Luxury tax question, with regards to 2010 free agency.

by dakoose on Dec 14, 2009 4:08 PM CST

I'm no capologist, so I have a question for any of you that know how the NBA's salary cap and luxury tax system work:

There's a lot of talk about the Bulls not likely to exceed next year's cap in the free agency orgasm to avoid paying the tax. That's where I'm confused. Luxury tax is not enforced upon passing the cap, rather it's enforced after passing the luxury tax threshold. Even if the Bulls are to resign Tyrus for the QO of 6.25 million and (gulp) retain John Salmons and his 5.8 million dollar contract next year, the payroll sits at ~44 million. This year's tax threshold is 69.92 million. Assuming that goes down next year to say, 65 million, that leaves the Bulls roughly 21 million dollars to get a big name guy, leaving three empty roster spots, which could be filled with the remaining dollars.

All that said, I've seen several people on this site talk about the Bulls not being able to afford a max-contract guy. Am I missing something, as after doing the math the Bulls have more than enough room for a max contract(~16 million) before hitting the tax threshold?

FanPosts are user-created posts from the BlogABull community, and are to be treated as the opinions and views of that particular user, not that of the blogger or blog community as a whole.

Tweet Comment 7 comments | 1 recs |

Do you like this story?

Comments

Yes.

The cap is the limit you can’t go over to sign a free agent, with limited certain exceptions (the Larry Bird – i.e. your own players, drafted players, mid-level free agents etc.) Signing any player other than their own would have to keep the Bulls under this number – except for a sign-and-trade which makes it like signing their own.

Teams go over this consistently by signing their own players to extensions, yearly raises, etc.

The Luxury Tax is a number higher than that, which you mentioned. That has no “limit” to what a team can technically do, except for a self-imposed budget. Teams that go over the Luxury Tax, pay a dollar into a pool for every dollar their payroll is over. (So if the lux tax is $70 million and team’s payroll is $75 million, they’d pay $5 million into the pool.) Teams under the tax, divvy up all of that money amongst them.

The cap is designed to theoretically give small and large-market teams equal footing. If you draft smart, other teams can’t take your good players away by paying more. The luxury tax is designed to keep teams from consistently giving out huge contracts.

Roughly ten teams are over this every year, give or take a handful. They usually range up to $20-$25 million over. So, say for the ten teams over, it totals $100 million. The remaining 20 teams divide that up for $5 million per team. In the Bulls case: they are up against the tax this year. Let’s pretend it’s exactly up against it. So, if they signed Gordon with a salary this year of $10 million, they’d have to pay him that PLUS pay the league $10 million PLUS they wouldn’t get that $5 million from the league for being under. In a sense, they’d think they’re paying Gordon $25 million in salary this year. (I’d actually consider it that you’re overpaying Hinrich and Miller by vast sums since they aren’t living up to their contract and Gordon probably would, but such is the beast.)

The vast majority of teams are in between the cap and the luxury tax, with a lot within $5 million under the tax.

Reinsdorf has said that he won’t pay the luxury tax unless he’s one piece away, or a contender or something to that affect. Despite being the most profitable franchise because the fans are so loyal, he’d rather not keep a consistently good product on the court. He could pay to go over this if he wants.

However, in free agency, once the cap is set, he doesn’t really have much say in that… unless he doesn’t get rid of Hinrich or Deng because he personally likes them. damn meddler.

It is speculated that the cap will be between $50-$55 million next year. They would thus need to have a payroll for next year around $33 million for it to be likely that they have enough space… but around $30 million to ensure it.

In the past 10 years, just four team owners have not paid a luxury tax and are not on pace to pay one this year: Donald Sterling, Jerry Reinsdorf, Chris Cohen (Golden State), Bob Johnson (Charlotte).

