View Full Version : Luxury Tax Killing Free Agency

07-06-2001, 12:41 PM
Someone posted this at the Mavs official site. I thought it was interesting. It's from ESPN Insider.

"Luxury tax killing free agency
by Chad Ford
Friday, July 6

Is the competition running past Bruce Bowen?
Free-agent Bruce Bowen and his agent, Steve Kauffman arrive in Chicago this morning with one goal in mind, finding the money. He's looked in Miami, then San Antonio and now has it on good authority that the money is actually in Chicago . . . that is if Jerry Krause will spend it.

"This year there's a finite amount of dollars out there." Kauffman told ESPN Insider. "In the past teams talked about a budget, but very few of them ever stuck by it. This year it has become apparent that the money will be very hard to find . . . even for guys that every team wants on their roster."

Bowen has joined a herd of second- and third-tier free agents who will make the pilgrimage to Chicago, Detroit and Dallas in search of that elusive long-term big money deal. They are the NBA's version of hunter-gatherers.

More and more free agents are finding what Bowen has discovered this summer, that the interest is there, but the money isn't. So what gives? Two words.

"Luxury tax," Kauffman says with disdain. "The luxury tax is grinding free agency to a halt this year."

Somewhere David Stern is grinning like a Cheshire cat.

So is Mavs owner Mark Cuban. "NO ONE wants to hit the luxury tax. It's great."

Stern's Frankenstein, the luxury tax, means more and more teams will opt out of the free-agent hunt this year. It also means teams will begin making good financial decisions, even if it means making terrible basketball ones. Just ask Pistons president Joe Dumars, who has four or five "luxury tax" deals sitting on the table. Because Detroit is further under the cap than any team except Chicago, Dumars can have his choice of talent for little or nothing in return.

Celtics GM Chris Wallace expects that at least 20 NBA teams won't use their mid-level, $4.5 million exception this year. That leaves more than 100 free-agents fighting for roughly eight exceptions. Even the teams that plan on using the exceptions will likely break them up into smaller pieces.

In Miami that has meant that Pat Riley has basically said goodbye to free-agents Bowen and Anthony Mason. "I sensed this," Mason's agent, Dan Cronson said. "However, Anthony and I are both very disappointed. This is a guy who came in here as more or less the third or fourth option, who basically stepped up and saved the season."

Doesn't matter, Dan. The question isn't whether Mason is worth $6 or $7 million a year. The real question is whether he's worth $12 or $14 million a year. That is what the luxury tax has done. Teams must pay a dollar for dollar penalty for every dollar they are over the predetermined cap threshold.

The fallout will likely have major ramifications this summer. If the Kings sign Chris Webber, it will put them over the cap. Can they afford to re-sign Doug Christie at $6 million a year? Point guard Mike Bibby will want his big extension in 2002.

The Maloofs want to put a competitive team on the floor, but at what price? A Kings source, on condition of anonymity, told Insider that if Webber re-signs, Christie could very well be on the way out --- not because the Kings don't want him, but because they think he isn't worth the extra $6 million in luxury tax they'd have to pay to keep him.

The story can be retold in almost every NBA town. Pistons free-agent Joe Smith could be hunting and gathering by the end of next week. If the Timberwolves decide to stay on David Stern's good side, Smith will have a hard time finding a home. Ditto for guys like Corliss Williamson, Chris Gatling, Jimmy Jackson and Jerome Williams.

And while agents, mid-level players and even owners are in an uproar, at least one guy is in heaven. Yes, Mark Cuban can kick back in one of his massage chairs and wait like a vulture for his prey. He's perhaps the only owner not afraid to pay the luxury tax (even Paul Allen looks like he may be in salary dump mode). Cuban knows that he'll likely be able to add two key free-agents because of it. He's already licking his lips over players like Christie and Smith --- veterans who can fit in, play defense and provide depth to an already scary team.

It's all good for someone like Cuban who really won't have much competition for most of the free-agent class of 2001. Sure C-Webb, Antonio Davis and Allan Houston will get their huge deals. But as more mid level players get squeezed for less and less, expect the battle cry to come from the NBA's middle class during the next round of collective bargaining.

Thus they are forced to wander the earth, ever searching for that great mid-level deal. The luxury tax is slowly killing them, and there is no relief in sight."

07-06-2001, 12:59 PM
suite, i enjoyed the article

07-06-2001, 01:13 PM
outstanding article Rob

07-06-2001, 01:18 PM
posted link-free for flying tiger!
Fri, 06 Jul 2001, 12:39am EDT

Luxury Tax Has NBA Teams Willing to Take Less Talent in Trades
By Scott Soshnick

New York, July 5 (Bloomberg) -- From purely a basketball standpoint, the Cliff Robinson for Jud Buechler and John Wallace trade didn't make much sense for the Phoenix Suns.

