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Getting the Lakers Under the Tax
Posted By Eric Pincus On October 25, 2011 @ 12:00 pm In All,NBA | No Comments
The lockout continues as the NBA and NBPA fight over their respective pieces of the pie. Still up for grabs is the percentage of Basketball Related Income (BRI) which appears to be the 50-52.5% range, with the players getting the bigger share if the final result isn’t an even split.
Perhaps an even bigger issue is system with the owners looking for some level of parity with a semi-hard cap. The union is adamantly opposed to any true limit on an individual team’s spending.
The league has technically acquiesced on a hard cap but in turn has proposed a punitive luxury tax that the players argue is so restrictive, it might as well be called a hard cap.
Eventually a deal will be struck but in the meantime, going by some of the proposed ideas, how would a team like the Los Angeles Lakers find their way below the proposed tax threshold?
Amnesty & Stretch Provisions
In the now-expired 2005 Collective Bargaining Agreement (CBA), teams were allowed a one-time amnesty to use on an overpaid player. The money owed would still be paid out to the player and count against the salary cap, but the team would not be taxed on the waived salary.
The Lakers used their amnesty on Brian Grant who was set to earn $30 million over the final two years of his contract. He was paid $30 million not to play but Los Angeles, in turn, saved that same amount in luxury tax payments.
The proposed amnesty clause in the current negotiation would allow for 75% of the player’s salary to not only come off the tax but also the cap. The compensation would still go to the player and hit the cap (less the savings) but spread out over the remaining years left on the contract.
Where the 2005 didn’t provide teams with additional spending power, this amnesty would benefit teams that aren’t over the tax but are still attached to players with unwanted salary.
Of course the Lakers aren’t getting under the cap regardless; the issue instead would be tax.
Additionally, the new CBA may include a “Stretch Exception” which would be readily available each year over the course of the new deal. This would allow for teams to cut a player and spread that amount over a lengthier piece of time. That might be twice the length of the existing contract (a two-year deal paid out over four) or a set term (call it seven years).
This is the variable that’s too hard to compute. What is the final BRI split? Cap? Tax threshold? It’s up in the air and certainly significant to the Lakers and how they approach team payroll.
For the purpose of this analysis, last season’s $70.3 million will have to suffice.
The Lakers currently have 11 players under contract for the coming season, totaling $91.1 million. Second-year prospects Devin Ebanks and Derrick Caracter aren’t guaranteed at $789k each. Rookies Darius Morris and Andrew Goudelock have yet to be signed but would likely get minimum contracts in the $500k range.
Rosters have had a 13-player minimum, but the union brought up the idea of going to 12 and/or sharing players with the NBADL on a split contract (perhaps at less than the true NBA minimum).
Regardless, the Lakers have indicated that they’d like to bring in a backup center to Andrew Bynum and would consider signing an additional guard to replace Shannon Brown (who is likely to depart as a free agent).
Is there a way for the Lakers to trim salary for the 2011/12 season (if it actually happens) by $20.8 million?
Tax May Be Unavoidable in Year One
Kobe Bryant, Pau Gasol and Andrew Bynum combine to make $58.9 million this coming season (not accounting for what will be an inevitable proration). The Lakers aren’t going to be able to field the rest of the roster at $11.4 million unless they actively look to trade pieces and liberally apply a number of Stretch Exceptions.
Given that salary would come back in a typical trade, L.A. would need to find a partner with cap room or a trade exception. That may not be feasible.
Cutting players like Lamar Odom, Matt Barnes and Derek Fisher doesn’t add up for a team still looking to win titles in the Bryant/Gasol window, although it would certainly be ironic if Fisher (as Union President) strikes a deal that causes him to lose his job. The most obvious cut for the Lakers to make is Luke Walton who hasn’t been at his best for a number of years. Luke’s seemingly endless contract has just two years left now at $5.7 and $5.8 million. Amnesty would drop his number down to about $1.4 and $1.5 million.
If the tax is dollar-for-dollar, that’s $8.6 million in savings over two years. If it ramps up to 3-1 as the owners intend, Walton out might mean up to a $26 million tax break. Walton, via the Stretch Exception, would spread out to either $2.9 million a year for four years or $1.6 million over seven, depending on terms of the final agreement.
The remaining departure candidates would be Ron “Metta World Peace” Artest and Steve Blake.
Artest, while the hero of Game 7 of the 2010 NBA Finals, might be an economic move especially if the Lakers want to get a younger, quicker and more reliable three-point shooter at the small forward position. Of course, Ron is still one of the league’s better defenders. While he’s not the perfect fit on the Lakers, he still has on-court value. Nonetheless, amnesty would be tempting with $16.3 million in savings over three years in tax at 1-1 or up to $49 million at 3-1.
Via the Stretch Exception, Artest’s salary might fall into the $3.1 to $3.6 million range over six or seven years, down from his current $7.3 million average.
Blake underperformed in his first season with the Lakers. Given Fisher’s age, L.A. may not want to part with a viable starter but again, economics may play a part in decision-making. Steve makes an even $4 million a season over the next three which would drop down to $1 million each via amnesty. That’s a savings of $9 to $27 million depending on tax rate. Stretch would leave Blake on the books at about $1.7 to $2 million a season over six to seven years.
Walton is the easy choice. Artest, via amnesty, would be the biggest total money-saver. If the Lakers wanted to truly penny-pinch, they could stretch both Luke and Blake.
Dump all three and the Lakers might be looking at about $83.2 million in total salary if they fill the remaining spots with minimum rookie contracts.
It’s not close to the potential $70.3 million tax threshold but it’s a lot closer than current $91.1 million, albeit with a pared down roster that may struggle to improve upon last year’s second-round exit.
Looking ahead to the following year, L.A. has about $91.6 million on the books. Dumping Walton, Artest and Blake as described above might drop that number by about $10 million but the Lakers would have a pathway under the tax if truly needed.
Center Andrew Bynum is under contract at $16.1 million but at the team’s option. Reigning Sixth Man of the Year, forward Lamar Odom has only $2.4 of his $8.2 million guaranteed. If avoiding the tax was the sole endgame, both could be cut to get the Lakers’ payroll down to roughly $56.4 million with only three players (Bryant, Gasol and Fisher).
Fisher could be stretched out on his final year as well to pare that down by another $1.7 million or more but to what end? The cap last season was $58 million. Getting to $55 million doesn’t help the Lakers land a big-time free agent. Is gutting the team really an answer?
If the amnesty and stretch provisions aren’t enough, perhaps Gasol or Bynum could end up on the trade block for more economical talent.
Should owner Dr. Jerry Buss or his son, Executive Vice President of Player Personnel Jim Buss decide avoiding luxury taxes trumps winning, then so be it . . . but that hasn’t been the case in recent years and probably won’t be moving forward to an extreme extent. This past season the team spent $20.8 million in tax. Buss has always been willing to pay for a winner.
The question is how much? How intense is the luxury tax penalty?
Regardless, Walton is the most likely to go and both Artest and Blake remain possibilities if and when the new CBA becomes a reality.
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