With the lifting of the free agent moratorium on Thursday came official word Friday that the Toronto Raptors had re-signed Kyle Lowry and Serge Ibaka to three-year contracts. It wasn’t news at that point, but the Raptors filing the actual paperwork meant we’d eventually get details of the contracts, including how the salaries are structured annually and, in the case of Lowry, how much of his deal was guaranteed (reports differed).

Thanks to Eric Pincus over at Basketball Insiders, we now have at least some of that information. (Contract details are not publicly available, but Pincus manages to get them and pass them on.) Luckily for our purposes, they line up pretty closely with the assumptions we’ve been using in our cap work. and so I wrote this post…and then a trade happened…and then another…and then a waiving. So this has been rewritten a bunch and is a bit of a mess. Enjoy!

What follows are some quick details on each of the Raptors’ offseason moves so far.

Kyle Lowry’s contract – $93M guaranteed, $7M “unlikely bonuses”

Reports had Lowry’s deal coming in at $100 million over three years initially, and then with only $90 million guaranteed. The reality is somewhere in between: $93 million is firm, while $7 million comes in the form of “unlikely bonuses” (not, as I tweeted out in a sleepy haze on the weekend, $7 in unlikely bonuses, which is how my contract with RR is structured).

NBA contracts are allowed to include incentives on a number of different fronts, but the only ones that matter for us are performance bonuses. Those can be based on any number of things, with the league applying a tag of “likely” or “unlikely” to each based on whether the player achieved that mark in the year prior (unless one side thinks the prior year is not a fair indicator, due to injury or some other factor, in which case an expert determines the likelihood). So if Lowry has $7 million in “unlikely” bonuses, that means he has $7 million tied up in things he didn’t accomplish last year, whether it be assists per-game, an All-NBA team, etc (it can’t be games played).

The presence of unlikely bonuses is important to note because they are treated a little differently for salary cap and luxury tax purposes, compared to likely bonuses or fully guaranteed money. Unlikely bonuses do not count in the cap hit when determining team salary for cap room. That is, if the Raptors were to have cap space right now, this new information could conceivably help them by creating additional space, since the unlikely bonuses don’t count for that number. Essentially, Lowry’s deal can be looked at like this:

Year 2017-18 2018-19 2019-20 Cap Hit $28,703,704 $31,000,000 $33,296,297 Potential Salary $30,864,198 $33,333,334 $35,802,470

Because things need to be as complicated as possible, though, the unlikely bonuses do count when determining team salary for luxury tax apron purposes. While it’s true that the luxury tax number is determined by how the cap sheet looks on the day of the team’s 82nd regular season game, the league can’t very well let teams accidentally break the rules if unlikely bonuses hit. The Raptors don’t have cap space right now, but they are concerned about crossing the tax apron. Another way to look at Lowry’s deal, then, is this:

Cap # $28,703,704 Tax Apron $30,864,198 Tax # TBD

All told, this new information doesn’t really help the Raptors for the remainder of their offseason in flexibility terms. They’re still at the same risk of crossing the apron, and Lowry’s number on their theoretical books right now is what we had assumed before. It might, however, change their thinking in terms of their willingness to spend into the tax. If they feel like Lowry really is unlikely to achieve these marks, then our assumption for their salary we use for hypothetical luxury tax payment can be $2,160,485 lower.

I’ve left the actual number that will be used for calculating the team’s tax bill blank because that will be determined at the end of the year, when we’ll know how many of the incentives Lowry reached. (Reaching an incentive would also make it “likely” in future years and change the cap number.)

Notice above, too, that we’ve used the maximum raises of eight percent of the year one salary. We don’t know this is the structure for sure, but since it’s Ibaka’s structure and it lines up logically with what the Raptors probably referred. If the details come out and this is not the case, the Raptors will be even tighter to the tax this year. (We’ll get into why the raise structure is important in a bit.)

A note on DeMar DeRozan

When DeRozan signed last year, there were different numbers for his total contract going around – $137.5M, $139M, and $145M. We only ever got confirmation that the $137.5 million was his base with likely bonuses included, but we can be pretty sure there are unlikely bonuses as well. I dug as best I could to confirm the unlikely amount, and I’m more comfortable with using $1.5 million as the assumption rather than $7.5 million, based on the information available to us.

(This got less attention last year because the Raptors weren’t a tax team – being near the tax really opens up a lot of fun [!!] CBA complications for us to consider.)

