The Marcus Camby salary-dump giveaway is, of course, great news for the Blazers. Combined with the Nuggets also jettisoning Eduardo Najera and their first-round pick, they now appear to be the second team above the Blazers in the standings likely to fall this season, and with high-payroll teams like the Mavs and Suns fading or retooling – our playoff hopes are getting brighter by the day!

Just as significant, however, the Camby debacle shows just how onerous the Luxury Tax is. The Nuggets had to pay $13 million last season. They won’t this year. Down here in Miami, owner Micky Arison and President/GM Pat Riley swear, after forking over an $8-million tax payment last month as an extra “bonus” for a 67-loss season, that they will never again put themselves in that position. The Knicks, of course, paid $45 million of tax a year ago and $20 million this time for one of the consistently worst teams in the league, and are desperately, and I do mean desperately, clawing to get out of that rat hole. Money CAN buy you wins, but it carries the great risk that if the guys you decided are worth super big buck fail you, your expectations are shattered, getting out of the hole while still fielding a good team seems impossible, you descend into hopelessness, and you pay and pay and ….

In a recent post (“Chips?  What Chips?”) I suggested that the new era of Blazer fiscal sanity tends to dictate against the team growing its payroll down the line to a level that would require it to pay the NBA’s luxury tax. (Thanks to Paul Allen, several of you disagreed.) I went on to note that if my assumption was correct it would mean that the team would probably let Raef LaFrentz’s $13-million contract expire next Spring, and thereby reduce the overall payroll in order to give the team room to pay Roy-Aldridge and company large raises over the next couple of years.  (Even stronger dissent.)  And I concluded that Raef and his contract are therefore probably not chips that will be used to trade for other players of similar salary. (At this point, I might as well have lied that I also just hate the Blazers.)  My observations are obviously speculative, but how the Blazers deal with this issue may play a key role in what the team does next, if anything, to attract big talent. So allow me – at obnoxious length (I apologize in advance) - to explain my reasoning:

In a sentence, the luxury tax requires any team whose total salaries exceed the luxury tax salary threshold ($71.15 million for the upcoming season) to pay a tax equal to the amount of the excess. If your total team salary, as computed for luxury tax purposes, exceeds that level by, say, $10 million, then not only do you pay your players their $81.15 million of combined salaries, you also write a check for $10 million to the NBA at the end of the season.

This tax is EXTREMELY onerous.  In effect, it requires you to TRIPLE PAY on the salaries of some of your worst or most overpaid players. Here’s why:

First, let’s deal with the “worst player/overpaid player" concept. Regardless of when a player is brought onto your payroll -- even if it’s a great player signed to a big contract after all of your other player contracts have been set – you either have the opportunity to reduce or eliminate the luxury tax by getting rid of marginal players at permissible points in their contracts (or dumping an overpaid player like the Nuggets did to an under-cap team) or you should have been smart enough to control your payroll beforehand. If you naively fail to make one or both of these offsets, you pay the tax. Hence, it is the salaries at the margin that actually trigger the luxury tax, and the marginal salaries are generally those paid to either the worst players (usually the ones who seldom play) or to the most overpaid players on your roster.

To perceive this on a personal level, if you’ve screwed up your household budget by a thousand dollars this month it won’t be because of the groceries you bought at Fred Meyer; it will probably be because you purchased some things you didn’t really need.  Or if your company loses money this quarter on increased volume you won’t be looking to cut back on raw materials costs; instead, you’ll try first to reduce overhead. It’s the marginal things, the things least need, and not the necessities that are responsible for financial problems.

Second, as most of you already know, the tax means you double pay for those lousy players.  Not only do you pay them salary, you pay tax equal to their salary (to the extent, of course, that their salary takes you over the tax threshold).

