A year removed from losing to the Golden State Warriors in Game 7 of the Western Conference finals, the 2019 Houston Rockets suffered a similar fate -- this time one round earlier and with the Warriors not having their best player available in Kevin Durant.
Here's what the future holds for Houston: the same starting five returning, but with financial restrictions on how the back end of the roster is built.
Now eliminated from the postseason, let's look ahead to the free agency, draft and trade decisions facing the Rockets this offseason.
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The future of the roster, and what's next
There will be no July 1 meeting with star free agents for Houston. Despite having one of the most creative front offices in the NBA when it comes to manufacturing cap space, the Rockets don't have that option this summer.
With Year 1 of the James Harden supermax set to begin, coupled with the $38.5 million Chris Paul salary, Houston will enter free agency $8 million below the luxury tax. Even in the unlikely scenario that the roster is gutted with Harden and Paul being the lone players remaining, Houston would have only $22 million in room left. That's not enough considering that the Rockets would have to replace three starters in Eric Gordon, PJ Tucker and Clint Capela, plus build out the bench.
The positive side: Houston returns the same starting five that once again pushed Golden State in a close series. But now the Rockets face restrictions in how they build their bench. While they bring back five reserves, only Nene Hilario played in the postseason, with Chris Chiozza, Michael Frazier, Gary Clark and Isaiah Hartenstein shuttled back and forth from the G League. Houston also does not have a first- or second-round pick in June, eliminating that low-cost option.
The financial obstacles don't mean there isn't work to do for the Houston front office. A second-round loss to Golden State proves that.
Here are the options for the Rockets this offseason:
Own free agents
Besides maneuvering to get under the luxury tax, general manager Daryl Morey's best work during the season was the late-December addition of Austin Rivers, followed up three weeks later by the signing of Kenneth Faried. The two veterans, both bought out of their contracts, were low-risk signings who helped stabilize the bench and provided an insurance policy with the injuries to Paul and Capela.
Their stints in Houston probably will be short-lived. Because they signed one-year contracts, Rivers and Faried have non-Bird rights, limiting how much they could sign for ($2.6 million for Rivers, $2.8 million for Faried). The same holds true for restricted free agent Danuel House Jr.. Signed at the end of the season, House has non-Bird rights and cannot sign a contract that exceeds $2 million.
Electing to bring back veterans Iman Shumpert and Gerald Green will come at the discretion of the team rather than cap rules. Shumpert has Bird rights allowing the Rockets to exceed the cap to re-sign him. With the Kings, Shumpert averaged 26 minutes and was a valuable veteran presence for a young roster. In Houston, his minutes dropped to 10.6 on average in four playoff appearances. After signing back-to-back minimum contracts, Green has early Bird rights allowing the Rockets to spend up to $9.7 million on the 33-year-old. Like Shumpert, Green has seen a decrease in minutes from the regular season to the playoffs.
The Rockets will need to weigh the value of bringing back Shumpert and Green vs. replacing their roster spots with minimum contract options.
The exceptions: tax, minimum and trade
Barring a trade to clear out salary (or in the case that Nene opts out of his $3.8 million deal), the Rockets will have the $5.7 million tax midlevel and minimum exceptions at their disposal. How the Rockets go about spending the tax exception comes with two concerns:
The balancing act of staying under the tax threshold.
Not having the exception available to sign either a second-rounder or undrafted player to a contract greater than two seasons.
When it comes to the tax, using the full taxpayer midlevel exception and filling the roster with minimum players would put the team $1.5 million over the line. However, Houston did enter this season $11.7 million over the tax -- faced with a $20.5 million penalty -- only to make a series of trades at the deadline to go under.
The seven trades during the 2018-19 not only saved Houston $27.4 million toward the luxury tax but also produced nine trade exceptions. Those exceptions -- which range from $3.6 million to $955,000 -- can be used to acquire a player in a trade or make a waiver claim. The exception does not allow Houston to sign a free agent.
Own players
Hitting the roster overhaul button is not a direction the Rockets should take.
Beyond the $77 million owed to Paul and Harden in 2019-20, Houston has four players on tradable contracts in Gordon, Tucker, Capela and Nene (if he opts in). Gordon, Tucker and Capela rank among the best bargains in the league. Trading them would create limited cap flexibility, and it's unlikely a deal would net a better roster around the star backcourt.
The expiring contract of Eric Gordon
It would have been easy to group Gordon in with the free agents who were overpaid during the cap spike in 2016 (like Luol Deng, Bismack Biyombo and Solomon Hill). At the time, the question was not if Gordon could help the Rockets on the court, but if he could stay healthy. Gordon was coming off a five-year stint in New Orleans that saw him miss 170 games because of injury, leading to an average of 44 games played each season.