Robinson, after all, is a former National Basketball Association All-Star and Sixth Man of the Year who averaged 16.4 points for Phoenix last season. Career journeymen Buechler and Wallace averaged a combined 9.3 points for Detroit.

Suns President Bryan Colangelo knew that, talent-wise, it wasn't an equitable trade. He said he made the move to ensure that Phoenix wouldn't be among the teams paying the so-called luxury tax next season.

``We've made it clear that we will not be taxpayers,'' Colangelo said. ``With the trade, we're saving in the first year, roughly a million-four. Over two years, it's about $6.2 million.''

The tax, installed as part of the collective bargaining agreement that settled the 1999 lockout, is designed to curb spending on player salaries and to keep a level playing field among the NBA's 29 teams.

While Colangelo might have been the first executive to accept less talent in a trade, he won't be the last, general managers said.

Colangelo said he wouldn't be surprised if, by February's trade deadline, some teams are trying to give their highest-priced players away.

``It's going to be wild,'' Colangelo said. ``Teams that aren't playing well are going to be hustling to get under the threshold. I've already fielded some of those offers.''

Teams will be taxed based on the players that finish the season on their roster.

`The Safe Zone'

The precise tax threshold will be determined at the end of the regular season. It's estimated to be between $53.5 million and $55.2 million, said Colangelo and Indiana Pacers President Donnie Walsh, citing NBA officials.

Because the exact number can't be determined yet, the league -- for next season only -- has dubbed that spectrum the ``safe zone,'' Colangelo said. It means that any team in that range, even though it might have to pay a small tax, would receive a tax payment.

Most of the luxury tax money will come from free-spending teams like Portland, which had a league-high payroll of $90 million last season, and New York, which paid its players $75.5 million, third most behind the Miami Heat.

Colangelo said he expects his 2001-02 payroll to be about $54.6 million. So, for example, if the tax threshold winds up being $54 million, then the Suns would owe $600,000 to the kitty.

The Suns would also share in the tax pool, though they wouldn't receive quite the full share that goes to teams under the threshold, NBA officials said. The exact number hasn't been determined, league officials said.

Some Will Pay

Nets President Rod Thorn, whose owners have mandated that New Jersey not be among the taxpayers, said the Robinson trade, while puzzling to some fans, made fiscal sense to him.

``You're going to see some deals made that might, on the surface, seem like `Wow, why did they do that?''' Thorn said. ``When you dig a little deeper, and understand the economics of it, you see why.''

Not every owner is tax conscious.

The Blazers are owned by Microsoft co-founder Paul Allen, who, according to Forbes, is the third-richest American with a net worth of $36 billion. Cablevision Systems Corp. owns the Knicks and billionaire Mark Cuban, No. 363 on the Forbes list, owns the Dallas Mavericks.

Cuban said he'd never make a bad trade just to save a few bucks. What about the tax?

``It doesn't bother me at all,'' Cuban wrote in an e-mail interview. ``We all make our own business decisions.''

Tax Conscious

In Seattle, where the SuperSonics were recently purchased by a group led by Starbucks Corp. Chairman Howard Schultz, personnel decisions are being made with the tax threshold in mind, said Wally Walker, the team's chief executive.

Seattle had a payroll of about $50.5 million last season, and it won't be much higher next year.

``We won't be a taxed team,'' Walker said.

The owners will also be getting money from the players, whose union agreed to put 10 percent of all their salaries into an escrow account at the start of the season.

If, leaguewide, the amount paid to players exceeds 61 percent of basketball-related income -- which includes tickets, television revenue and just about everything else -- then the entire amount would go to the teams. The union has said players will get more than 61 percent.

Even though each team will probably get anywhere from $5 million to $8 million back from the players, most owners will take measures -- even making inequitable trades -- to avoid having to pay the tax.

``For the first time, the NBA has a hard cap -- and it's the luxury tax number,'' said Indiana's Walsh, adding that he, like Colangelo, expects more Robinson-like trades.

``The majority of teams don't want to go over that number. In order to do that, you have to drop salary. It calls for me and some of my colleagues to make some really hard decisions.''

Big Boy Laroux
07-06-2001, 01:58 PM
man, in this day and age, it'll be almost impossible to see a loyal player... one who may resign with his team for less than he's worth because he wants to win with the current setup.

very interesting. great articles, guys.

07-06-2001, 01:59 PM
synopsis mffl

07-06-2001, 04:07 PM
great googly moogly. Synopsis - There's a lot of NBA players who are not going to get big contracts this year. Very few teams (except the Mavs) want to pay luxury tax.

07-06-2001, 04:11 PM
hey, i can't read all of the articles, i have work to do

07-06-2001, 05:38 PM
I take a break every so often and do a little surfing. Weee.

07-06-2001, 11:46 PM
Friday, July 6
Peter May
Special to ESPN.com

While we're all waiting for the bean counters to come up with next year's salary cap, mid-level exception and other numbers we cannot possibly relate to, we can also suggest that the wait might be longer than anticipated for some free agents.

