Orlando Magic use stretch provision on C.J. Watson and what that means

The Orlando Magic reportedly used the stretch provision when they waived C.J. Watson. What does that mean and where does it leave the Magic?

The Orlando Magic’s decision to waive C.J. Watson before his contract became fully guaranteed was a no-brainer for the team.

Watson may still be a solid veteran, but he had failed to produce in two years with the Magic. Injuries slowed him down and eventually they team just went in another direction, signing D.J. Augustin as its backup point guard.

In all, Watson played 95 games across two seasons, averaging 4.5 points per game and shooting 37.1 percent from the floor.

Even with Watson’s relatively meager $5 million salary, it was clear Watson no longer fit the team’s needs. He was solid defensively but was not producing at the level the team needed. For a franchise that needed to cut some costs and clear up some cap room, clearing even $4 million in cap room made sense.

It was no surprise the Magic waived Watson and took the $1 million cap hit.

What was surprising is reportedly the decision the Magic made after. Keith Smith of RealGM reports the Magic opted to stretch the $1 million cap hit, using the collective bargaining agreement’s stretch provision.

The stretch provision was an addition to the collective bargaining agreement after the lockout in 2011. It allowed teams to take the remaining total salary on a players contract and stretch that amount over twice the years remaining on the contract, plus one year.

For a player like Watson who had one year left on his deal, his salary would be stretched over three years (twice of one year plus one more year for three). This stretch would not affect when or how a player gets paid, but merely stretches the cap hit for the team. It is a form of creating cap space.

Not many NBA teams have used the tool. Most famously, Stan Van Gundy decided to stretch Josh Smith‘s contract when he had several years left on his deal. The Detroit Pistons are still on the hook for $5.3 million the next three years!

The Magic’s hit with Watson is obviously much lower. The question is why would the Magic spread this cap hit out over three years rather than taking it all now?

Orlando is obviously bumping right up against the salary cap. The team had to use cap space to sign Wesley Iwundu and have yet to announce the reported signings of Marreese Speights and Arron Afflalo. The team can still use its $4.3 million room exception too.

The nuts and bolts of the cap effect shows this move does clear a little wiggle room to make an additional signing using cap room.

Orlando Magic

Including Watson’s stretched contract (but excluding Wesley Iwundu’s new contract), the Magic have $93.7 million in guaranteed salary. Adding in Wesley Iwundu’s estimated contract (I have him at $1.3 million his first year with the maximum five percent increases) and the non-guaranteed deals for Marcus Georges-Hunt and Patricio Garino brings up the total to $97.7 million.

The cap is about $99 million, so the team was right up against the cap before and freed up roughly to about $1 million in room with this move. That is seemingly a cosmetic move (assuming my numbers for Iwundu are correct).

This move does not realistically free up enough cap room to sign either Speights or even Afflalo, who reportedly will sign a one-year, $2.3 million deal according to Josh Robbins of the Orlando Sentinel. That is the minimum deal, which is signed under a minimum players exception.

And none of these calculations factor in the Magic’s $2.3 million trade exception created from the Serge Ibaka trade. The team can renounce that at any time to free up that room too.

The effect of this move then appears to be to clear enough cap room for about $1.3 million. And the team still has its room exception.

So why the Magic would make this move is still unclear. Especially since it adds a small amount to the books for the 2019 and 2020 seasons too. In 2019, especially, the Magic will have little cap room again.

The stretch provision is still a tool teams have not fully used. It was meant as a way for teams to get out from bad contracts, while still receiving a cap hit for those mistakes. But it has plenty of caveats. The Pistons example is the most glaring.

For instance, if the Magic wanted to get out from under D.J. Augustin’s contract — $21.75 million the next three years — using the stretch provision, it would cost them a $3.1 million cap hit over the next seven years. That is a long time to still have that hit from Augustin. It makes sense to hold onto him for the time being.

Which begs the question again, why did the Magic decide to spread out this small cap hit from Watson over the next three years?

It suggests the team is still exploring ways to use that little bit of cap space remaining. Orlando may still have a signing they would like to do that would fit into that little sliver.

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The Magic may not be done yet this offseason. But the dust is still clearly settling and Orlando is doing its best to keep some flexibility.