clock menu more-arrow no yes mobile

Filed under:

Guest Post: ShamSports on Otis Smith, the Orlando Magic, and "Creative Financing"

Editor's note: 3QC is honored to have Sham, of ShamSports, write the first Guest Post in site history. Sham runs England's finest basketball site, which includes the most authoritative NBA salary database available to the general public. In this guest post, he assesses Otis Smith's construction of the latest Magic team. With no further ado, here's Sham:

"Creative financing" has long been a favoured phrase for Orlando Magic general manager Otis Smith, most famously in the run-up to the 2007 offseason. Smith used the term to describe how the Magic were going to handle having maximum cap room, juggling signing other team's free agents along with retaining Darko Milicic. It was a fairly generic term that said something without really saying anything. And it only gained its resonance after Smith used all his money to give Rashard Lewis the biggest six year contract in the sport's history. (It's definitely financing, but I'm not sure about its creativity.)

Smith's use of the term in conjunction with the Lewis deal made it something of a running joke in amongst the world's particularly nerdy NBA fans. (The kind of folk who make jokes about traded player exceptions. We're a fun bunch, we are. We throw the best parties.) "Creative" became synonymous with "terrible," and Smith didn't help himself by spending his way right up to the luxury tax barrier, on a team that refused to cross it. Paying James Augustine an unnecessary $243,145 to be under contract for two weeks in mid-July didn't help anybody, either. (Other than James Augustine.)

But just how creative is the Magic's financing?

Not including Morris Almond and Linton Johnson, the Magic have a 2009/10 payroll of $82,060,953, the sixth largest in the league. The only teams ahead of them are the Lakers, the Mavericks, the Jazz, the Celtics and the Cavaliers, most of whom are perennial big spenders. The Magic also have the most committed future salary of any franchise in the league, by miles, and it's not even close. Including this upcoming 2009/10 season (and assuming for consistency's sake that all option years and partial guarantees are invoked), the Magic have $316,442,872 committed in future salary, far in excess of the second place L.A. Lakers with $256,433,829. (For comparison's sake, in last place are the Oklahoma City Thunder with only $108.7 million. Never before has the phrase "$108.7 million" been prefixed with "only.")

The Magic are juggling three of the biggest contracts in the league in Dwight Howard, Vince Carter and Rashard Lewis. Those three alone combine for $203.46 million in committed salary, more than 19 NBA franchises have committed to their entire rosters. And even though all three have unguaranteed final seasons (Howard with an ETO, Lewis and Carter with partially guaranteed salaries), that doesn't mean a whole lot. Dwight is not likely to opt out of $19.54 million, and if he does he'll re-sign for something similar anyway. Lewis's astronomical $22.7 million salary is a minimum of $10 mil guaranteed (rising to as much as $17.25 mil guaranteed if he meets performance benchmarks); however, while that represents a huge saving should he be waived, it also means an 8 figure commitment to someone who wouldn't be on the roster, which is not comforting and definitely not creative. And while Carter's final season is only $4 million guaranteed, waiving him before that final season would mean paying him $37 million for two seasons of work, which is is equally uncomfortable. The Magic have taken on an absolutely massive burden, which will be doubly painful if it doesn't work out on the court.

Thankfully, the other players are more competitively priced. Smith hit a sweet one when he extended Jameer Nelson to an incentive-laden 5 year, $40.5 million contract that pays a flat $8.1 million per season. This is a market value contract to a key player, who figures to only get better throughout the life of the contract. Brandon Bass and Mickael Pietrus are on similar deals, both signing flat rate contracts (for $4 mil and $5.3 mil respectively) which have performance incentives that could increase their value. Marcin Gortat is entirely worth the full Mid Level Exception, if only as a future trade chip. And no other player on the roster has a sizeable salary, with the next highest being J.J. Redick's expiring $2.84 million. The bottom third of the roster is done at bargain price, with Jason Williams and Adonal Foyle earing the minimum (only two thirds of which is charged to the Magic's cap), Ryan Anderson on a rookie scale contract, and with Matt Barnes earning only slightly more than that ($1.6 million for two years). Giving Anthony Johnson two years was a mistake - giving Anthony Johnson one year was a mistake - but it hasn't cost Orlando anything significant.

