Resigning Dwight and the Lakers "repeater tax" problem... long
I've wanted to make a post about this for awhile and you could argue various other teams will have tough decisions to make in the future aswell. I've chosen the Lakers because of Dwights impending free agency and the general belief that the Lakers can spend without restriction because of their tv deal.
The new CBA makes going over the cap quite crippling even for notoriously deep pocketed teams like Dallas, the Knicks and the Lakers. How crippling you may wonder?
The new tax rules are very complicated but to keep things somewhat simple, look at the Lakers.
This season, the tax threshold is $70.3 million. The Lakers payroll is just about $100 million, meaning that it is about $30 million over the tax threshold.
Under the old dollar for dollar tax rules, the Lakers would have to write a $30 million check to the NBA to cover its luxury tax bill. And while $30 million is a lot, in this era, we’ve seen teams have payrolls exceeding nine figures, and we’ve seen teams—such as the Knicks and Mavericks—write even more expensive checks.
And for the Lakers and their multi-billion dollar TV deal, $30 million is lunch money.
Under the new rules set to take effect next season, if the Lakers payroll exceeds $100 million by the time the 2013-14 season ends, instead of being charged a more manageable $30 million, the Lakers tax bill would be a whopping $85 million.
The new tax rate is a sliding scale that charges a team a higher rate for each additional $5 million it exceeds the tax rate.
For the first $5 million a team exceeds the tax threshold, it will be charged $1.50 per dollar, meaning that the cost of exceeding the tax threshold by $5 million is a tax charge of $7.5 million.
For each dollar between $5 million and $10 million that a team exceeds the tax threshold, it will be charged $1.75 per dollar, so a team that is $9 million over the tax threshold would pay $7.5 million for the first $5 million, plus an additional $6 million for the next $4 million.
In short, the tax has become much more expensive and much more oppressive, and while a team exceeding the tax threshold by $30 million will probably cease to be the norm, a team exceeding it by $15 million would be hit with a tax bill of about $29 million. That’s more reasonable, but still a hefty sum.
And not exceeding the tax threshold by more than $15 million will require astute management and making tough decisions. We are much less likely to see teams taking eight figure risks on young players based solely on upside.
That's true even before taking into account the notorious “repeater rate” luxury tax charges. The repeater rate essentially discourages teams from being perennial taxpayers. If a team’s payroll exceeds the luxury tax threshold three times during a four-year period, it will have to pay an additional $1 on the aforementioned sliding scale.
So, for example, instead of being charged $1.25 per dollar between $0 and $5 million over the threshold, the charge is $2.50 per dollar. And for each dollar between $5 million and $10 million, the repeater rate is $2.75 as opposed to $1.75. For each dollar between $10 million and $15 million, instead of being charged $2.50 per dollar (under normal circumstances), the charge is $3.50 per dollar.
In other words, if a team makes exceeding the tax threshold a habit and is charged the repeater rate after being a taxpaying team four times in any five year period, its tax bill would see a substantial increase.
A team that has a payroll exceeding the tax threshold by $15 million and paying the repeater rate would be hit with a tax bill of an astonishing $44 million.
If these numbers seem ridiculously high, it’s because they are.
One of the NBA’s major concerns with the 2011 collective bargaining agreement was to make widespread changes to the NBA’s economic system that would discourage teams from hoarding talent and help facilitate player movement.
On a side note, that last paragraph was interesting considering the gigantic flop of a trade deadline we just experienced. The new tax system seems to have the opposite effect on the trade front. I suppose Harden was an example of premtively dealing with these issues but I have a feeling this type of trade will be a rare occurance. Much like the real world, the new CBA seems to be crushing the middle class. From players to middle class owners. In the future your either a max/near max player or a minimum salary player.
Now on to why I singled out the Lakers for this topic.
Lets say Dwight resigns with the Lake show this offseason... next year will be the Lakers 3rd year in the luxury tax area. No big deal... yet. After next season (unless traded) Kobe, Gasol, MWP, Duhon, Hill, Meeks come off the books. At the moment according to http://hoopshype.com/salaries/la_lakers.htm Nash is the only player commited to the Lakers in the 14/15 season at 9.7 mil. If Howard resigns you can add another 21 mil per to that figure. So as it stands 30 mil for the 14/15 season. This is an important year for the Lakers because it would be the 4th in a row (any 4 out of 5 will do) they could be tax payers. Lets say Kobe resigns instead of retiring at a cap friendly 10mil per. Gasol... same deal. That would be 50 mil to 4 players. Do the Lakers also resign Earl Clark this offseason and at what price? What about Jordan Hill? If the Lakers were hoping to be players in free agency that year and swing for another big signing, there's the rest of your cap money and all that remains is minimum salary players in order to stay under the luxury tax. Hardly a world beating team seeing as how that roster 2 years from now will be an older, slower version of the one on the floor today. What about the following season? The Lakers still can't exceed the Luxury tax (by much) for fear of the repeater tax. If the Lakers are only 1 or 2 mil into the Luxury tax then their "repeater tax" burden will continue to be extended via the 4 out of any 5 seasons.
In addition if you look at the Lakers lack of talent in development or future draft picks (traded away), it will be hard to improve the roster with AAA prospects and youth to surround Howard with.
