Everything you need to know about the Wizards' cap situation

How much maneuvering can the Wizards really do this summer? Here is a complete guide to how much cap space they have and how functional said space really is.

By Mike Prada Updated Jun 30, 2014, 9:24am EDT

The Wizards are about to embark on one of the most defining offseasons in their recent history. They have lots of cap room and are coming off the franchise's most successful season in 35 years, but they also have many key free agents to address.

Before we get down to the nitty gritty, though, let's spell out exactly how much cap space the Wizards have and what functions that room creates. This piece will be your guide.

All figures come from publicly available sources unless otherwise noted. Thus, they are very precise estimates, but not always exact. Even though the CBA is more understood than its ever been, there are still details that only a team expert can sift through. There are also bonuses, guarantees and the like that are not necessarily stated accurately. These estimates are not significant enough to change the larger points, but they may affect the team's behavior on the margins.

What is the salary cap number this year?

The official salary cap and luxury tax level will not be set until July 1 because that is the first day of the new NBA season, but teams have been told to expect the cap to rise significantly this year. Projections suggest the cap will be at $63.2 million, a $4.6 million increase from last year. The luxury tax is expected to go up to $77 million; it was $71.7 million last year.

That is a major jump and could lead to similar leaps in the future, especially since the TV deal is being renegotiated after 2016. Of course, any jump in the salary cap also includes a jump in the value of specific player salaries like the maximum contract, the mid-level exception and more.

Who is under contract?

Here is the Wizards' salary situation for the next five years. All figures here and elsewhere in this piece are rounded up to the nearest hundred thousandth and taken from Mark Deeks' amazing Sham Sports site:

Some notes:

John Wall's deal is technically for 25 percent of the cap (technically technically slightly less per footnote 2 here, but you get the point). The dollar figure listed is based on the 2013 cap number, but as noted previously, the cap is rising significantly this year and will likely rise in the future. Wall's contract, in turn, will rise slightly with it, giving the Wizards a little less space.
Martell Webster's final-year guarantee is based on games played, per Deeks. If Webster plays in a combined 180 games over the first thee years of the deal, the fourth year becomes guaranteed. If not, the Wizards can release him. Webster suited up in 78 games this year, often playing through pain. Thus, he only needs to average 51 games the next two years to hit the guarantee.
Should the Wizards keep Andre Miller next year, his salary will be as listed. But they can also choose to release him before June 28. Should they do so, his cap number drops to $2 million, giving the Wizards an extra $2.6 million in cap space. But it appears the Wizards are planning to keep him.
Glen Rice Jr.'s second year is ~~fully ungaranteed~~ only $400,000 guaranteed. He can be released anytime before the league-wide guarantee date in January to save a tiny bit of cash.
If the Wizards use their second-round pick on a player that can play immediately, he will be added to this sheet, likely at around Rice's number. Bringing Tomas Satoransky over may also cut into the Wizards' cap space.

Great! So they have tons of cap space, right?

Yes. They are close to having enough space to offer someone a max contract, and there are enough little things that can be done to officially find enough room should the opportunity present itself.

There's a catch, isn't there?

Sadly, yes. It has to do with cap holds, one of the essential keys to understanding the CBA.

A cap hold is a placeholder player salary applied to every team's own free agents. Think of it like the security deposit you put down when staying at a hotel. It's not money you actually pay, but it prevents you from trashing the place. In exchange for your good behavior, the hotel removes the charge on your final bill. You end up paying what you expected to pay when you initially booked the hotel.

In this case, a cap hold prevents a CBA loophole: signing someone else' free agent, then using your ability to exceed the cap to sign your own free agent. In practice, it means Wizards almost certainly can't sign Carmelo Anthony, then go over the salary cap to keep Marcin Gortat. They have to choose between their existing free agents and a different team's max-level player.

NOTE: This is a reminder that the salary cap and luxury tax aren't the same thing. The Wizards can use their rights to exceed the salary cap to sign their own free agents. Once they hit that $77 million number, they pay an escalating penalty depending on how much they exceed the line and lose certain free-agent exceptions.

A player's cap hold is always more than 100 percent of his previous year's salary, but the specific percentage differs depending on the players' years of service.

250 percent: Players coming off rookie scale deals that were for less than the average salary. Includes Trevor Booker and Kevin Seraphin.
200 percent: Players coming off rookie scale deals that were for more than the average salary. No Wizards have this designation this year, though Wall would have been an example if he didn't get an early contract extension.
190 percent: Players NOT coming off rookie scale deals and made less than the average salary. No Wizards have this designation this year.
150 percent: Players NOT coming off rookie scale deals and made more than the average salary. This includes the two big free agents: Trevor Ariza and Marcin Gortat.
100 percent: Minimum-salary players. This includes Garrett Temple, Chris Singleton, Al Harrington and Drew Gooden.
100 percent of next year's salary: Players who had fourth-year rookie options declined. This includes Chris Singleton and would have included Jan Vesely if he was traded.

