I think in terms of total economic costs/benefits, "blowing it up" only pays out if there are external circumstances, or if you wind up in an untenable position like what TUG found himself in. Otherwise, the rest of us are condemned to incremental upgrades/rolling roster changes.
For the most part, you're right, but I'm looking at it from the perspective of no plan whatsoever of being competitive for a minimum of 4 seasons. It's the only way a team purge really makes sense.
I'll try to give a synopsis of my notes without being too lengthy here.
1. Sell all current players. Probably best done right before the POs or at the beginning of the season. I made the assumption that most teams in II have a team value of ~$20M-$30M+ on the TL, and used a safe estimate of ~$25M.
2. Buy 4 18yo trainees. Assuming ~$2.5M per trainee (which I feel is a high estimate, but you should be buying some pimps here, I estimated $5k/wk salaries on these guys), that leaves us with ~$15M. (I'm also assuming 2-position training, as I didn't bother to calculate 1-position training.)
3. Fill out the rest of the team with absolute scrubs, the worst and cheapest players you can find on the TL (or better, via the draft); the lower the salary, the better. The skills of the scrubs are unimportant, as you plan to lose anyway, and the more you save on their salary each week, the more cash goes in your team coffers. There are plenty of 1k salary players in the game right after the draft, and five of them should be plenty. These, combined with your 18yo trainees, put your team's weekly player wage bill at around $25k, but let's say $30k/week just to be on the safe side.
4. Downgrade staff. Basic doctor & PR guy, and depending on the level of trainer you have and his salary, either keep or replace, but in the interest of keeping your wages as low as possible, I budgeted $1M (which should be much more than necessary) over the course of the first 4 seasons to keep your trainer lvl decent and his salary relative to his trainer level. Calculating his wages (and the doc/PR, who simply get fired/replaced when their salary gets sily) into the 4 seasons, subtract ~$3M (including the $1M from above) over the course of the 4 seasons. That leaves us with ~12M.
5. Train and lose. A lot of both. This involves a drop of divisions, probably to at least IV, if not V.
6. Move and repeat. Whether training guards or big men, keep your best two, sell the other two (~$3.5M each, to be safe*), move the trained 22yos to SF, and do the whole process over again (4 more trainees @ ~$2.5M each, leaving us a net loss of ~$3M here, putting our total bank at around $9M), this time for 5 seasons.
That was longer than I thought, and sadly, I'm not done. Around step 6, your player salaries start to mean something, but a couple of seasons into it, you should be winning games here and there, and by the fourth or fifth season, right before switching (either from big men to guards or vice versa), your team will actually have a pretty massive strength in one sector that opponents will need to address to beat you.
What I haven't mentioned yet is that even though you're sucking pole in the standings and your fans hate you throughout this, you're making a profit every week
whether or not you have a home game. If you start in II, your TV contract alone will be worth about double your total outlay on salaries, and you'll still get some form of attendance and merch no matter how much you lose. This also assumes zero Cup revenue.
Stopping here to leave room for my footnote. Make any sense?
*-assuming the economy doesn't take a giant crap. If it's at a pivotal moment, like when trainees are turning over for fresh 18yos, it's a wash, as the kids will be cheaper. I've also neglected to add that while falling thru divisions, you might pick up a great draft pick along the way for free.