The forecast calls for luxury tax pain
Teams seek the shelter of payroll beneath $149 million
BY HENRY ABBOTT
A strange thing happened on 2022’s draft day. After all the years of scouring the world for the best possible prospects—flying all kinds of players in, meeting to obsess over needs, minutes, and matchups—a truly excellent NBA team, a contender, called a short list of agents representing some of their favorite prospects and asked … if their clients would be willing to play overseas. To be stashed. To not play in the NBA, to not be under contract, to not suit up, to not have their dreams come immediately true.
While there could be other reasons, the most obvious one is the team in question just needed to cut payroll. The few million they’d have to pay a first-round pick was a problem.
While not unheard of, this is not common. Not in the first round. Not at the last minute.
About the time I learned about that, NBA Twitter was aflame with the steep price the Knicks had to pay to get someone to accept Kemba Walker’s bad-but-not-the-worst NBA contract. It’s not generally rocket science to find a team to take players with contracts like Kemba’s. This time: trickier. (A lot of general managers presumably went to their billionaires and said, “Hey, we can get a free pick and future cap space if we’re willing to pay Kemba Walker $9 million next year,” and the billionaires said, “No, we’re not doing that.”)
At the same time, the Knicks are reportedly trying to ditch reasonable contracts (Evan Fournier, Alec Burks, Nerlens Noel) and so far haven’t figured it out. The Nets are playing salary hardball with Kyrie Irving. Pistons fans hoped they could get a lottery pick for the very good Jerami Grant, but instead got a delayed late-first round pick and some second-round pick swaps, because Jerami Grant makes $21 million next year.
It’s a topic we’ll explore more in the future—including next week, when we’ll really dig deeper into our new Bonus Wins statistic, which can be enlightening in assessing the value of different players.
But in the meantime, we have to wonder: Is money getting tight in the NBA? (Or, at least, in the part of the NBA that isn’t the Warriors?)
In May, the NBA reportedly told teams this year’s salary cap would be an estimated $122 million, and the luxury-tax line would be $149 million.
That’s an interesting number. Higher than expected, but not high enough for some. With contracts already signed, before adding this year’s rookies, free agents, extensions, and the like, a full third of the league is over that line. Basketball-Reference tells us the Warriors, Clippers, Nuggets, Nets, Bucks, Jazz, 76ers, Mavericks, Celtics, and Lakers are all on track to pay tax. Many more teams are just outside (or will be when they bring back their own free agents and picks). Let’s assume that many teams who are just above the tax line would prefer to be just below the tax line. Any of them might see the merit of a rookie playing overseas, off the payroll.
In addition, have you heard the Warriors talking? Steve Kerr says they want to bring EVERYONE back. With the repeater tax and the Warriors bracket, Golden State will pay something like a 700 percent tax to keep Kevon Looney or Gary Payton III. I heard one projection that—with the tax—the Warriors could, over the next few years, outlay more than any team ever in the history of any sport. Perhaps the Clippers, Nets, or some other team will join the arms race too. (Whatever trend I’m suggesting with this story, some maverick owners will attempt the opposite. There’s always a Paul Allen here or a James Dolan thinking they might be able to purchase a title.
Either way it could be incredibly lucrative to be below the tax line. The teams above the line pay the tax; the billionaires who control the teams below the line divide up the spoils. There will be a TON of money to divide up in the years to come. By one estimate, the Warriors could pay almost $400 million in tax this upcoming season alone, and similar amounts as long as they keep this roster together. Stephen Curry is under contract for nearly $60 million in 2025-2026.
I guarantee every team has done the math. If you go into next season like the Jazz at $154 million, that last $5 million in contracts costs you a fat slice of that Warriors-juiced surplus pie.
Do you think NBA billionaires generally hate money? I don’t. And indeed, we are seeing that a lot of good teams on the tax bubble, who’d be contenders with some key additions, are instead at risk of losing expensive players. The Jazz are shopping Rudy Gobert; the Mavericks may or may not be able to keep Jalen Brunson; we’ll see how things go between the Nets and Kyrie Irving.
In other words, maybe we are entering a phase where the luxury tax bites harder than ever. Maybe it’s going to be tough to find homes for those Kemba Walker-type contracts. If the Warriors decide to slash their bills, can they even find a team to take on Klay Thompson’s $41 million deal? The Knicks’ Kemba experience suggests that’ll be tough, and it’s going to get tougher. The top NBA salaries are WAY higher than they used to be. For that select All-NBA group, who have been with the same team since their rookie deal, they can eventually get 35 percent of the cap plus eight-percent raises.
Tune into TrueHoop next week, when we’ll go through what this means for teams when we do a proper introduction of our new stat, Bonus Wins, with the clever-at-determining-value Steven Ilardi. But in a nutshell, teams are about to feel the squeeze.
Last year, six NBA players made $40 million or more.
Next season, that number will rise to 11.
The year after that, 15 are already promised that kind of money—before Nikola Jokic, Zion Williamson, Kyrie Irving, Bradley Beal, Andrew Wiggins, Zach LaVine, Dejounte Murray, and the like are signed.
My guess is, behind the scenes NBA teams are laser-focused on financial management. There may be more decisions like the Knicks’ Kemba trade that might appear out of left field, but are really more about the luxury-tax storm brewing just offshore.
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