The Portland Trail Blazers did the Cleveland Cavaliers a favor last February by agreeing to eat Anderson Varejao’s sizable contract. The move significantly reduced Cleveland’s luxury tax bill and created a trade exception for the Cavs. In return, the Blazers received a first-round draft pick from Cleveland.
At the time, Portland President of Basketball Operations Neil Olshey likely didn’t realize that the Blazers might be acquiring the most expensive draft pick trade in NBA history.
The deal was a clear victory for the Blazers—thanks to some tricky cap maneuvering involving the “stretch provision” and the salary floor, Varejao’s contract ended up having virtually no effect on Portland’s total salary obligation (the NBA is weird). Olshey quite literally got a first-round draft pick for free.
A Luxury Tax Conundrum
However, things have changed significantly for the Blazers since the Varejao trade. As has been repeatedly discussed, Portland has $133 million in guaranteed contracts signed next season, plus about another $4.7 million to be added by their three first-round picks. That will put them about $17 million over the luxury tax.
The finances don’t get much better in upcoming seasons. They have committed $120 million to only six players for the 2018-19 season. Add in an extension for Jusuf Nurkic at around $20 million, plus about $5 million to this year’s three draft picks, and the Blazers will hover around $145 million in payroll. That would put them $22 million over the tax estimate with five roster spots yet to fill, and ignoring an extension for Noah Vonleh entirely. For 2019-20 the Blazers already have $120 million committed to six players. Throw in Nurkic and this year’s picks and they’re at $145 million again—roughly $16 million over.
In summary, a conservative estimate puts the Blazers $17 million over the tax next season, $22 million over in 2019, and $16 million over in 2020. Note that those numbers don’t even account for minimum-contract players to fill out the last five roster spots, assume no additional draft picks and Vonleh walking for nothing.
The Most Expensive Draft Pick Ever?
What’s that have to do with the pick acquired from Cleveland? If we assume the pick ends up at No. 24 (it can be anywhere in the range Nos. 23-26), that player will be paid roughly $1.31 million in 2018, $1.55 million in 2019, and $1.81 million in 2020.
Under the current luxury tax schedule, that means the Blazers will be making the following luxury tax payments on the contract for the Cleveland draft pick: $4.26 million in 2018, $5.81 million in 2019, and $5.88 million in 2020.
The above calculation ignores the fact that Varejao is still on the books for $2 million per year until 2021. When the Blazers cut Varejao they used the stretch provision to spread his contract out over five seasons. His salary still counts against the Blazers’ luxury tax even though he’s not with the team.
The consequence is that even though Varejao’s actual salary was absorbed by some trickery with the tax floor, the team still has to make tax payments on his $2 million every season. Multiply by tax penalties and those payments will total roughly $5.47 million, $6.47 million, and $4.95 million over the next three years.
Wait, the Bill is How Much?!
So what does this mean? When the bill for salary and tax for the No. 24 selection and Varejao are totaled, the pick acquired for “free” from the Cavs will cost the Blazers a cumulative $37 million over three years—the heftiest pricetag ever for a late-first round pick.
A Way Out?
You may be thinking: Don’t the Blazers have time to shed salary before the scenario outlined comes to pass?
That is certainly true, but if the team waits even a year to reduce payroll, it’ll be saddled with a multi-million dollar tax bill for a No. 24ish pick. Nothing is simple anymore, and every move Olshey makes carries extraordinary financial consequences. In this new world, reports from accountants may prove every bit as important as those from scouts and coaches.