Three years later, Gordon has missed a total of only 32 games in that span. His four-year, $52.9 million contract is now a bargain. In his three seasons with Houston, Gordon ranked in the top 10 among shooting guards in ESPN's real plus-minus twice, and cemented himself as a key player next to Harden and Paul.
Gordon is now entering the final year of his contract in 2019-20. He met the extension criteria last summer and was eligible to sign a three-year, $52.5 million deal. That same extension is still available for the Rockets to offer, but now with $23 million more in guaranteed salary.
If Houston makes the offer, Gordon has to balance the risk of leaving guaranteed money on the table vs. the potential reward of a greater payday on the open market in 2020. As we outlined with the Spurs and DeMar DeRozan, holding off on a new contract would see Gordon join an average-at-best 2020 free-agent class when the salary cap is projected to reach $116 million.
Gordon does have leverage in waiting another year. The $100 million in committed salary to Paul, Harden and Capela once again has the Rockets backed into a corner when it comes to signing players in free agency. Losing Gordon would leave Houston with just the $9.8 million midlevel exception to replace him.
Summer cap breakdown
Having $114 million in salary committed to five players leaves Houston restricted in the offseason. Because the Rockets are pressed against the luxury tax, their choices will come down to utilizing Bird rights to re-sign a player like Shumpert or using a combination of the minimum and midlevel for open roster spots.
Taking a conservative approach in free agency and just using the minimum exception leaves Houston right at the $132 million tax threshold.
Resources available to build the roster
Cash to buy draft picks
Own free agents
Cap exceptions: minimum, tax midlevel and nine trade exceptions
Waiting until after Jan. 1: buyout market
Dates to watch
• The Rockets have four players signed to non-guaranteed contracts, with only former second-round pick Hartenstring having a trigger date in his contract. Hartenstein has $708,000 guaranteed, with the remaining half of his deal protected if he is not waived by July 15.
• Clark has $708,000 guaranteed with the remaining portion non-guaranteed. Clark failed to play in 36 regular season games this season, eliminating the condition in his contract that would have guaranteed his full $1.4 million salary.
• Deyonta Davis will see $250,000 of his $1.6 million contract become guaranteed if he is not waived by July 31.
• The Rockets will extend House a $1.87 million one-year qualifying offer by June 29. Signed toward the end of the season, House played in seven playoff games, averaging 20.1 minutes off the bench but shot 29.7 percent from the field and 25.8 percent from 3, a significant dip from his regular-season numbers.
The Rockets can either use part of the $5.7 million tax midlevel or non-Bird rights to sign House. Using the non-Bird exception would cap the Rockets at $2.0 million in what they could offer House in a contract.
Although restricted free agency protects the Rockets when it comes to a House offer sheet from a rival team, the luxury tax and non-Bird rights will restrict Houston on what they can match. For example, if a team such as New Orleans signs House to a three-year, $18 million contract, the Rockets will not be allowed to match since House's first-year salary would be greater than the $5.7 million tax midlevel exception.
• Keep an eye on Harden's salary at the end of June. Harden signed a four-year supermax extension in July 2017 that was based on the salary cap being projected to hit $109 million. If the cap is adjusted either higher or lower, Harden's annual salary will change going forward.
• Backup center Nene has a June 29 date to decide on his $3.8 million player option. The veteran would leave $1.3 million on the table if he signed a minimum contract with another team.
Restrictions
• Harden has a 15 percent trade bonus in his contract that would be voided in the unlikely event he were traded, since he'll already be making the max.
• The Rockets will end the 2018-19 season $425,000 below the luxury tax. However, if Houston acquires a player that has a trade bonus (and does not waive the kicker), the Rockets will become a taxpaying team.
• To get under the tax, Houston sent out $4.67 million in cash in four separate trades. From now until June 30, the Rockets will be restricted to send out $565,000 in a trade. If there is a trade the night of the draft to buy a second-round pick, expect the deal to become official after July 6 when Houston's cash stash is replenished.
• Because of the trade to send Brandon Knight to the Cavaliers, Houston cannot trade its 2020 first-rounder until after July 1.
Extension candidates
Along with Gordon, Tucker and Nene (if he opts in) are extension eligible as well.
Tucker can receive up to a two-year, $23 million extension on top of the $16.4 million left on his contract. The $7.96 million cap hit in 2020-21 would need to be fully guaranteed
The draft assets
The Rockets do not have a first-rounder (owed to Cleveland) or second-rounder (owed to New York) in the June draft.
Houston owns all of its own future first-round picks starting in 2020.