Wednesday, July 06, 2005

Clarification on Amnesty Clause

I've received a few emails from readers about how this amnesty clause works that was built into the new CBA.

To clarify: in the latest collective bargaining agreement, the owners built in a clause that allows each team to release one player before October 1, and the team will not have to pay luxury tax on that player's salary as they normally would have. The player who is released does still count against the salary cap for the team who cuts him. They also still have to pay the player the full contract amount. Essentially, the only way it helps a club is that they don't have to pay the luxury tax on that particular salary. For teams who are under the cap, they don't pay luxry tax, so it doesn't help them ... it's mainly for teams who are are way over the cap like the Mavericks, Blazers, and Knicks, who could have to pay as much as $2 in luxury tax for every $1 they are over the cap, depending on how far over they are. So, they can essentially save twice the guy's contract in taxes they wouldn't have to pay.

For example, say the cap is $60 million for purposes of this argument, and you have a payroll of $75 million. This team would have to pay$30 million in luxury tax (twice the amount they're over). But if you cut a player making $10 million over the next three years with this amnesty exception, then you're saving $20 million in luxury tax per year, because this player doesn't count against the luxury tax calculation. And you save that money through all three years, for a total of $60 million in tax savings. The player still counts against the salary cap and you still have to pay him $10 mil, but you don't pay the luxury tax against his salary. So releasing a player making $10 million can turn out to be worth much more than that.

So where does this leave Portland? Theo Ratliff has about $11 million per year for three years left on his deal, and Derek Anderson has about $9 million per for two years left on his deal. This would seem to point that Ratliff would be the amnesty casualty ... but he's also got much bigger trade value than Anderson. So stay tuned.

No comments: