.83||$17,962,850|
|Luxury tax space||-$13,152,863||$16,690,722||-$6,568,760||$26,655,359||$22,035,954|
|Luxury tax penalty||No luxury tax||$54,244,847||No luxury tax||No luxury tax||No luxury tax|
|Total salary cost||$191,935,569|
That would leave the Nuggets with a nearly $200 million salary - for a team that finished as the 8-seed in the Western Conference.
While the Kroenke family may not be opposed to paying the luxury tax for a season or two, they would think twice about paying an additional $54 million for a team that probably won’t make it to the Conference Finals, let alone the NBA Finals.
The cost of moving salary
For salary cap nerds (and fans of the Dunc’d On Basketball podcast) you may be familiar with the cost-to-acquire associated with a first round pick. A first round pick in today’s market is worth about $20 million in salary to the acquiring team. That’s how much teams are willing to eat in salary to take on any first round pick - it doesn’t even have to be a lottery pick.
If the Nuggets want to re-sign Jokic this offseason - which means declining his team option that would keep him at a very low salary for an additional year - they will likely have to trade Kenneth Faried and two of Darrell Arthur, Wilson Chandler, or Emmanuel Mudiay.
Denver would need to move three of those players just to get under the luxury tax - right now they would be around $37 million over the salary cap. We’re long past that exit on the highway; there’s no turning back now folks. That would give them a chance to sign a veteran at one of the exceptions but it would also put them at risk of jumping back into the luxury tax (albeit at a much less harmful tax rate).
The Nuggets can’t just trade those players either. They have to find expiring contracts, a rare commodity as the league approaches the trade deadline.
The best case scenario
Let’s walk through the best case scenario. First off, they decline the team option on Jokic’s contract, having reached an agreement with his agent that Jokic will re-sign with the Nuggets for the max.
They have the room to pay Jokic because they were able to convince the Phoenix Suns to trade them Greg Monroe for Faried and Chandler, without having to send any draft considerations in the deal. They also convinced Stan Van Gundy and the Pistons to send Stanley Johnson to Denver for Emmanuel Mudiay (again with no picks) and upon joining the Nuggets, Johnson raises his 3-point percentage by 50 percent and starts knocking down 40 percent of his shots from the perimeter.
With some cap space cleared out, the Nuggets find a veteran backup point guard in free agency and go into the 2018-19 season with Millsap fully recovered from his wrist injury and a healthy, balanced roster.
The worst case scenario
The worst case scenario began last season when they couldn’t move any salary for a rotation player. They got rid of Jusuf Nurkic but weren’t able to attach any bad contracts to the deal. The Plumlee contract isn’t terrible in a vacuum - it’s just really bad for the Nuggets salary commitments, especially with Faried, Chandler, and Arthur on the books as well.
This scenario continues on as the Nuggets aren’t able to move any of their 2018-19 salaries off the books at the trade deadline, and in a decision to avoid a monstrous tax penalty, exercise Jokic’s option for 2018-19. They also get talked into a three year, $45 million contract for Will Barton, which puts them about $8 million over the luxury tax. That’s not too bad, especially if they’re only going to pay it for one year.
Which they do only have to pay for one year, because Jokic is wooed by Gregg Popovich and the Spurs, he falls in love with the downtown Riverwalk (“This is much better than the South Platte,” he says in the introductory press conference) and signs a contract with San Antonio in the offseason. That leaves the Nuggets with Plumlee starting at center on an expiring contract, but at least Faried and Chandler aren’t on the books. They’re over the salary cap, but hung out to dry as they watch their franchise center leave for greener pastures.
It’s not a very pleasant thing to consider.
What I think will happen
For the last 18 months, I’ve had the opinion that the Nuggets are going to decline their option on Jokic’s contract but re-sign him to a max salary contract in the 2018 offseason. I do not have that opinion any more, and predict the Nuggets will allow Jokic to become an unrestricted free agent.
I think the Nuggets are aware of their salary cap situation, and are trying to find a team that will take Faried’s contract off their hands. I think they are also trying to find a team that will trade for Chandler, and I get the feeling if he doesn’t wind up on a different team come February 9 he’ll decline his player option so he can leave in the offseason. I think Arthur will play out his contract in Denver, exercising his player option to stay until the end of the 2019 season. I do think the Nuggets will be able to trade Mudiay, whether before the deadline or on draft night, and won’t have him on their roster for the 2018-19 season.
It causes me anxiety to think about Jokic being able to leave Denver while the Nuggets are left with a gaping roster hole and missing star. Even if he is able to explore the market as an unrestricted free agent, I get the sense that he wants to be in Denver and doesn’t want to have to change teams. If I’ve learned anything in this short life of mine, though, sometimes the most unexpected things are the most likely to occur.
I wrote this under a headline of “Why the Nuggets need to make a trade,” and here’s the reason why. Without moving at least one of Faried, Chandler, Arthur or Mudiay, things are going to be tight in the 2018 offseason. This is the consequence of adding Plumlee and Millsap. Having good players on expensive contracts means that teams have to make hard decisions. For the Nuggets, that likely will mean that Juancho Hernangomez or Malik Beasley, both budding fan favorites, will likely have to be included in a trade to get rid of one of the bigger contracts. It sucks, but that’s how the league works.
The salary cap for the league allows teams to have two max contracts on their books, with a few double-digit ($10-20 million) contracts, and then a rotation filled with veterans on small contracts and young players on small contracts. The Nuggets have a max player in Jokic and Millsap, a few double-digit contracts (Harris, Plumlee), and a young player in the starting lineup (Murray) with another in the rotation (Lyles). Now they just need to fill things out off of that foundation.
I’m expecting a quiet trade deadline for Denver. I’d like to be proven wrong - the Nuggets need to make some noise now to avoid a more catastrophic one later.