Restrictions On Tax Teams Hurt Player Movement
Whether or not a new collective bargaining agreement is agreed upon between the Players and Owners in the next few days, weeks, or months, this past week introduced a new concept: placing more restrictions on teams over the luxury tax level. It’s time to take a closer look at the concept.
What came out of the negotiations of the past couple days, before they ended abruptly on Friday, were two specific things a team could not do if they were over the defined luxury tax amount: participate in sign-and-trade deals or use the Mid-Level Exception.
The Owners want this because they believe restricting the movement of teams with total salaries over the tax level promotes competitive balance. The Players don’t like it because it restricts player movement, narrowing the market of possible teams who can sign a given player, which theoretically drives down demand and less money in the hands of the players. Both of these are valid viewpoints and cases can be made strongly in either direction.
The first question to ask is why do the Owners feel they need this? Simply put, the luxury tax doesn’t do what it was designed to do, which is provide a disincentive against spending over x amount of money. The luxury tax was supposed to be a deterrent, but it hasn’t worked that way.
Take the 2010-11 season, for example. The luxury tax level was set at $70.3 million, but eight teams spent more than that. And of those eight, 75% of those were playoff teams. Four of the eight conference semifinalists were over the tax. This tells us that not only is crossing the luxury tax barrier – and spending an extra dollar in tax for each dollar over that amount – not a deterrent, but it’s not a guarantee of success either (New York and Portland fans could have told you that five years ago). Sure, Dallas won the NBA title with the league’s third-highest payroll, but the other three conference finalists were all under the tax.
That theory is confirmed by economist Kevin Murphy, who is advising the National Basketball Players Association in these CBA negotiations. He talked about the issue with Steve Aschburner of NBA.com (definitely go read the full interview if you haven’t already):
I did a little experiment. All you have to do is take the overall distribution of win-loss percentages. Let them tell you what they think the relationship between salaries and wins is. They tell you ‘This much spending is worth this many wins.’ So then you take everybody’s salary down to the mean or up to the mean. Then if you tell me you get an extra win for every $3 million you spend, I’m going to give everyone I’m moving up an extra win for each $3 million. Everybody I move down, I’m going to give one fewer win for each $3 million.
The relationship between salaries and the number of wins in a season is positive, but it’s pretty weak.
It’s safe to say just about everyone will agree spending more money does not guarantee the winning of more games. A team can try to “buy” a championship and they very well could succeed, but the odds are not with them or against them, really, hence the owners want to introduce this concept of restricting the spending of teams in tax territory because the penalty (dollar for dollar as before, or a scaled approach starting at $1.25 per dollar and going up at various increments, as discussed recently) simply isn’t enough.
This was reportedly one of the “system” issues that led to the ending of Friday’s talks, a day that began with so much promise a new deal would get done.
It’s not on us to decide if this is good or bad, because our opinion – really, in the grand scheme of things – is irrelevant. The Players and Owners are the ones who need to decide if a given component of the new CBA works for them. What we can do here at HOOPSWORLD is discuss how this concept could help or hinder your team.
The luxury tax level last year, as mentioned above, was $70.3 million. The salary cap will be reduced in the next deal, but there is talk of actually raising the luxury tax baseline with a new calculation. Either way, $70 million today seems like a good guideline.
As of right now four teams have over $70 million committed to salaries for 2011-12: the Los Angeles Lakers ($91.1 million), the Orlando Magic ($76.2 million), the Portland Trail Blazers ($74.8 million), and the San Antonio Spurs ($75.9 million). None of those rosters are complete, and Portland’s number does not include $9.9 million in outstanding Qualifying Offers to center Greg Oden and point guard Patty Mills.
Should the next CBA include this more restrictive environment for teams over the luxury tax amount, all four of these teams would be limited to minimum salary contracts to fill out their rosters. (For now, let’s set aside the idea of an amnesty clause.)
But, they aren’t the only ones who would be affected. Those numbers above are based on actual salaries on the books, plus the salaries of their 2011 first-round picks (if applicable). When the idea of cap holds is added in – holds for various types of free agents unless renounced, holds for Qualifying Offers, minimum rookie salary holds for open roster spots – then the pool of teams who could be impacted goes up. That rookie minimum salary amount was $473,604 last season and was going to be $490,180 for this year, but that will change. Still, it’s the only reference we have.
Ignoring free agent cap holds – those can easily be renounced if necessary and replaced with a rookie minimum salary hold – when taking into account a minimum roster of 13 players (keep in mind the old CBA required all 30 teams to average at least 14 players), two more teams could be impacted:
Boston Celtics: Five minimum salary cap holds and Jeff Green’s $5.9 million Qualifying Offer push their total to $73.8 million.
Phoenix Suns: Phoenix has 11 players under contract, but adding in one minimum salary cap hold and Aaron Brooks’ $3.0 Qualifying Offer, their total is pushed to $71.3 million.
Consider what exactly that means. Six of the league’s 30 teams – 20% – effectively could not participate in any kind of free agency for players in demand. No wonder the Players aren’t a fan of the idea.
What it boils down to, again, is the Owners trying to come up with an effectively hard cap without actually having a hard cap. Making those kinds of restrictions would force teams to think more about the money they are spending and make them spend less.
And if that’s the goal, why sugarcoat it and call it something else? And if the Owners know the Players will not agree to a hard cap, why did they think they would go for this?
What’s your take on this concept of further restricting movement for teams above the luxury tax level? Leave your comments below! Follow Jason Fleming on Twitter and hit up his weekly chat Mondays at 8pm Eastern.