The Cleveland Cavaliers have already agreed to pay more than $200 million in future salary (including player options) to re-sign LeBron James, Kevin Love and Iman Shumpert and bring back former Cav Mo Williams this offseason, but their four remaining decisions will shape how their roster looks and whether their luxury-tax payout will reach historic levels. Those decisions focus on free agents Tristan Thompson, J.R. Smith and Matthew Dellavedova as well as the contract of Brendan Haywood.
How much will Thompson cost?
Thompson shares an agent with James, who has already said Thompson should "be a Cavalier for his whole career." Considering Thompson is a restricted free agent, which means the Cavs can match any offer he receives, it seems to be more a question of when and how much rather than if Thompson returns to Cleveland.
Back on July 1, Marc Stein and Brian Windhorst reported that the sides were nearing agreement on a five-year deal worth more than $80 million, but such a deal has yet to be consummated.
The Cavs have extended a $6.8 million qualifying offer to Thompson, which he could accept and then become an unrestricted free agent next summer. However, it's rare for a player to choose this route because of all the guaranteed money he would forgo. But Greg Monroe did just that last year before leaving the Detroit Pistons to sign a three-year deal worth more than $51 million this offseason with the Milwaukee Bucks.
A team with cap space, such as Portland, could extend a maximum offer of four years and $70 million to Thompson, which the Cavaliers could match as the Oklahoma City Thunder just did to the Blazers' offer to Enes Kanter. Thompson could also re-sign with Cleveland for up to five years and $94 million.
Considering the Cavs have re-signed Love to a long-term deal for $113 million, they could be looking at a summer of spending nearly $200 million just to lock up the power forward position if Thompson accepts a five-year deal in the neighborhood of the original $80 million report.
The Haywood trade chip
Brendan Haywood averaged 1.6 points and 1.3 rebounds in 22 regular-season games, then played all of two minutes in the playoffs. Still, his contract makes him a valuable potential trade chip for the Cavs to continue to restock their roster.
That's because Haywood's $10.5 million expiring contract for 2015-16 is nonguaranteed before Aug. 1, so it offers a great opportunity for another team to acquire Haywood and immediately waive him to reduce its luxury-tax commitment.
The Cavs, meanwhile, can add another quality player in return for that salary relief. Because the Cavs pay a tax, they can take back a player making up to just more than $13 million in return for Haywood based on NBA salary rules in a trade for just the center.
Cleveland could also trade Haywood to a team with cap space (such as the 76ers) and receive a $10.5 million trade exception (the value of Haywood's contract). It could then use the trade exception to acquire a $10.5 million player later in the season or just take advantage of the cap savings by waiving Haywood itself.
Playoff standouts Smith and Delly
Smith declined a $6.4 million player option for 2015-16 but has yet to find an offer to his liking in free agency, and Dellavedova is a restricted free agent after the Cavs extended him a $1.15 million qualifying offer.
Because the Cavs are over the cap, one of the best ways for them to build their roster is simply to use Bird rights to re-sign a player like Smith, despite being over the salary cap. LeBron is in favor of bringing Smith back: As he said earlier this week, "Hopefully we can bring back J.R."
As for Delly, the Cavs own his early Bird rights because he has been with the Cavs for two seasons, thus allowing them to start his salary at about $5.7 million next season.
Major luxury-tax implications
The NBA luxury tax was set at $84.7 million for 2015-16. The Cavs have already surpassed that total with their nine players with guaranteed contracts for next season, not including Thompson, Dellavedova, Smith or Haywood.
But if the Cavs bring back the former three players and trade Haywood for another lucrative contract, they will pay one of the highest tax bills since the luxury tax was instituted in 2001-02.
Every $5 million above the luxury tax is taxed at an increasing rate. For example, the first $5 million is taxed at $1.50 for every dollar, the next $5 million is taxed at $1.75 per dollar and the $5 million after that at a rate of $2.50 per dollar, as can be seen below:
If Thompson signs a five-year, $80 million deal, Smith comes back for $6 million, Dellavedova signs for $5 million and the Cavs do not take the Haywood cap savings for themselves but instead trade his deal for another $10.5M player, the team's payroll would swell to about $124 million. By virtue of being almost $40 million over the tax line, the Cavs would pay a tax over $131 million for a total expenditure of $255 million of Dan Gilbert's hard-earned dollars.
Therefore, it's unlikely the Cavs bring back all three players and acquire additional payroll for Haywood's contract. Under the aforementioned projection, if the Cavs re-signed Thompson, Smith and Dellavedova and just waived Haywood's nonguaranteed contract, they would save over $51 million in taxes and almost $62 million total due to the increasing nature of the tax, resulting in a total tax of $80 million and a total expenditure around $193 million.
Especially once Thompson is presumably re-signed, the additional pieces of the Cavs' roster will be taxed very heavily because the tax is progressive.
But while Gilbert will be spending to break Cleveland's title curse, paying the tax historically has not meant title contention. Of the six teams to pay a tax over $30 million, only the 2013-14 Nets won a playoff round, and the Knicks paid a tax that high three times for a nonplayoff team. Those 2013-14 Nets hold the tax record of $90.6 million, but the Cavs may have that record in their sights.