Tag: NBA luxury tax

Chicago Bulls v Miami Heat - Game Four

Jerry Reinsdorf says the Bulls will pay to win. We’ll see.


If you want the model of how to win without spending like Mark Cuban, you look at the Bulls. Even during the Jordan era owner Jerry Reinsdorf was a guy who won as cheaply as he could. He does not like to pay the luxury tax.

Right now, the Bulls are doing that again — they made the Eastern Conference finals last season with a $55 million payroll. But that is about to change. Once they give Derrick Rose his max deal that means in two years they will have more than $57 million tied up in a core or Rose, Carlos Boozer, Luol Deng and Joakim Noah. That’s the year the luxury tax starts to get more punitive with higher rates.

Reinsdorf told the Chicago Tribune he would spend to win.

Chicago Bulls Chairman Jerry Reinsdorf on Wednesday reiterated through a team spokesman that he would give strong consideration to incurring the luxury tax if the player acquisition gave the team a reasonable chance to win a championship.

That answer is similar in sentiment to Reinsdorf’s response on the subject from a 2009 interview. However, with a more punitive luxury tax poised to take effect in 2013-14 of the pending 10-year collective bargaining agreement, as well as increased revenue sharing, the question applied anew.

He might go a little over the tax, but not a lot. That despite how much money the Bulls rake in (although Reinsdorf is now going to have to pay more of that out in revenue sharing).

If the Bulls are going to win a ring, GM Gar Forman is going to have to be smart and find a few deals out there.

Lakers, Mavericks, other big spenders safe for two years

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Part of the reason we lost 480 NBA games this season is because a bunch of owners were pissed at the Lakers, Mavericks, Heat, Celtics and other owners willing to spend over the luxury tax. Small market owners wanted to tie the hands of the big spenders in the name of the mythical “competitive balance.”

They got their wish… but not right away.

The most punitive measures for big spending teams don’t kick in until year three of this labor deal, reports Ken Berger at CBSSports.com. So spend away, Buss family, you’ve got a couple more seasons before a bill comes due.

Luxury tax rates: The same dollar-for-dollar as in the previous CBA for the first two years. Starting in Year 3, the rates increase to $1.50 for the first $5 million over; $1.75 for $5-$10 million over; $2.50 for $10-$15 million over; $3.25 for $15-$25 million over; and an additional 50 cents for each additional $5 million (same as previous proposal).

Repeater Tax: A dollar-for-dollar additional tax for teams that are above the tax line for a fourth time in five years (same as previous proposal).

That means the tax is the same for two seasons and the repeater tax can’t hit a team until 2015 at the earliest. These are delayed bills that give today’s big spenders a chance to reduce salary — except they are all are already in a pretty good spot in a couple years.

To use the Lakers as an example, they currently have only $61 million on the books by the time the higher taxes kick in ($30 million of that goes to Kobe Bryant and $19.2 million to Pau Gasol). The Lakers will have time to bring their payroll to whatever level they deem reasonable (which will still be over the tax, just likely not in the $90 million range anymore).

Even the Heat, with their current big three and others roster, are at $71 million for the season the tax rates jump. They, too, will spend more but have time to prepare. That or ship Chris Bosh out.

In the short term none of these teams will not have as large a mid-level exception as others, but that is about the only new restriction on them for now. For the next couple years, it’s business as usual for the spenders.

Report: Owners back off 50/50 split demand. For now.

David Stern, Adam Silver

NBA owners and players will be back across the table from each other negotiating on Wednesday. Something they should have been doing every day since talks blew up last Thursday, but we won’t get into that. At least they are talking again.

The reason they are talking again is the owners have backed off their stance that if the players didn’t agree to a precondition of a 50/50 split of basketball related income (BRI) there was no reason to talk, reports Chris Sheridan at Sheridanhoops.com.

That condition is why talks broke apart last week. The owners demanded the players take it — Cavs owner Dan Gilbert said to “trust him” that if the players accepted the split they would get a deal on the luxury tax they liked — the players said no and the talks fell apart. And that led federal mediator George Cohen to throw up his hands and leave.

That the owners backed off that condition could be a good sign. Both the owners and players have been talking about “bands” of BRI split. In a hypothetical situation, let’s say the band was 50 to 52 percent. If the league’s revenue projections are at the low end of preset expectations, the split would be 50/50. But if revenues are way up, the players get 52 percent of the revenue in salaries. It makes the two sides true partners in wanting to grow the NBA because if revenue goes up everyone gets more money. So this is rocket science, no wonder they have such a hard time hammering out a deal.

The real challenge is that the owners want an increased share of BRI (remember the players got 57 percent in the old deal) and they want to radically change the system in which those contracts are delivered. The owners want shorter contracts, the ability to waive underperforming players but spread out the financial hit against the salary cap, and they want a much tougher luxury tax system to control big spending teams. The players are not huge fans of all those things and think that since they’ve given up so much BRI they should get consideration there.

