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Luxury Tax Impact On NBA Roster Moves

ESPN’s Kevin Pelton explores how the luxury tax influences NBA decisions, even for deep-pocketed owners like Paul Allen of the Trail Blazers.

NBA: Playoffs-Portland Trail Blazers at Golden State Warriors Kyle Terada-USA TODAY Sports

Aside from the NBA Draft, the Portland Trail Blazers’ biggest move of the 2017 offseason was trading Allen Crabbe to the Brooklyn Nets. The move had no clear on-court benefit, but drastically lowered payroll and luxury tax penalties for Blazers owner Paul Allen.

ESPN's Kevin Pelton addressed the influence of the luxury tax on NBA decision making this week, using Portland’s offseason activity as his primary example.

I don't think it's a good assumption that teams are making enough money to cover luxury tax. Obviously this varies from team to team and on the amount of luxury tax, but few teams have the kind of cushion to handle a large non-repeater tax bill. Take the Portland Trail Blazers, for example. I'm not sure how much net income the Blazers have annually, if any at all, but I'd doubt it's more than the $40-plus million they were looking at paying in tax before the Allen Crabbe trade.

After justifying frugal moves to avoid burdensome operating costs, Pelton went on to discuss Portland’s ability to handle the weight of a large payroll.

The latter aspect really drives the question of whether tax implications shoulddrive decision-making. Certainly, nearly all of the majority owners in the league have the ability to comfortably handle losing money on their NBA team. Still, it's a lot easier to spend someone else's money than your own.

Another key factor here is that few teams are owned exclusively by a single wealthy owner. Minority owners are typically less wealthy and more likely to balk at a cash call to cover operating expenses. These are the type of real-world concerns that make most teams reluctant to pay the tax.

Allen's pockets will be strained if the Blazers opt to retain center Jusuf Nurkic beyond the current season. The Blazers are already on the hook for over $110 million in guaranteed salary in 2018-19—a figure that does not include a potential contract extension for Nurkic.