SH Blog: More on Grizzlies-Cavs trade: NBA Taxonomics

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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.

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Comments

  1. Hello to all, how is everything, I think every one is getting more from this website,
    and your views are pleasant for new people.

  2. You did a great job of laying out the landscape of the “new” NBA. It is kind of sad to think that less teams will have the opportunity to compete unless they have really deep pockets. The same teams will continue to spend, while the rest will continue to trade guys to get under the cap. It is a vicious cycle that needs to be figured out so there can be more parody in the league.

  3. Ben Baroff says:

    Thank you, and I do agree with your opinion that it is more about perception than reality. That is the problem Memphis is facing right now. Yes, Gasol-Conely-Gay-Randolph are all excellent players but are currently being paid at star level maxing out their roster/cap flexibility. They will be a tough out in the playoffs nonetheless.

  4. stepxxxxz says:

    Good analysis and all true………but…………the Griz dont have sub-elite players. Zach Randolph is arguably as good a four as any in the league. Who is better? Kevin Love….I dont think so, Aldridge….not close………pau, not any more………al horeford is close…underrated….buy Zbo is elite. Conley is woefully underrated. Gay however is that danny granger level guy who invariably does get over paid. Thats the problem in memphis. Indiana over paid Hibbert….but at least hibbert is 7 2″. I think the perception is wrong because memphis is a defense first team. People dont appreciate Conley because his real strength is defense. No, he isnt Kyrie Irving, but you could argue he’s as good as Rondo. And Marc Gasol is as good as any big right now. Chandler is probably better on the whole, Lopez is still better offensively, but not close on defense. Howard is just a pain in the neck. Gortat is good, but not as good as Gasol. So really, its not sub elite, its just a team of defenders. Denver is another example. No super stars…BUT they have depth and Iguodala and Galinari…..both close to elite….and Faried who is rapidly becoming all star level. Lawson is good, not great. But put them altogether and denver is a legit contender. The marketing of this league is about stars, but its more perception than reality.

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