Smith and the Magic front office have had a fine offseason, paying market value prices to acquire some good quality players. Even the little things, such as the inclusion of Ryan Anderson into the Carter deal, were handled well, and they've been able to assemble the deepest Magic team in the franchise's history. (Not the best, though; that title is forever bestowed upon the 1999/00 lineup that featured liberal dollops of Ron Mercer, John Amaechi and Chucky Atkins. Great fun.) But all of this offseason's succees is only possible because of ownership, and their new-found desire to spend.

Don't get me wrong; spending is good. Being able to spend means you're able to buy, to obtain players and assets that non-spending teams could not. And in this tough economic climate, where most teams are inclined to sell and borrow, it's an even bigger blessing. But what would have happened if the Magic had lost to the Celtics after all? What if there was no Finals berth? What would have happened to the spending? The always tax-shy ownership - who have never previously paid any luxury tax - might have been shy of doing so now. They're currently on tap for a payroll of roughly $100 million, once tax deductions are taken into account. Had last year's Magic team been less successful, that figure might have been $30 million less.

It's not, though. As we've seen, the Magic are willing to spend their way to success, moreso than ever before. Because of that, Otis Smith has been able to offset the loss of Hedo Turkoglu and build the deepest Magic team of all time. And he's done it well.

As a Bulls fan, I'm jealous of this. Our ownership have always said that they'll pay for a 'winner,' but they've never done so, in spite of having profits bigger than Kirk Hinrich's Adam's Apple. Perpetually needing to make a big time deal for a front court star, the Bulls haven't been as gun shy about it as the press would have you believe, but the one time they were able to find the right deal (Pau Gasol), ownership vetoed it, not believing that Pau Gasol was worth paying the luxury tax for. As a result, we had to see out the 2006/07 season with P.J. Brown at power forward, and slumped back into the lottery the following season. Not cool.

We look up to you, therefore, as an example of how an NBA team's ownership really will step up and pay for a winner. The Magic did not pay for a winner when they weren't one, but now that they are, they are. (If that makes sense.) In contrast, Bulls chairman Jerry Reinsdorf occasionally speaks of the Bulls' willingness to pay tax for a Finals team, but because we've never had one, it's never happened. We have to strive to avoid it, in fact, and this meant a dump of Thabo Sefolosha for Taj Gibson at the deadline just to be under the tax threshold this season. With profits like ours, it need not have happened....but it did. Bad times.

Yet as flattering as our envy may be, this does not matter to Magic fans. All that matters to you is the fortunes of your own team. And those fortunes are born directly out of the renewed commitment to the team by ownership. If Rich DeVos had forgotten that he was his own first name and pansied out of the luxury tax this year, your future would look a lot different. There may not have been no Vince Carter deal, for example, and no retaining Gortat. There might not have been a Bass signing, either, and the luxury of having Matt Barnes as a fifth forward option just wouldn't have been possible. With the luxury tax set at $69.72 million this upcoming season, the Carter trade left the Magic with $68.96 million in committed 2009/10 salary with only 8 players under contract. Without the Carter deal, there wouldn't have been a whole lot more money to spend, with $64.32 million committed to only 9 players (three of which would be point guards, one of which would be Tony Battie).

Had it not been for this new-found willingness to pay the tax, you would probably have entered this season with a worse team than last year's. The money just would not have been there to keep together the previous team, let alone to build upon it. To improve upon the former team would have involved finding some real bargains, cutting salary in a market where most teams are trying to do the same, and reducing the Magic's short term financial commitments without affecting the on-court product too much. To get all of that done, it would taken some truly creative financing.

And as much as he likes to talk about it, Otis Smith isn't very good at that.

So buy a cap, place it on your head, and then doff it towards the Orlando Magic's ownership. When called upon, DeVos coughed up cheese that he didn't need to cough up, all for the good of the franchise. The Magic just enjoyed arguably their best season ever, and if they do it again - or go one better - then it's directly because they took the shackles off the payroll, and financed the fine personel moves.

Otis, you buy a cap too.