Melo’s Money Means Tough Choices for the Thunder

The Thunder is stuck with the contract of an unhappy Carmelo Anthony. What are the options to get out of it?

Who is Carmelo Anthony, really?

Olympic Melo is the platonic ideal of the NBA stretch forward: a player that can hold his own on the block, stretch the floor, and take on an efficient, low-usage offensive role. With the shorter FIBA 3-point line, surrounded by All-Star teammates and playing against inferior athletes, Carmelo Anthony has been a literal world-beater.

Hoodie Melo is different.

Hoodie Melo was honed in Baltimore parks and school gyms, a talented young player getting his own shot, pounding the ball into the high-post and lining up that sweet, high-arcing midrange jumper. If you’re a shooter, you can hear the sound: the lightest of swishes, maybe with a little ring from the basket bracket. Pure.

If you’ve ever played, if you’ve ever felt that moment when you’re truly cooking, when you fade back and see your opponent’s face and know you have him beaten before the ball hits the bottom of the net, you understand. It’s a drug. And it’s one that Carmelo Anthony just can’t quit.

The Thunder brought Anthony in hoping they could get him to buy into a smaller offensive role. And to give him credit, he tried. As his usage dropped, Steven Adams came to the fore, with his rim-running unlocking the court where Melo’s high-post game had padlocked the paint. Billy Donovan found a couple of plays that worked with each player’s skillset. The offense breathed slightly easier.

But there was always a tension there — not between Melo and his teammates, but between Olympic Melo and Hoodie Melo. You could see it in every screen he slipped to pop out and in the occasional hijacked high-post possession. And it boiled over at the end of the season, when a disjointed Thunder team was blindsided by a sharp, disciplined Jazz squad in the first round of the playoffs.

End of an Era

Melo’s exit interview was more or less a bridge-burning, and though it wasn’t vitriolic, it was final. He talked about his lack of a role, unwillingness to come off the bench, and called the season “interesting”, which is probably about the clearest euphemism he could have used for “disappointing”. In short, Melo made it clear that whatever his path forward held, it would not have him in a Thunder uniform. At this point, it’s pretty clear the Thunder and Carmelo Anthony are looking at a divorce due to irreconcilable differences.

Melo had a choice at the end of the season — an Early Termination Option on his contract that would have made him a free agent. Given the coolness of the market overall, his age, and the caliber of the season he just had, it was a no-brainer that he’d take the last year of salary. This leaves the Thunder in a remarkably bad spot.

Carmelo opting into the final year of his contract is a 27-million-dollar boat anchor for a roster that’s neck deep in the tax already. Once the Thunder completes its roster, the payroll is going to be so high that it’s almost going to reach the amount Clay Bennett originally paid to buy the team. All of Melo’s money is guaranteed, and there’s no way for the Thunder to get out of it comfortably.

Why Does the Tax Matter?

So the Thunder owners have to shell out for their team, you say. Why does that matter? It’s not my money.

Well, the tax doesn’t just come with monetary costs. Let’s break it down.

First, you need to understand that the tax and the salary cap are two different things — don’t confuse them with each other. Unlike the hard salary cap of the NFL which can’t be exceeded for any reason, the NBA has a soft salary cap. That means teams can spend over it via the use of exceptions.

Teams that spend over a certain threshold above the cap are in the luxury tax, which adds both a monetary penalty and some team-building restrictions. Once a team has paid the tax for a few years, the tax becomes more expensive. This is called the repeater tax. The Thunder is paying the expensive repeater tax this year because it has paid the tax in three of the last four seasons.

There are team-building restrictions that kick in for taxpaying teams.

  • Smaller mid-level exception: Teams that spend over the salary cap have less money to lure free agents.
  • Harder sign-and-trades: A sign-and-trade transaction is very difficult with a taxpaying team because any team that receives a sign-and-traded player becomes hard capped a few million dollars above the tax line. It’s almost impossible.

The Thunder is capped out and in the tax with Melo, with no good way of getting back under.

So what are the options?

Before getting into this, there are a few things to note about the salary breakdowns.

  • Numbers in blue are player options. Numbers in purple are rookie options (controlled by the team).
  • Jerami Grant and Paul George’s exact contract numbers aren’t known yet, as they have yet to officially sign them. Paul George’s numbers should be accurate, or as close to accurate as I can make them. For Grant, though, it could be flat all three years, or his salary could start higher or lower to add up to the same contract number. It’s a negligible difference either way.
  • Cap and tax numbers highlighted in orange are projections based on numbers the league office has released and will be subject to change based on the revenues for that year.
  • All salary numbers are based on RealGM’s salary scale references, Keith Smith’s NBA salary sheet, Larry Coon’s CBAFAQ, and Eric Pincus’s team salary breakdowns on Basketball Insiders. Thanks to all.

Let’s take a look.

Waive

The simplest option the Thunder has at its disposal is to just waive Melo straight up.