Two owners’ teams averaged an operating income of over +$10 million per year while their teams have lost over 60% of their games: Donald Sterling and Jerry Reinsdorf.

by tyger1147 on Dec 14, 2009 5:25 PM CST reply actions 1 recs

Oh, and I would guess Thomas almost certainly will not sign for the Qualifying Offer.

He will be offered it and he will accept it, but it’s not official until he signs it. Ben Gordon was the best player ever to actually sign for the QO. Most teams do this with good players. However, some don’t (like Charlie Villanueva last year with the Bucks) because until the player is actually signed he has a cap hold MUCH greater than his salary. For Tyrus Thomas, it’s $15 million next summer. so, until he signs with a team, even though we know he won’t make that much, the Bulls have to “pretend” like his salary next year is going to be that much.

If the Bulls are about to sign a max free agent, though, and that hold is in the way, they can just pull the QO without asking the player first… until July 23rd. A lot of people say that’s no big deal because the Bulls will likely know who they are going to sign and if they should give up on the superduperstar and just sign Thomas. I’m not sure, though. With so many big name free agents, I could see several players being courted by several teams, say Chris Bosh, Joe Johnson and Dirk Nowitzki, all of whom the Bulls have interest in but are awaiting the players. The Bulls renounce Thomas, meaning he can sign with any team of his choosing and cuts all ties with the Bulls. The Bulls then miss out on the star and lose Gordon and Thomas and never get the MAX guy.

In the past 10 years, just four team owners have not paid a luxury tax and are not on pace to pay one this year: Donald Sterling, Jerry Reinsdorf, Chris Cohen (Golden State), Bob Johnson (Charlotte).

Two owners’ teams averaged an operating income of over +$10 million per year while their teams have lost over 60% of their games: Donald Sterling and Jerry Reinsdorf.

by tyger1147 on Dec 14, 2009 5:37 PM CST up reply actions

Ah, I see.

So the cap can only be passed by resigning one of your own.

So riddle me this: Let’s say Salmons made it clear to the Bulls that he is going to stay with the team and activate his 5.8 million dollar option, putting the payroll at 37.7 million, possibly making a max contract signing impossible. Could the Bulls make a verbal agreement with him to waive his option, then sign a guy to the max deal, and then resign Salmons? You see what I’m saying? That would allow them to keep Salmons AND resign a top free agent, if it comes down to Salmons insisting on staying. They would be over the cap, but they would be going over the cap to resign one of their own guys. Would this possible scenario work, or are there rules that would prevent a team from making this type of agreement with it’s player(s)?

Metal sharpens metal.

And this guy right here understands and knows what leadership is all about: The coach, the hall of famer......... Dick Butka! George Ryan

The Bulls shrink like a dick in cold water.

by dakoose on Dec 14, 2009 5:37 PM CST up reply actions

no

In this case, when Salmons opted out, he’d still have a cap hold on the team (like Thomas’s, but much, much smaller… around his current salary). To get rid of that cap hold, the team would have to renounce his “Bird Rights”, meaning it wouldn’t be like re-signing one of your own. Renouncing rights are basically saying, “You’re not one of ours.” Thus, they would need the cap space to sign him. I don’t know about the rules regarding the hand-shake deals like that, though.

To qualify as a Bird free agent, a player must have played three seasons without being waived or changing teams as a free agent. This means a player can obtain “Bird rights” by playing under three one-year contracts, a single contract of at least three years, or any combination thereof. It also means that when a player is traded, his Bird rights are traded with him, and his new team can use the Bird exception to re-sign him. Bird-exception contracts can be up to six years in length.

Here’s a list of exceptions.

In the past 10 years, just four team owners have not paid a luxury tax and are not on pace to pay one this year: Donald Sterling, Jerry Reinsdorf, Chris Cohen (Golden State), Bob Johnson (Charlotte).

Two owners’ teams averaged an operating income of over +$10 million per year while their teams have lost over 60% of their games: Donald Sterling and Jerry Reinsdorf.

by tyger1147 on Dec 14, 2009 6:11 PM CST up reply actions