This is roughly how DeRozan’s deal would have looked when signed, given our assumptions:

Year 2016-17 2017-18 2018-19 2019-20 2020-21 Cap # $26,540,100 $27,739,975 $27,739,975 $27,739,975 $27,739,975 Tax Apron # $26,829,628 $28,042,593 $28,042,593 $28,042,593 $28,042,593

Serge Ibaka’s contract – back-loaded

The three-year pact for Ibaka is pretty straight forward. My assumption had been that the Raptors would back-load the deal as much as possible since they’re so tight up against the tax this year, and that’s what they did. Contracts can be increased annually by eight percent of the first-year salary (not compounding), and with a $65-million deal, that gives us the following annual figures:

2017-18 2018-19 2019-20 $20,061,729 $21,666,667 $23,271,606

It’s nice that the Raptors were able to lessen their hit this year, but the cost obviously comes in later years. The cap is currently projected to increase by three percent for 2018-19 and 5.9 percent the year after that, meaning Ibaka’s raises outstrip the projected cap inflation. Ibaka, then, will take up an escalating percentage of the cap:

2017-18 2018-19 2019-20 20.3% 21.2% 21.5%

That’s mostly fine. The Raptors have traded a modicum of extra wiggle room the next two years to help with their tax situation now. Since they don’t figure to have cap space, anyway, this will mostly impact how they tip-toe around the tax and apron. Here’s a look at how the team’s big three take up the cap based on current projections (note that DeRozan has the same salary each year):

Year 2017-18 2018-19 2019-20 Big 3 $ $78,665,902 $82,739,975.84 $86,814,051 Cap Projection $99,000,000 $102,000,000 $108,000,000 % of Cap 79.5% 81.1% 80.4%

Fred VanVleet, Alfonzo McKinnie, OG Anunoby

VanVleet has a fully non-guaranteed year at the league minimum on his deal for 2018-19, but as I reported Sunday, the Raptors are going to let that guarantee on July 20. They remain very high on him, and the trade of Cory Joseph opens up the point guard depth chart.

As for McKinnie, I reported Saturday he had signed essentially the same deal VanVleet did a year ago – a two-year minimum contract with a nice guarantee in year one, albeit one that won’t move the needle a bunch for the Raptors. McKinnie will be important for our bookkeeping later, both because a team has to have 14 players anyway, and because he has a legitimate shot at cracking the roster.

Both players will count as $1,471,382 for the purposes of the tax apron calculation, as the league treats all minimum contracts as minimums for players with two years of service time for bookkeeping (to avoid incentivizing veterans out of the league due to cost).

Anunoby also signed his rookie deal.

Kennedy Meeks & Malcolm Miller

Just as a reminder, Meeks signed an Exhibit 10 training camp deal that will pay him the rookie minimum (non-guaranteed) if he makes the roster and a $50,000 bonus if he’s waived and agrees to become a G-League affiliate player. Malcolm Miller became the first Raptor ever signed to a two-way contract, one that will pay him $75,000 prorated for his time in the G-League and the rookie minimum prorated for his time in the NBA (up to 45 days, plus time before and after the G-League season).

Neither of these deals count toward team salary unless they’re later converted to NBA contracts.

DeMarre Carroll traded

We went into some of the cap fallout when I wrote up the Carroll trade, but it sheds $11.8 million this year and $15.4 million next year. Justin Hamilton returns with $3 million owed to him this year, an amount the team is using the “stretch provision” to spread out over three years.

To illustrate the value of unloading Carroll, not only does it open up more flexibility, get them closer to having the full mid-level available to them, and create an $11.8-million trade exception, it also saves the team $22,016,328 in luxury tax dollars based on their before-and-after salary snapshot at that exact moment. (Tax is charged on an escalating marginal scale, so of the $11.8 million cut from the bill here, some came with a $1.50 tax per dollar into the tax, some with $1.75, and some with $2.50.)

The net of the Carroll deal and Hamilton waiver looks like this:

Year 2017-18 2018-19 2019-20 Pre-Trade $14,800,000 $15,200,000 $0 Post-Trade $3,000,000 $0 $0 Post-Stretch $1,000,000 $1,000,000 $1,000,000 Space Saved $13,800,000 $14,200,000 -$1,000,000

This trade also created an $11.8-million trade exception for the Raptors. What that means is that the Raptors can absorb up to $11.9 million in salary (the exception plus $100,000) in a trade without sending salary back out. Given their tax situation and proximity to the apron, it doesn’t seem super likely they’ll use it right now, but things change quickly, and they can always opt to use just a chunk of it to take on a mid-sized salary. The trade exception can’t be combined with any other exceptions or with a player for salary-matching purposes, it’s basically just a one-way ticket to absorb money. They have a year to use it, so it might be an asset worth holding onto into next summer, too.

C.J. Miles sign-and-trade for Cory Joseph – HARD CAP

Things kept rolling with news the Raptors would flip Joseph in a sign-and-trade to the Pacers for Miles. An important note off the top: Acquiring a player in a sign-and-trade triggers a hard cap at the luxury tax apron amount. For the remainder of 2017-18, the Raptors will not be allowed to exceed $125.3 million in team salary under any circumstances, including injury. No mid-level can push them past it, the trade exception can’t, nothing. $125.3 million is it.

