clock menu more-arrow no yes

Filed under:

Five Luxury Tax Questions Every Portland Trail Blazers Fan Should Be Asking

New, comments

Portland Trail Blazers owner Paul Allen gave Neil Olshey a blank check this summer, and Olshey took full advantage of the financial freedom. What will be the long term-consequences for the franchise?

Kirby Lee-USA TODAY Sports

Portland Trail Blazers President of Basketball Operations Neil Olshey spent a LOT of money this summer. Has he put the Blazers into the luxury tax in the process? Keep reading for answers to all your salary-related questions!

Will the Blazers be over the luxury tax soon?

After re-signing Moe Harkless, the Blazers have a payroll of about $113.15 million for the 2016-17 season -€” just under the luxury tax threshold of $113.29 million. Thus, assuming they make no additional moves to add guaranteed salary this season, the Blazers will not be luxury tax payers.

But that outlook changes in 2018. Portland already has over $121 million in guaranteed salaries for the 2017-18 season, and that does not include:

  • Noah Vonleh's team option
  • Festus Ezeli's non-guaranteed salary
  • Mason Plumlee's cap hold
  • Pat Connaughton or Luis Montero's non-guaranteed salary
  • Shabazz Napier's team option
  • Any salary obligations to a first-round pick.

Unless the Blazers choose to part ways with nearly all of the players in the above list, they will have a payroll in excess of $130 million for 2017-18. The salary cap is set at an estimated $102 million with a $122 million luxury tax threshold.

But the luxury tax bill for next season won't be due until June 30, 2018. They could still get under the luxury tax over the next two years, right?

Technically this is correct, but it is unlikely to happen. Once a team is over the salary cap in the NBA there are few ways to shed salary, other than waiting for the contracts to expire. The most common method would be for the Blazers to send out more salary than they take back in a trade -€” commonly referred to as a lopsided trade.

A lopsided trade, however, seems somewhat unlikely given the Blazers' current trajectory. It would require the team to trade one of the players they just signed this summer for either draft picks or players on rookie deals. If Olshey attempts a move because a player is underachieving, he will have to send out an additional asset to compensate the trade partner for taking on the contract of a lesser player. The Blazers will be hesitant to sacrifice draft picks just to shed salary.

If Olshey's trading a player who is performing at or near his salary level (e.g. a healthy Meyers Leonard), the trade partner would have to send back a low salary overachiever -€” either a breakout performer or a player on a rookie deal. In this scenario, other teams would be hesitant to make a swap of similarly talented players if it meant taking on a higher salary.

One can do some mental gymnastics and concoct scenarios in which the Blazer players achieve at or above their salary, and opposing teams are willing to take on higher salaries (e.g. trading Leonard's 4-year deal for a player on an expiring rookie contract who is unlikely to re-sign), but it seems unlikely that the team will be able to complete the multiple trades needed to reduce their salary to the $122 million mark.

The Blazers could also use an amnesty provision, assuming it's negotiated into the new CBA next summer. But this would also mean giving up on a high-potential player just signed this summer - something Olshey has been loathe to do. They would also probably need to release Ezeli and/or Plumlee in addition to using the amnesty provision to get below the tax line.

Does it matter if the Blazers are over the luxury tax?

Several Blazer's Edge readers have pointed out that a team being over the luxury tax only affects the owner's bank account, and Paul Allen is among the world's richest people. Why should we care if he has to write a huge payroll check? He can clearly afford it!

For now, let's assume that's correct and Allen does not care about the extremely punitive "repeater tax," and let's also ignore any potential effect salary could have on tickets. Being over the luxury tax threshold still has real consequences for NBA teams. Specifically, once a team is $4 million over the tax threshold (also called the "apron") they are hit with several penalties. Larry Coon summarizes:

  • Teams above the apron cannot use the Bi-Annual exception.
  • Teams above the apron have a smaller Mid-Level exception.
  • Teams above the apron can offer contracts no longer than three years, while other teams can offer four. The starting salary is also lower.
  • Taxpaying teams can acquire less salary in a simultaneous trade.
  • Starting in 2013-14, teams cannot receive a player in a sign-and-trade transaction if their team salary is above the apron at the conclusion of the trade.
  • Teams above the apron do not have the same protections under the Gilbert Arenas provision. Under the Arenas provision other teams can offer restricted free agents salaries starting at the Non-Taxpayer Mid-Level exception. If a team with the right of first refusal does not have Early Bird rights to the player and is over the apron, it will have only the smaller Taxpayer Mid-Level exception at its disposal, and cannot match an offer for the full Non-Taxpayer Mid-Level exception.

Note that these restrictions go into effect whenever a team is over the apron -€” even if they have plans to move back below the apron before the end of the season.

So signing all of these players and probably going into the luxury tax was a terrible idea?

Not necessarily. As was dicussed last week, once a team is over the salary cap there is a certain logic to continue increasing the payroll in order to hold onto as much talent as possible. In the past, most teams have decided that logic ends strictly at the luxury tax, but the Blazers seem to be eschewing that trend. It could even be argued that going over the luxury tax line is a good sign - that would mean that all or most of this summer's investments paid off. The bottom line is that we won't know for certain if it was a good, bad, or neutral decision for at least a couple seasons.

How big is CJ McCollum's contract?

McCollum signed a "maximum extension" with the Blazers last week. It has not, however, been clarified whether or not his contract was negotiated as a maximum allowable contract or as 25 percent of the salary cap. This seems like an overly pedantic distinction, but with the league's CBA likely being re-negotiated this summer it could have real consequences for the Blazers.

For example, when the current CBA was negotiated, it changed the terms of Kevin Durant's contract, causing a ripple effect that ultimately led to the league refunding the Thunder $15 million, and arguably contributed to OKC's decision to trade James Harden.

Similarly, since McCollum's contract won't kick in until AFTER the next CBA is negotiated, it is possible that the terms of a "maximum contract" could change and lead to a re-interpretation of McCollum's compensation. Since the Blazers are already over the cap, and likely in the luxury tax, this will not have a major impact on the team, but it's worth noting that the terms of his deal could be altered next summer.

One additional note about the CBA: Blazers fans should be rooting for the players in the next negotiation. If they win back some of the basketball related income from the owners it will likely increase the salary cap and luxury tax, giving the Blazers more salary flexibility.

Bonus 6th Question: So What's the Bottom Line?

Blazers fans will need to adjust their thinking about the luxury tax. If Allen is willing to spend the money then fans should be hoping the Blazers are over the luxury tax when June 30, 2018 rolls around. Having a huge payroll implies that Olshey's investments from this summer have mostly paid off and the players on the team are performing or outperforming their salaries. If Olshey is desperately trying to shed salary in two years it's a sign that some of the current contracts turned out to be duds.

***************

Do you have more luxury tax or salary cap questions? Leave them in the comments below!

***************

-- Eric Griffith
-- Follow me on Twitter!: @DeeringTornado
-- E-mail me: GoBlazers87@gmail.com