If the player is re-signed, his new salary replaces the cap hold and becomes what's actually paid out. Essentially: if the Wizards follow the rules, they are "rewarded" by only having to pay what they negotiate with the player. That's the function of a cap hold.

Teams are also charged a cap hold of around $500,000 -- the value of the rookie minimum salary that season -- for each open roster spot under the league-mandated minimum of 12. The Wizards currently have seven players under contract, so they have five minimum roster cap holds that total about $2.5 million depending on the final cap level. Those go away as the spaces are filled.

Adding in cap holds changes the Wizards' actual cap space significantly. Observe.

But you can eliminate these, right?

Yes. Any team can remove cap holds by renouncing their free agents. But that also means you cannot exceed the cap to re-sign those players, removing your best competitive advantage. The only way the Wizards can retain those players is through cap space -- which defeats the purpose of renouncing them -- or relevant salary-cap exceptions that any team can use.

Setting some of these players free will be easy decisions. Chris Singleton will be let go. Kevin Seraphin has a large cap hold, so I suspect he'll be set free without much thought. The same could be true of Trevor Booker, though it's a more difficult decision with him. The veteran minimum guys have such small cap holds that they aren't very consequential.

But Gortat and Ariza will be more difficult calls. The Wizards will have to renounce them to sign a big-name free agent, but doing so means saying goodbye for good. Gortat will command a significant salary and Ariza could go for more than the full mid-level exception as well.

So you were lying before? Are the Wizards actually under the cap?

The short answer is no ... and yes. Technically, the league does not consider them under the salary cap unless all cap holds are renounced. They are also not over the luxury tax because they only have about $47 million in actual salary being handed out.

Teams in this position are given the non-taxpayer full mid-level exception, the biggest of the three different kinds of MLEs. Last year, the first year was worth $5.15 million. This year, it'll be worth a good deal more depending on the cap level. Players can sign for up to four years, and teams can also split this dollar figure up among multiple players.

However, if the Wizards renounce enough players to dip below the salary cap, they are instead given the Room mid-level exception, which is only for a maximum of two years with the starting salary at a little more than half of the full mid-level exception.

Thus, if the Wizards choose to keep their free agents, they also get the full mid-level exception to use. If they instead renounce them and sign a big name, they almost certainly only get the Room Exception. The choice is essentially Gortat/Ariza + player(s) for mid-level OR Big Name Free Agent X + player(s) for Room Exception.

Is there a way to get the full MLE back if the Wizards sign Big Name Free Agent X?

Yes, but it is incredibly complicated and requires a lot of cooperation. The Wizards have to structure any series of moves so that their combined team salary and cap holds never actually fall under the cap level. Once you are under the cap once, the league considers you under the cap for good when handing out mid-level exceptions.

The only way to stay over the cap in this scenario is to turn any big free-agent signing into a multi-team sign-and-trade. For example, say the Wizards found a way to sign Carmelo Anthony, but wanted to keep the full mid-level exception. They would have to include Gortat and Ariza in a sign-and-trade transaction to take cap holds out of the way, and since the Knicks probably don't want those players, they'd have to find a third team to take them. Players under contract would also need to be a part of the transaction for it to work.

It's possible, but very, very difficult. The Warriors, Jazz and Nuggets engaged in a similar version of this last summer, turning Andre Iguodala's signing into a three-team trade that allowed Golden State to preserve the full mid-level exception. (They then proceeded to split it between Marreese Speights and Toney Douglas, which ... was not a good decision). But it only worked because the Warriors found a team in the Utah Jazz that was willing and able to accept $24 million in dead weight contracts that already existed (Andris Biedrins, Richard Jefferson, Brandon Rush) for draft picks and convinced Denver to cooperate so it'd get a useful player in Randy Foye and a large trade exception.

Think about how difficult that is. Now, consider that it'd be even tougher for the Wizards to pull off with so many free agents. Teams employ cap experts for this very thing, but it'd be really hard for the Wizards to get something like this done.

What about restricted free agents? Like, say, the one in Detroit?

Restricted free agency is a complicated mess that has one of two effects:

It jacks up a player's desired price because any team that wants the player must overpay to make it financially painful for the player's current team to match.
It cools a player's price, since teams won't make competitive offers because they don't want to tie their cap space up for three days on a player that may not actually be coming anyway.