As a side note, though, it’s not entirely clear the Raptors are using a sign-and-trade here. Miles is reportedly signing a three-year deal worth $25 million with a player option on the third year. Cool, great deal. Except sign-and-trade contracts can’t have an option until the fourth year, so Miles’ deal would either need to be three years plus a fourth-year option, or be signed using the full non-taxpayer mid-level exception. If Miles wants the two-plus-one structure, the Raptors could send Cory Joseph into Indiana’s cap space in one deal (creating another trade exception), then sign Miles using the full mid-level exception that would open up.

The issue there is that the Raptors would then have lost the mid-level exception, and using the non-taxpayer version still triggers the hard cap. Part of the value of the Miles deal was that the Raptors maintained their mid-level in the process. If Miles takes it up, Toronto will only have the bi-annual exception and minimum contracts to offer on the market.

For now, we’ll assume Miles’ deal is just three years guaranteed with the maximum allowable raises. The cap sheet change for the trade looks like this (Joseph’s salary next year is a player option):

Year 2017-18 2018-19 2019-20 Joseph $7,630,000 $7,945,000 $0 Miles $7,936,508 $8,333,333 $8,730,159 Space Change -$306,508 -$388,333 -$8,730,159

Where things stand

Here’s a look at the Raptors’ cap sheet right now:

Again, this sheet does not include Lowry’s unlikely incentives, because it’s the cap sheet. Since the Raptors have blown past it, it’s not particularly relevant this offseason (they’ll keep the rights to Nando De Colo and Jason Thompson since they won’t need the space; they also have the $11.8-million trade exception, which they’d lose in the extremely unlikely event they ducked under the cap in the next year).

Here’s a look at the Raptors’ team salary for the purposes of calculating the tax apron:

Here we see Lowry’s unlikely incentives back on, a bump in the number for Vanvleet and McKinnie (to the amount for a veteran with two years of service time).Cap holds aren’t included in this calculation.

Right now, the Raptors are incredibly close to the tax line, just a shade over by our numbers here. If Lowry and DeRozan don’t hit their incentives, they probably finish the season under the tax line (though again, they still count for apron purposes). Some of our assumptions here could change the exact numbers a little bit, but the takeaway is going to be the same: Toronto can get under the luxury tax if they want to, or they could use the extra wiggle room they’ve gained to add a piece. There are two ways they could go from here.

OPTION 1: Get under the tax. Unload a player, likely Lucas Nogueira, for little salary in return, then sign a player to the minimum to replace him on the roster. This would trim $1.5 million further, though the Raptors would be running with only 14 players. They might not even have to do that, if avoiding the tax is their goal – they’ll know internally just how likely the incentive structures are, and they might be okay proceeding as is, trusting they’ll come in under the line. They could then observe how the team looks as the season rolls along, later doing something to get under the tax line for certain or to improve the roster.

As a side note, getting under the tax isn’t just about saving MLSE money. If teams pay into the tax in three years out of any four-year stretch, there are “repeater” penalties that make the tax even more prohibitive and further limit flexibility. Avoiding the tax this year would give the Raptors the cushion of being able to spend into the tax the next two seasons without fear of the repeater penalties. That’s pretty significant, given how expensive the core remains and how big a raise Powell could be in line for. (You also become a recipient of tax money if you’re not paying into it, and it’s possible the Raptors could roll that windfall over into next year’s tax budget, internally.)

OPTION 2: Fortify this group. As noted several times, the Raptors can, under no circumstance, cross the $125.3-million tax apron amount. Miles is either a sign-and-trade or the non-taxpayer mid-level exception, and either triggers the hard cap. Right now, they’re about $4.65 million beneath that mark, so they’d have about $4.65 million to play with on the market (using a chunk of the mid-level exception).

They can increase that number, though. If they’re fine with rolling with 14 players, they could waive McKinnie and leave just his guarantee, increasing that number to $6.02 million. They could trade Nogueira for little in return and (almost, or perhaps entirely) open up the $8.41-million non-taxpayer mid-level (up to $36.15 million over four years). They could trade Valanciunas and this entire post becomes worthless because their salary structure changes completely. If Miles ends up signing into the mid-level, by the way, the Raptors wouldn’t have that weapon to use. They’d still have the $3.29-million bi-annual exception to use in that case, plus the smaller trade exception from dealing Joseph separately.

There are a lot of different ways things can go from here, and there are a number of interesting names still on the market (a post for another time). The trick now becomes convincing them to sign for the limited funds available (something Masai Ujiri has done well with in the past), if the plan is to add. The Raptors surely aren’t done, but whether that means tinkering or making another major move or just adding and eating the luxury tax payment remains unclear.