Mo Money, Mo Problems

Zephid —  September 3, 2012

(Is it blasphemous to cite a Biggie song in an LA blog?)

While the Lakers have traditionally been one of the big spending teams in the league, the new CBA comes with new terms that will almost certainly curb the Lakers spending in more ways than one.  As of now, the Lakers have a whopping $99,981,237 in total salary (Thanks to Eric Pincus at Hoopsworld for his excellent work), and with the luxury tax coming in at $70.307 million, that means that the Lakers will have a total salary commitments of approximately $130M this upcoming season, which will easily be the most luxury tax the Lakers have ever paid (Don’t worry, the Knicks have the highest luxury tax payment ever with $45M in 06-07).  While that’s no small amount to scoff at, us Lakers fans have gotten used to Dr. Buss whipping out his checkbook and paying top dollar for the best chance to win a championship.  Bringing in Steve Nash and Dwight Howard over the summer certainly gives the Lakers that best chance, and the attention alone will make it money well spent.

Next season, however, is when things start to get hairy.  That’s when the new tiered luxury tax system begins, where teams pay extra amounts for every $5M they go above the cap (for a detailed breakdown, see Larry Coon’s CBA FAQ).  Currently, the Lakers will have somewhere between $68M-$80M, depending on which options are picked up, assuming they don’t sign any new players that are not under contract for that season.  In order to analyze further, we can make some base assumptions:

1.) MWP will NOT exercise his Early-Termination Option (which he would be pretty dumb to do, but he’s done crazier things).

2.) Chris Duhon will be kept this season and waived next season (his deal is only partially guaranteed next year).

3.) The Lakers pick up Jodie Meeks’ Team Option.

4.) The Lakers fill out the roster with minimum guys (or bring back some of Jamison, Clark, Ebanks, Morris, or Goudelock).

One thing we don’t have to assume is the amount of money Dwight Howard will get.  Since Howard’s contract is already over the maximum salary, the maximum salary for his new contract will be 105% of his old contract ($19.5M), so his new contract will be just about $20M.  This is the absolute maximum Howard can get from ANY team next season.  However, the Lakers owning Howard’s Bird Rights give them two advantages over other teams:

1.) They can sign Howard for a maximum of 5 years, as opposed to a maximum of 4 years for other teams

2.) They can offer raises of 7.5% each year, while other teams can only offer raises of 4.5%.

These two differences mean that Howard will be choosing between $85M for 4 years from any other team, and $116M for 5 years from the Lakers (He’s gonna have to really hate LA to leave $31M on the table).

Now, if we assume all the things I’ve listed, and given that Howard will sign a max contract, LA’s total salary will stand at approximately $97M in salary obligations next season.  Filling out the roster with minimum guys, this will put the Lakers right around $100M.

This doesn’t seem so bad at first glance, considering it’s only a little more than this season’s roster obligations.  The new CBA, however, takes this somewhat tame monster and turns it into a beast:

1.) For the first $5M over the tax level, teams will pay $1.50 for every dollar, giving a total of $7.5M.

2.) For the next $5M, teams will pay $1.75 for every dollar, a total of $8.75M

3.) Next $5M, $2.50 per dollar, $12.5M

4.) Next $5M, $3.25 per dollar, $16.25M

5.) For every $5M after that, add another $0.50 to the per dollar amount, so $3.75 per dollar for $20-$25M over the tax level, $4.25 per dollar for $25-$30M over the tax level.

If the Lakers have salary commitments of $100M, and assuming the luxury tax stays almost level at $70M, they will be $30M over the tax level.  Adding those numbers up, the team would pay a whopping $85M in luxury tax payments, for total salary commitments of $185M.  Note that this is almost twice the highest luxury tax payment ever.

This level of luxury tax hell will almost certainly last only one season.  Assuming Howard re-signs, the only players under contract the following season would be Howard and Steve Nash, leaving the Lakers plenty of room to sign new, smaller contracts once Kobe and Pau’s huge contracts are up.  Relief would come just at the right moment as well, since 2014-15 will be the first year of the repeater tax, in which each of the per dollar amounts given above would be increased by $1.  This basically means that LA would be paying the new tax and the old tax, so if they were to say, have $100M in payroll with a $70M luxury tax level, they would pay a total of $215M in total salary commitments, more than double their original payroll.

Some could make the case that the Lakers don’t need to go into cost-saving mode, simply because they have a local tv deal that will net them 5 freaking billion dollars over the next 25 years.  The reasons for not wanting to stay over the luxury tax, however, may be related to roster flexibility as opposed to fiscal responsibility.  The new CBA places a number of restrictions on team that are over the “apron,” or $4M above the luxury tax level (found here), which include things like losing the Bi-Annual Exception, having a smaller Mid-Level Exception, being able to only take back %125 of outgoing salary in trades (as opposed to 150% for nontaxpaying teams), and loss of the Gilbert Arenas Provision (recently used to sign Jeremy Lin and Omer Asik).

Perhaps the greatest loss, however, will be the inability to perform sign-and-trades, a rule which comes into effect in 2013-2014.  This means that trades like the recent Steve Nash trade will be impossible for teams over the apron like LA.  If they wish to re-load around Dwight Howard, they’ll either have to maintain their current amount of salary and trade for stars using their existing assets (a very, very expensive option), or they’ll have to get as far below the cap as possible to make a max offer (while almost certainly gutting the team around Howard).  So while the Lakers may have all the money in the world to pay all the luxury tax they could ever spend, it may be that the type of talent that the Lakers wish to acquire simply won’t be available to them.