Hey, but at least they are talking again.

I’m pretty sick of writing that, but it’s the most optimistic thing I can say.

Jazz show how small markets can stay afloat, but winning costs


The Salt Lake Tribune did a fantastic story over the weekend looking at the finances of the Utah Jazz and how that ties to the fortunes of late owner Larry Miller. It’s a great bit of reporting.

Some interesting tidbits out of that is how the Jazz have a passionate fan base — they averaged 19,511 people per game (seventh in the NBA) and had the second best television ratings and third best local sponsorship deals. This is a small market team that has kept fans happy and is rewarded with a loyal following and good revenue streams.

And yet they lost money. Why? Because you have to spend with the big boys to compete for rings and the Jazz were trying to do that, which left them with big contracts on the books. The blog SLC Dunk breaks it down well.

That of course is because the team was a luxury-tax payer for the first time ever starting with the 2010 season. They committed to that once Carlos Boozer, Kyle Korver, and Mehmet Okur all picked up their player options in a down off-season. They also had Andrei Kirilenko’s contract still on the books. In addition, Deron Williams’ max contract extension kicked in. So while they may not have been planning on going into the luxury tax that season, they knew it was a possibility. As a result, the team lost their first-round pick in Eric Maynor as he was traded to Oklahoma City in order for the Thunder to take Matt Harpring’s contract. That move saved them $12 million ($6 million for Hapring plus matching tax).

Last season also saw the Jazz go into luxury tax territory as they used a traded player exception received from Carlos Boozer going to Chicago in order to sign Al Jefferson. Again, AK’s deal was still on the books, Okur had a $10 million deal, and Williams was making the max. After a promising start to the season, the Jazz faltered and never materialized into a contender. The choice to go into the luxury tax last season was a little more of a conscious decision in an effort to remain a contender and to help appease Williams.

The owners will use this as an example of why the system needs to change, they will mask it as “competitive balance” but make no mistake it is all about the money. They spent it to keep Deron Williams, then unsure that was going to happen they shipped him out early to get a new building block in Derrick Favors.

The spending pattern in the NBA is not big markets spend and small ones don’t, it’s contenders spend and rebuilding teams don’t. The Lakers and the Mavericks are spending right now not just because they can but also because they are title contenders. The Thunder have not spent big yet but that is about to change as they have to really pay Kevin Durant and Russell Westbrook, not to mention good role players to go around them. They want to contend, they have to spend.

That doesn’t make the system flawed. Whatever system the owners put in that pattern will continue — teams will spend when they think they can win, will strip down costs during rebuilding.

The Jazz will spend less in the coming years as they rebuild with youth (after seeing him this summer, watch for Jeremy Evans), but when they get good again they will spend a lot for a chance to win. Frankly, it’s the way it should be.

Players, owners see incremental progress on second long day of meetings

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Representatives of the NBA owners and players have sat in the same room with federal mediator George Cohen for more than 24 hours over two days.

That will have to do for progress; the two sides do not have a deal yet. But while there was no breakthrough, there was some progress on the key issue of the split of basketball related income, Adrian Wojnarowski of Yahoo tweeted.

The two sides and Cohen will be back at it in the same room again on Thursday.

Cohen spoke to the media but shed no new light on the talks, other than to say Wednesday’s negotiations ended so owners could get to an already scheduled Board of Governor’s meeting to discuss revenue sharing.

“The discussions have been direct and constructive, and as far as we are concerned, we are here to continue to help assist the parties to endeavor to reach an agreement,” Cohen said.

Cohen said his gag order on both sides remains in effect. Nobody from the owners or players made public comments.

The owners and players met for about seven-and-a-half hours on Wednesday following a marathon 17-hour session on Tuesday.

What information has leaked out of the room suggests there has been incremental progress, but that the two sides had a long, long way to go to make a deal. On Tuesday it was reported that what Cohen was able to do was have the two sides not be emotional about the issues and just discuss them, so nobody has stormed out of the room and done anything rash. Like cancel a couple of weeks of games.

But that does not mean they are close to a deal, either.

The key issue remains the split of basketball related income (money the league gets from national television deals, ticket sales, clothing sales and so on down to some of the money from that beer you buy at games). In the last labor deal the players got 57 percent, the players had last formally offered to come down to 53 percent. The owners want a 50/50 split, and a different definition of BRI that lets them take more money off the top. Also tied to that are issues like length of contracts and the luxury tax, which would work as a form of revenue sharing.

Thursday’s negotiating session may not be long either as the owners have a second part of the Board of Governors meeting scheduled. Cohen had wanted to meet through the week when he first tried to set this up.