While small market teams were often reluctant to put themselves over the cap, teams like the Lakers, Knicks and Mavericks were able to scoff at the penalty. A $12 million tax payment, for example, would be much more difficult for a team like Milwaukee to stomach than Los Angeles, clearly threatening the competitive balance of the league.
The new tax rate is a sliding scale that charges a team a higher rate for each additional $5 million it exceeds the cap.
For the first $5 million a team exceeds the tax threshold, it will be charged $1.50 per dollar.
For each dollar between $5 million and $10 million that a team exceeds the tax threshold, it will be charged $1.75 per dollar, and so on. As the Lakers are currently constructed — $100 million salary with the current cap at $70.3 million – instead of being taxed $30 million they would be forced to pay an absurd $85 million.
And we haven’t even touched on the “repeater rate” yet.
The repeater rate dissuades 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.
As the new CBA starts to weigh in on this business driven league, teams have to either be committed to the long-term or the short-term with a financial plan. And the Grizzlies – a small market team similar to the Thunder — were caught trying to build a winner on the go.
The key word here is business. Success in the NBA is not had in small markets with unstable ownership. They cannot afford to fund a team over the cap while being forced to pay a steep luxury tax. This is why teams like the Cleveland Cavaliers and Sacramento Kings try to build through the draft.
Unlike the Thunder, building through the draft is far from a sure bet. In theory it makes sense for a small market team: suffer a few losing seasons to rake in a few high draft picks and secure star players with cheap contracts. Brilliant! But there is a high level of risk involved. It’s rare for a team to have such an innate talent for scouting like the Thunder and Spurs, fortunate enough to land a Hall of Fame player – Durant and Duncan – and complimentary stars – Parker, Ginobli, Ibaka – at the bottom of the draft.
More than in any other league, players do not always pan out in the NBA. For each Russell Westbrook and James Harden there are 10 Jonathan Benders and Hasheem Thabeets. For all of these reasons – unstable ownership, poor drafting and bad contracts – the Sacramento Kings are likely to relocate to Seattle as early as next season.
Memphis is the second smallest NBA market next to New Orleans.