Patrick Ewing would seem to be a logical choice for a $4.5 million exception, but will any teams use it?
We're not talking about the big-time guys like Chris Webber, Antonio Davis and Dikembe Mutombo. They should get theirs. Or, at least, most of what they want.

The problem this summer is for the lower rung guys who have their eye on the mid-level exception. That figure is expected to be around $4.5 million, which is nice money if you can get it. It might be hard to find anyone other than the usual, deep-pocketed suspects, to give it away.

Ted Turner owns the Atlanta Hawks. He is, by most accounts, a wealthy guy. But Jane must have taken him to the cleaners in the settlement because the Hawks are, in all likelihood, not going to use their $4.5 million exception this summer.

"I have real cash limitations," Hawks president and Turner henchman Stan Kasten said. "My anticipation is that we won't be using it at all."

Last summer, Rick Pitino dined Austin Croshere in a Beverly Hills Italian restaurant. He worked out Tariq Abdul-Wahad, Jacque Vaughn, and played golf with Bimbo Coles. It was all part of the free agency courtship process. The Celtics have closed the door this summer, content to add their three first-round picks to their existing roster.

The Hawks, Celtics and most everyone else are keeping both eyes on their payroll. The reason is the dreaded luxury tax, which kicks in, dollar-for-dollar, next season. If your payroll is above a certain number, and the current thinking is that the figure will be in the mid-$50 million range, then you pay. If your payroll is $5 million over the cap, that's also your tax.

"We're in a business," said Celtics coach Jim O'Brien. "We're not going to pay that tax."

And this is where the big hurt could come for those free agents who've been eyeballing the $4.5 million figure. If a team's payroll is close to the luxury tax figure, the $4.5 million could be the difference. Or it could be the difference in the second year, when the contract would be close to $5 million. Teams simply are not going to pay the full amount if it means they could be looking at a tax. Obviously, Paul Allen, Mark Cuban and the Cablevision Knicks don't apply here.

"I hope some team doesn't give it to a guy just because it's his turn," Kasten said. "It's double what it was a year ago ($2.25 million). That's a big increase."

It gets even bigger at 10 percent raises. A team like the Celtics, already paying out $45 million, has to watch out because, in 2002-2003, Paul Pierce will vault into big numbers with a new extension. So they won't be using it next summer, either.

The Raptors have three big free agents to consider in Davis, Jerome Williams and Alvin Williams. Those three alone, if re-signed, could add another $20 million to the Toronto payroll. That would put the Raptors at around $50 million. Think they're going to be offering the $4.5 million on top of that with the luxury tax looming as well as a big-number extension starting in 2002 for Vince Carter (assuming he takes it)? The 76ers have to re-sign Mutombo and the valuable Aaron McKie. Those two signings could push them into the mid-$50 million range. The $4.5 million would push them into tax land.

So if teams avoid the exception, who does this impact? It might impact someone like the Celtics' Bryant Stith, who has no hope of re-signing with Boston for anything close to the $5.9 million he made last year. If he were looking to catch on with a winning team, the logical place would be the $4.5 million slot. Leaving aside the rather mundane issue of whether he's worth the money, what are his options?

Same with Mitch Richmond, now a free agent as well. He can only hope that some team, perhaps Miami, would be willing to go as high as $4.5 million. But the Heat have other issues, such as Alonzo Mourning's health and a bevy of free agents (Anthony Mason, Tim Hardaway, Bruce Bowen, Dan Majerle, Anthony Carter.) Meanwhile, the bottomless pit days are over in southern Florida. Even Micky Arison doesn't want to pay the tax and he's someone who could afford it.

Someone like Patrick Ewing would seem to be a logical guy for a $4.5 million exception. He might have trouble finding a home as well for the same reason. Half-year wonders Mark Jackson, Eddie Robinson and Nazr Mohammed all seem candidates for the $4.5 million slot if they want to leave their present employer. In the cases of Jackson and Robinson, their present teams can offer only as much as $4.5 million.

Teams may not use the exception, but that's not to insinuate there won't be player movement. There will be. There always is.

It may not be as simple as the mid-level signings last summer (Mo Taylor, Derek Anderson among others) because of the increased amount and the luxury tax. You could have teams willing to sign and trade a free agent for that amount, or even more, because an incoming salary would balance it. But you have to have two to make a deal and, if you're the Raptors, a signed and traded Antonio Davis has to bring in just about the same amount of money. Ditto for the Sacramento Kings and Webber.

The players association rightly pointed to this summer and the big increase in the mid-level exception (the figure will be the average player salary, now about $4 million). They saw it as yet another way for an average player to be well compensated.

But it's only a figure now unless someone actually wants to go out and use it. Right now, most teams are determined to stay away from it, which means it could be a long, hot summer for those non-marquee free agents simply looking for a new home and a (NBA-style) living wage.