To best illustrate the second dilemma, here's an exercise.

Let's say the Wizards are interested in signing Greg Monroe and find a good price during the July moratorium, but aren't sure if Detroit will match it. As discussed before, in order to create the space to send over the contract, the Wizards must renounce their free agents, essentially setting them free. That contract then must sit on their cap for three days until the Pistons make a decision, preventing the Wizards from doing much of anything in the interim. Meanwhile, Ariza and Gortat may go elsewhere, and if Detroit matches, the Wizards are left with nothing. Teams are technically allowed to renounce players and then unrenounce them if and only if a restricted free agent contract is matched, but that's only if they make no other signings and if the players are still unsigned by other teams.

That's how it plays out in theory at least. In practice, the Wizards would have a better idea if Detroit is going to match, though nobody really knows for sure during the wild moratorium period. If the Pistons don't want to match, the Wizards would likely work out a sign-and-trade so that they can get that transaction out of the way and move forward. The Pelicans, Blazers and Kings did this last year, allowing New Orleans to acquire Tyreke Evans without having to worry that the Kings would match the contract. The Pelicans lost some pieces in that deal, though -- Greivis Vasquez was lost, and Robin Lopez needed to be sent to Portland to create enough cap room.

The Wizards may have to sacrifice a player in addition to cap space to get Monroe. It might very well be worth it, but keep that in mind.

So ... you're saying that the gang's coming back together?

I don't know what the Wizards are going to do, and I've said they should look for something big before they default to anything else. That said, you can see why there's so much talk about re-signing Gortat and Ariza rather than chasing a big fish. Keeping Gortat and Ariza (or even Gortat OR Ariza) allows the Wizards to preserve their full mid-level exception and comes with much less risk that they and/or other key teammates slip away. It's a less risky strategy, both in terms of CBA maneuvering and on-court application.

We'll see what actually ends up happening, though.

With that said, is there any risk the Wizards go over the luxury tax?

It's minimal. The Wizards still be about $10 million under the luxury tax projection even if Gortat and Ariza combine for $20 million in salary next year, which is a high estimate. That's enough to sign players to fill the remaining 4-5 spots on the roster. The Wizards could split the mid-level exception, bring back Drew Gooden and Garrett Temple on minimum contracts and still give themselves breathing room.

There's even less of a luxury-tax risk if the Wizards let Ariza walk or let both Gortat and Ariza walk to sign a big-name free agent. They just won't have use of the full mid-level exception or (likely) Bird Rights on their other free agents in the latter example.

Ted Leonsis told us back in 2012 that going over the luxury tax was a non-starter and has yet to indicate otherwise since. Only the Nets, Knicks, Heat, Lakers and Clippers (barely) exceeded the luxury tax last year.

Will the Wizards lose future flexibility if Ariza and Gortat both stay?

That's a difficult question to answer. Leonsis certainly spoke about trying to find a strategy that preserves as much of last year's core while still maintaining cap room in the future:

"The first priority, I think, is for the most part try to bring the team back that finished the year so strong," the owner said. "There was really great chemistry in the team. We were hard to play against, we have good big men, we have good wing shooters, we have a really good backcourt. So that's the first goal, is keep as much of that together as we can. And then as we go further into the offseason, it's how can we improve the team. Are there trades to make, are there free agent signings that we should be looking at?

"And we also want to look at this not as a one- or a two-year horizon," he went on. "We obviously have to look at other offseasons, future offseasons, because there's other players that become free agents at that time. So the front office is developing a strategic plan."

The success of that plan depends on one unknown factor: the cap itself. It's not yet clear if this year's large projected jump is the start of a trend or a one-year blip. If it's the former, the Wizards may end up having breathing room in future years. If it's the latter, then this will have been their best shot to get a brand-name free-agent to sign outright.

Let's say that Gortat and Ariza sign market-value contracts. Here's a look at the Wizards' future cap situation.

You can pretty much throw out next year, but 2016 is interesting. The Wizards certainly could generate similar amount of cap space if the cap level goes way up, but keep in mind that the figure that year doesn't include the value of Bradley Beal's future rookie contract extension. Perhaps that becomes a sign-and-trade chip for Kevin Durant, or perhaps the Wizards can find a way to partially guarantee Gortat and Ariza's new deal.

But the best way to preserve 2016 space, then, is to be judicious this summer. That might involve signing only one of Gortat and Ariza and/or passing on using the mid-level exception. But of course, that'll also hurt next year's on-court product.

Coming up with the strategy Leonsis desires is not going to be easy.

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I think that covers most of the big-picture stuff. If you have any questions on these details, please ask them in the comments. We'll start to look at specific situations over the course of the next few weeks.