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Signing Bonuses Could Help Kings Meet $49 Million Minimum Payroll

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In the comments to my story on the limited potential of frontloaded contracts to help the Sacramento Kings meet minimum payroll requirements while maximizing future salary cap flexibility, LPKingsFan raised an important question: even though signing bonuses don't greatly impact the cap sheet, could they be used to help meet the minimum payroll?

The answer is yes.

A popular misconception is that a team's salary cap figure determines whether that team has met the minimum payroll and avoided the penalties associated with coming in under it. This was an issue at the trade deadline a year ago, as the Kings grabbed Marquis Daniels at the deadline seemingly to get over the minimum.

But the league confirmed to me at the time that the Kings would have been fine without taking on Daniels, because the team was on pace to pay out just more than the $43.5 million minimum payroll. How could that happen if the Kings' cap figure before the Daniels trade was $42.4 million?

Remember that the Kings traded Carl Landry for Marcus Thornton near the deadline, 53 games (or 65 percent) into the season. Landry's cap hit was $3 million, but the Kings paid him about $2 million before the trade. Thornton's cap hit was $762,000, but the Kings actually paid him about $275,000.

So the Kings' final cap figure after that trade was $42.4 million, below the floor. But the team was on schedule to have paid out $43.9 million in actual salary -- about $400,000 above the salary floor. Thus, the team would have avoided penalties. (So why did the Kings take Daniels off the Celtics' hands? Remember that Boston wanted to shrink its tax bill, and sent cash along with Daniels. Boston saved about $2.3 million in luxury tax; one can assume the C's sent Sacramento enough cash to cover the $800,000 owed to Daniels plus a portion of those tax savings. This is one of those classic "revenue streams for poor teams.")

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So how does the signing bonus figure into this?

Remember: the signing bonus boosts a player's first-year salary and drops subsequent annual payouts proportionally. But it has no effect on the cap. Since the payroll floor looks at actual cash paid out but not the cap figure, a signing bonus can get a team like the Kings closer to the minimum payroll.

How do signing bonuses work? In the old collective bargaining agreement -- which should be the same or similar as the new CBA when all is said and done -- teams could offer as much as 20 percent of a multi-year contract in a signing bonus.

Let's put this into practice. Say the Kings and Marcus Thornton agree to a five-year, $34.5 million deal. Suppose Geoff Petrie wants to get closer to the minimum payroll because he doesn't feel like signing crummy players. (This is an assumption, not a rumor or report or anything.)

In a totally normal deal of those terms, Thornton's first-year salary paid out would be $6 million, and the cap hit would be $6 million.

In a deal frontloaded to the max, the first-year salary paid out would be $7.8 million, and the cap hit would be $7.8 million.

In a normal escalating deal with a maximum signing bonus, the first-year salary paid out would be $11.5 million ($4.6 million in base salary plus the $6.9 million signing bonus) and the cap hit would be $6 million.

In a frontloaded deal with a maximum signing bonus, the first-year salary paid out would be $13.3 million ($6.4 million in base salary plus the $6.9 million signing bonus) and the cap hit would be $7.8 million.

Here's what that deal would look out in terms of actual salary paid out:

$13.3M | $6M | $5.5M | $5M | $4.6M

And on the salary cap sheet:

$7.8M | $7.35M | $6.9M | $6.45M | $6M

Remember: the Kings need to spend about $17 million to hit the salary floor. By frontloading a five-year, $34.5 million deal with a maximum signing bonus, the Kings could get $13.3 million of the way there. That's a huge potential impact.