That would mean eating his salary completely, minus whatever he gave back in a buyout. Any time a player is bought out, the usual practice is for that player to give some amount of money back on the contract to give the team a reason to cut him loose. That amount varies.

Even if Melo only gave back his minimum salary (the amount the Thunder would be reimbursed were he to sign with a new team for the minimum), it would save multiple millions of dollars in repeater tax. That matters.

Thunder salary if Melo is waived

Pros:

  • No long-term cap hit — Thunder could possibly get under the tax in 2019.

Cons:

  • Significantly more expensive this year — keeps the Thunder at high levels of very expensive repeater tax.

Waive and Stretch

The next option the Thunder would have at its disposal is waiving and stretching Melo’s salary. When a player is stretched, their cap hit becomes spread over twice the number of years on the contract plus one year. Since Melo has only one year left on his contract, that would mean the salary would be paid out over three years.

This cap hit can’t be removed in any way. Once it’s done, it’s done, and the dead money is permanently on the books.

If you’ve seen posts floating around on social media about how the Thunder could waive Melo and Singler and save around $100 million in tax, it’s referring to this method. It makes the Thunder’s immediate financial situation tremendously better at the cost of decreased flexibility down the line.

Thunder salary if Melo is stretched

Pros:

  • Saves the amount of an entire year’s regular payroll in tax.

Cons:

  • Thunder commits to paying expensive repeater tax for at least the next year and possibly two.

Trade

The final option the Thunder has is a trade. Trading Melo won’t be easy, though, and is probably more trouble than it’s worth.

Melo has a no-trade clause left over from the contract he received while playing for the Knicks. That clause didn’t go away when he was traded — it’s tied to the contract, not the team. He has to approve any trade. That means he’s not likely to want to go to the bottom-feeding teams that would be easiest to trade with.

There are teams that might want Carmelo’s contract to help them get off bad long-term salary and clear the books in 2019. $27 million is a quarter of the cap, which is a lot of expiring money that can be used to open space. Melo might approve a trade to one of these teams if they were to immediately buy him out. The problem with this, though, is that it doesn’t help the Thunder’s salary situation. It’s also unlikely OKC would receive players good enough to make up for the salary — they’d probably be dealing with Evan Turner, Luol Deng, Chandler Parsons, and other long-term bad-money contracts. There are teams that might give back contributing players, but not many.

If the Thunder was to trade Melo away, the team wouldn’t be able to cut very much salary this year. More than likely, OKC would be putting itself on the hook for more dead or bad money in the future.

Here’s one such trade scenario involving the Miami Heat. It’s more than likely an optimistic scenario because OKC’s actually getting back players that contribute.

Thunder salary if Melo is traded

Look at those numbers for a minute. That’s an unreal amount of luxury tax for multiple years, a level that a market of OKC’s size probably can’t support.

For that reason, this seems like the least likely option. There are some teams that could afford to take some of Melo’s salary into cap space, but no one can afford to eat enough to make it worthwhile over the long haul.

What Option Is Best?

The most likely options are either a waive or a waive-and-stretch, depending on the Thunder’s long-term goals.

Personally, I would lean towards waiving Carmelo this year over stretching out the salary. It gives the Thunder a chance to get under the tax in 2019 by moving some salary and filling out the roster with minimums, which would allow the front office to work towards resetting the repeater clock. It does cost more this year, but the Thunder has been saving for this stretch for a while. The team can pay it.

No matter what option selected, though, it seems like a foregone conclusion that Melo’s days in a Thunder uniform are numbered. It doesn’t matter whether he’s Olympic Melo or Hoodie Melo. Now he’s just dead money. There are no good options.

That’s how divorces go sometimes. Time to pick up the pieces and move on.

Editor’s Note:

According to Adrian Wojnarowski and Royce Young of ESPN, Carmelo Anthony will not end the summer on the Thunder roster and the two sides have begun working together to find a solution that works. The news broke shortly after the publishing of this piece.

Via ESPN:

Anthony’s agent, Leon Rose of CAA Sports, has a strong relationship and history with Thunder general manager Sam Presti, and they’ll work together on Anthony’s exit through trade, the NBA’s stretch provision, or a combined buyout and stretch, league sources said.

Anthony, a 10-time NBA All-Star and four-time Olympic gold medalist, would be pursued vigorously among contenders on the free agent market.

Oklahoma City can use the stretch provision on Anthony’s $27.9 million contract to eliminate a staggering $107 million off the team’s 2018-19 payroll and tax bill, but the Thunder first plan to pursue trade possibilities with teams looking to acquire a massive expire deal to salary cap space in July 2019 free agency.

Anthony still holds trade veto power, but it’s likely that any proposed deal would be with a team wanting simply to waive Anthony and allow him into free agency.

The stretch provision would slash $90 million in tax, dropping the Thunder’s bill from $150 million to $60 million. The stretch provision spreads Anthony’s salary annually onto the Thunder’s cap for $9.3 million over three years.