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Thread: A quick glimpse in to the realities facing luxury tax teams in the new CBA

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    Raptors Republic Hall of Famer Matt52's Avatar
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    Default A quick glimpse in to the realities facing luxury tax teams in the new CBA

    A little refresher of the new luxury tax system:

    Luxury tax

    ē 2005 CBA: Teams paid $1 for every $1 their salary was above the luxury-tax threshold.

    ē 2011 CBA: Teams pay $1 for every $1 their salary is above the luxury-tax threshold in 2011-12 and 2012-13. Starting in 2012-13, teams pay an incremental tax that increases with every $5 million above the tax threshold ($1.50, $1.75, $2.50, $3.25, etc.). Teams that are repeat offenders (paying tax at least four out of the past five seasons) have a tax that is higher still -- $1 more at each increment ($2.50, $2.75, $3.50, $4.25, etc.).

    ē Who benefits? I'll tell you which teams don't benefit -- the perennial taxpayers, like the Lakers and Mavericks. When the league was unable to negotiate a hard cap, they settled for the next best thing -- a more punitive luxury tax that will make teams think twice before committing to a higher payroll. For example, the Lakers' tax bill in 2011 (when the tax was dollar-for-dollar) was about $19.9 million. Under the new system, being that far over the tax line would cost them $44.68 million. If they were a repeat offender (paying tax at least four of the previous five years) they would owe $64.58 million!

    http://espn.go.com/nba/story/_/page/...pares-last-one

    The Lakers again as a case study, this time from HoopsWorld.com:

    Economics suggest the Lakers will look to move Gasol sooner than later.

    Repeater Tax

    The new Collective Bargaining Agreement (CBA) put into place before this season did not change the dollar-for-dollar luxury tax rate immediately. It remains the same for the year to come.

    Itís during the 2013/14 NBA season that the finances get very messy and then, the following year, they go completely off the rails.

    In approximate numbers, the Lakers paid $86 million in payroll this past season with $16 million in luxury taxes, for a total of $102 million.

    For the sake of argument, bump that number up to about $92 million for the coming year, accounting for raises and the teamís Mini-MLE ($3.1 million). With tax, thatís roughly $114 million. A lot, but a number the Lakers have paid in the past for what they believed was a championship contender.

    Itís the following year where the math starts to break down.

    If the team is still on the Kobe Bryant/Andrew Bynum/Gasol core by 2013/14 and the threshold remains at $70 million (which may climb and subsequently lower taxes, but then the Lakers canít know today where that line will be tomorrow), the graduated tax rate would push a $92 million payroll to $144.5 million (with $52.5 million in tax).

    Thatís BEFORE the repeater tax kicks in.

    If the Lakers were somehow to remain at $92 million for 2014/15, with the repeater tax finally a factor, the tax climbs to $74.5 million.

    Thereís no way the Lakers are going to pay $166.5 million for a roster. Donít forget the league is taking about $50 million from the Bussí coffers on top of that via revenue sharing.

    http://www.hoopsworld.com/nba-pm-lak...eal-tax-issues

    The years counting towards the repeater tax (additional tax on tax paying teams four out of five seasons) started in 2011-2012. As mentioned in HW.com article, it is not an issue until 2014/15.

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    Raptors Republic All-Star ezz_bee's Avatar
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    Great post Matt, I really do think that we are going to see a lot more parity in the NBA, maybe not within each season (still have huge gaps between the haves and the have nots), but over a 5-10 year period as teams will look to stay under the cap 2 out of every 5 years in order to avoid the repeater tax. This should make management an even more important factor to a teams success.



    As a side note it also supports Cuban's claims that he was restricted by the new CBA, he can't really afford to sign big multi-year contracts for roll players as it would make it very difficult to miss out on the repeater tax.
    "We only have one rule on this team. What is that rule? E.L.E. That's right's, E.L.E, and what does E.L.E. stand for? EVERYBODY LOVE EVERYBODY. Right there up on the wall, because this isn't just a basketball team, this is a lifestyle. ~ Jackie Moon

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    Administrator Apollo's Avatar
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    Quote Matt52 wrote: View Post
    A little refresher of the new luxury tax system:




    The Lakers again as a case study, this time from HoopsWorld.com:




    The years counting towards the repeater tax (additional tax on tax paying teams four out of five seasons) started in 2011-2012. As mentioned in HW.com article, it is not an issue until 2014/15.
    This could competitively kill the Lakers. It's tough for them with Kobe still with a few more good seasons left in the tank but a full blown rebuild is what they should be doing right now after getting hosed in the second round.

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    Raptors Republic All-Star Soft Euro's Avatar
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    Quote Apollo wrote: View Post
    This could competitively kill the Lakers. It's tough for them with Kobe still with a few more good seasons left in the tank but a full blown rebuild is what they should be doing right now after getting hosed in the second round.
    I don't agree they need a full blown rebuild.

    Assuming they won't get Howard or Williams I think they need to do a couple of things.

    1. Fire Mike Brown and hire a coach who can overrule Kobe; Sloan would be perfect I think, big name coach who is all about execution and a hero in the pg/big man game (enabling the transition away from running the offense through Kobe). Kobe needs to stop thinking all offense has to run through him and that he needs to shoot everything in the 4th quarter. If he doesn't start changing they might as well amnesty him as he will only be holding them back. They need a coach who has enough power, character and authority to make this happen.

    2. Use Pau Gasol to bring in some talent. They should look for:

    2A Speed, defense and threepoint shooting on the perimeter. That doesn't have to be expensive; there are (near) rookies in the mold of Shumpert and Leonard, which in this draft probably can be gotten at the end of the first round or even in the second round? (questionmark as I don't know much about the college players and don't know what talent is available, but this draft is considered deep). They could use the deal with Gasol to move up in the draft. Other options are Courtney Lee, who is a restricted free agent with a qualifying offer for only 3,2 mil. It helps that Houston might still want to deal for Gasol.

    2B a point guard who can play the pick and roll efficiently and can make good entry passes when Bynum posts up; Calderon would be an option of course, but there are other options; for instance, Andre Miller wants to be a starter and wants to win. He is a free agent and could come cheap while being, even at this age, an enormous upgrade over everything they have had in quite some time.

    2C a 4 who can stretch the floor; they need much better floor spacing. They could even look at players like Marvin Williams who is reasonable on defense nowadays; Ilyasova might be a nice fit(?) but probably too expensive.

    Gasol is making 19 mil next year. Getting rid of him as well as Blake, McRoberts (I think) and Artest will free up 33 mil. Getting rid of Blake and Artest might be tough so amnestying one of them is an option. But even with about 25 million freed up they should be able to get some good talent (in trades of course).

    If you look at the luxury tax. Kobe's contract will come off the book after 2013/2014, so that's not a long term problem.
    Last edited by Soft Euro; Tue May 29th, 2012 at 01:47 PM.

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