All this begs the question, why would Dwight resign with the Lakers this offseason. If Gasol isn't traded for several smaller deals to spread out his salary and balance the roster, next years team will be very similar to this years.
So after Dwight resigns this offseason, he has another year of this seasons roster to look forward to followed by 2 years of the Lakers trying to stay close to the luxury tax line for fear of paying the crippling repeater tax.
If you look at things in this light, the first 3 years of Dwights new contract won't be the championship chase by the free wheeling, free spending Lakers we've all known in the past.
This makes a team like Dallas (in another warm climate) who hasn't touched the Luxury tax under the new CBA, has draft picks, a great owner and a roster of expiring contracts (minus Dirk) seem more appealing for Dwights next 5 year contract.
I'm very curious to know what the Lakers plan will be to build a contender around Howard over the next 3 seasons should he resign.
It seems like Howards best bet might be to chase a ring else where.
I wrote about this a few days ago after the whole Cuban comment stuff:
But what I think the Lakers should do to put themselves in the best situation for the future would be to resign Dwight and then try and pull some of that trade magic cr@p they seem to be so capable of by trading Gasol for some talent that fits around a team with Dwight and Kobe.
It is an interesting situation. I don't read every thread on here, hopefully you don't feel I was stealing your thunder by posting about this topic with a similar sentiment.
"Repeater" tax won't be next year though, the 1st of dwights extension, it will be at the end of the following season.
Next year Kobe at 30mil, Gasol at 25 mil and Howard at atleast 20 plus Nash at another 10... even without the repeater tax thats still a big bill with the new tier'd luxury tax system. 0-5mil, 5-10mil over etc.
My main concern is building around Dwight (should he resign). The repeater tax will make it extremely tough to outspend other teams when the Lakers pentalties for doing so will be higher then everyone else who may comtemplate doing the same move. Then there's the lack of assets.
What does Dwight have to look forward to by resigning with the Lakers?
One 20 mil contract is an albatross in this CBA, 3 of them is a killer when trying to field a complete competitve team.
I did not think you were trying to steal anything, I just wanted to mention it. I think that how much this effects the Lakers depends on if they are willing to shell out 80 to 100 million more dollars a season than everyone else. If they are then this new CBA might make it easier on teams willing to spend big to win more, if not then I feel we will finally see a bit more competative balance.
The NBA is terrible in the money side of it and it is not capitalistic at all. Soccer/football is the most popular sport in the world when Barcelona or real madrid win the spanish league every year, Man united, man city or chelsea win the premier league every year and Bayern Munich or borussia dortmund win the German league every year. I like seeing super teams. Who didnt love the thunder heat finals, everyone loved it. If the lakers have the money they should use it to build their team, and not be forced to give it to a team losing money like the bobcats.
It is unfair to the owners that work hard to market and find players, but cant keep those players because of cap issues. It is unfair to the players because they can't go where they want to, if your family is in chicago, but chicago is restricted by the cap, even though they have the money and want you there. Any person can move somewhere else in the U.S. if they want to and arent restricted by a contract. Players can get traded to crappy places and bad situations for them or traded away from their familys, like JJ Redick. Players are forced to go to a random city that picks them in a draft. If anyone had the option to live in miami or Milwaukee 90% of the people would chose miami so if the teams can pay players then let them go there. and make it so that players arent forced to play for a team they didnt sign for, like eric gordon he never wanted to go to new orleans and yet he was forced there by a trade and then forced there for longer because the Hornets matched the suns offer.
sorry about the rant.
I see your arguments but on the orher end noone forced Gordon to sign this offer sheet which he knew could be matched. One of the biggest problems the NBA has right now with this whole cap situation is the existence of restricted free agency. Teams are forced to overpay players when they sign max contract offers somewhere. Take Jennings for example. There are teams like Utah, Atlanta or the Mavs this summer who could offer a lot of money and I'm absolutely sure one team will offer a max contract even if I think Jennings is no max player, at least not in this stage of his career. So the Bucks basically have to pay whatever is the best contract some team can offer Jennings. I don't feel sorry one bit for players like Eric Gordon. If he didn't like NOH sign the qualifying offer after 4 years and play out the 5th year. Maybe he gets traded somewhere else but now he can chose wherever he wants to be, any team in the league. But to tell the Hornets not to match when he signs the offer sheet in Phoenix is very stupid imo. He just wanted to make big time money now and now he is unhappy in New Orleans - so what. Did he expect the Hornets just let the main piece of the CP3 trade walk away? The players are always the ones who are demanding this contracts and teams are in need to match this even if they are not in a situation to afford this and overpay.
The NBA should eliminate RFA and everything would be much more easy and clearly. Keep the fact that the old teams can offer more years and are still more attractive to the players. If players still unhappy they can sign wherever they want during free agency.
The Lakers, or any team for that matter, cannot charge upwards of $120 for an upperdeck seat, $500 for a lower bowl seat, and $2,500 for a courtside seat to regular season games and be afraid of the luxury tax. When the Lakers essentially partner with Time Warner Cable to get a $3.6 billion deal for 20 years, they need to give programming that brings eyes to the television.
This doesn't mean pay anybody (and by anybody I mean Earl Clark), but Dwight Howard is the best center in basketball. He is the cornerstone of what they are going to do beyond 2013-14. For him, the tax bill is no object because the value of a superstar in the NBA far exceeds what a team can pay him even when factoring in the tax.