Third, although the luxury tax check is made out to the league, each of the 30 NBA teams that are under the luxury tax threshold, which is most of them, receive one-thirtieth of the total luxury tax money. This means that most of your luxury tax money goes right to your worst enemies.  How evil is that!  Imagine if the U.S.A. had to pay an annual tax to the U.N. related to the amount of our military expenditures in Afghanistan and all that money went directly to the Taliban.  The Taliban gets our money to finance the killing of our soldiers. That, in an extreme lethal form, is exactly how the luxury tax works. Last season, the New York Knicks paid nearly $20 million of luxury tax, and most of it went to teams trying to beat the pulp out of them on the court – and succeeding! So not only do you double pay your worst players, you pay yet again by giving your court competitors your own money to spend on players to compete against you. Add it all up and you’ve triple paid.

Triple paid on your least important players, I emphasize. Imagine, hypothetically, that at this very minute Paul Allen decides to tear up the contracts of Roy, Aldridge, and Oden and give them all big raises (raises that he might, in fact, pay them a couple years down the road). Imagine further that this puts the Blazers $13 million over the luxury tax threshold. The reality is that the luxury tax accrues not on the raises to R-A-O, but on the $13-million contract of Raef LaFrentz, who is inarguably the most overpaid and most superfluous player on our roster. In this situation, Raef would actually cost us $26 million, which exceeds the salary of the highest-paid player in the league! Even worse, most of the $13 million of tax money would go to the Jazz, Hornets, Warriors, Nuggets, and other teams trying to beat us to the playoffs this year. All this would be Mr. Allen’s and Mr. Pritchard’s fault for putting their team in that position by having traded to get Raef two years ago at the cost of a one-year-longer contract than the man we sent back east in exchange, and then not doing anything about it. A $13-million tax on Raef’s contract, not on R-A-O’s raises.

(An aside:  Please don’t get me wrong about Raef. I admire him. He seems like a great guy, ready to play to his utmost whenever needed, and I salute the ability and dedication that enabled him to acquire the contract that will help take care of him and his family for the rest of their lives.)

Obviously, I can’t KNOW whether Paul Allen would ever be willing to increase his team’s salaries to the obscenely high levels they reached a few years ago. Since the current luxury tax went into effect with the 2005 Collective Bargaining Agreement, the Blazers have been consistently under the tax threshold and have therefore not paid any tax. And for salary negotiation purposes, Mr. Allen would never disclose his future intentions one way or the other, anyway. And just maybe Kevin Pritchard, having now almost run out of high draft picks to deal, has found the ideal trade match and is in the process of exchanging Raef LaFrentz for some other high-priced contract even as this post prints to the blog. That I don't know.

But I do know the following: Just one year ago, Mr. Allen hired a savvy player compensation expert to deal with issues just like this, so at least it’s on his mind. I know that team after team (nearly every one owned by multi-billionaires) saddled with the luxury tax is desperately trying to get out from under it. I know there is recent precedent (Jamaal Magloire) for the Blazers letting high-priced contracts expire rather than trading them. And I also know that it’s been two long, splinter-filled, bench-sitting years for Raef, and two long and very expensive years for Mr. Allen since Raef came to the Blazers in a trade; that Raef now has just nine months left on his contract; that every month we get closer to the end of Raef’s deal, his contract becomes vastly more valuable if just left to expire; and that Raef is still here. I suspect for good reason. 

Many Blazers Edge readers just ASSUME that because Mr. Allen appears to have more billions than they have thousands, and because he actually comes to the games, he will spend virtually unlimited amounts of his wealth on player salaries. My estimate is he would, indeed, be willing to pay generously to Roy, Oden, and a select few others if he felt they could bring him and the Portland fans a championship, and he might at the end of the day even be willing to pay a few – a very few – luxury tax dollars to achieve it.

But I also believe Mr. Allen will be loath to pay any significant, and avoidable, luxury tax on the salaries of overpaid veterans or second-round draft picks sitting at the end of the bench, especially when his tax dollars are going to the team on the opposite end of the court.  And this means cutting superfluous salary when he can so that he will have the luxury of paying winners later when he must.