A Luxury Tax Team?

[bsutefan]

Is it necessary for a team to exceed the hard cap to stay competitive in the NBA similar to the MLB (Red Sox, Yankees, etc)?

The simple answer is No. If you break the NBA down into three tiers of payroll, here are the results.

Highest Payrolls = .471 win percentage
Middle Payrolls = .577 win percentage
Lowest Payrolls = .452 win percentage

Using the same tiered system to analyze teams only in the WESTERN CONFERENCE, you get the following numbers:

Highest Payrolls = .529 win percentage
Middle Payrolls = .627 win percentage
Lowest Payrolls = .424 win percentage

Looking solely at statistics, one could create a reasonable argument to state that teams should not be extreme penny-pinchers, although they shouldn't reach the other extreme by opening their pockets for anyone who has ever had a good season.

Among the highest and lowest paying teams in the NBA, you'll find:
Miami = $150M in 2007-08 including luxury taxes paid
New York = $135M in 2007-08 including luxury taxes paid
Denver = $130M in 2007-08 including luxury taxes paid
LA Clippers = $57M in 2007-08
Milwaukee = $59M in 2007-08
Memphis = $48M in 2007-08
Philadelphia = $45M in 2007-08

While teams want to avoid either extreme, there is no exact recipe for success. Many people ask "can a team in a small market like Utah afford to pay high taxes in the NBA and stay afloat"? Given the right scenario, the answer is YES.

The San Antonio Spurs ranked 6th in the NBA last season in payroll which reached approximately $110M including luxury taxes. San Antonio is really a smaller market that Utah, but the Spurs have gained a national following by staying competitive for multiple seasons and winning multiple NBA championships.

Our blogger team has put together a spreadsheet that shows the Utah Jazz salaries for the coming years.

The yellow cells mark the quality players eligible for signing an extension after next season with their expected salaries. Don't forget, a team can't operate with only 6 players however, and a portion of salaries must be kept aside for bench players to fill out a roster. In addition to those listed, the Jazz have zero first round draft picks in 2009, two first round draft picks in 2010 (including one from the NY Knicks), and 1 first round draft pick in subsequent years following.

I don't know how to post the pictures/statistics, but they are on the website.

http://thesaltpalace.blogspot.com/

[babyjax13]

LHM has already said he doesn't want to pay the luxury tax, but if he did this would be a competetive team with a high winning percentage. I don't buy the fact that teams in the lux tax tend to lose more. Maybe over the past few seasons, but go back and look at the Lakers...

[fivas14]

What is the luxury tax?

[tankster]

What is the luxury tax?

The luxury tax is a mechanism that helps control team spending. While it is commonly referred to as a "luxury tax," the CBA simply calls it a "tax" or a "team payment." It is paid by high spending teams -- teams whose payroll exceeds a predetermined tax level. These teams pay one dollar for each dollar their payroll (with a few exceptions, see below) exceeds the tax level The tax level is determined prior to the season, and is computed by taking 61% of projected BRI, subtracting projected benefits ($112 million in 2005-06), and adjusting for whether the previous season's BRI was above or below projections. They then divide by the number of teams (except expansion teams in their first two seasons) to arrive at the tax level

BRI= Basketball Related Income

[DelaneyRudd]

I don't want the Jazz to be a luxury tax team. Not because of LHM's finances, but because of the shackles it puts on making moves. It is really not possible to sign super star talent and just go into the tax. The tax is caused by overpaying for marginal players. It is better to lose a guy like Paul Millsap than to make moves impossible. A good GM will maximize trade, draft and FA opportunities at the role player level and the owner is responsible for keeping super-star talent.

[Fido]

No way does the Jazz go over the luxury tax. No only do you pay a 100% penalty for every dollar you are over the tax but you lose the dispersement from the teams over the tax to those under the tax. Going over would mean millions of dollars in penalties above and beyond the additional salary. A team like the Jazz can't afford to absorb a hit like that to their financial statement. You have to be like the Knicks, Cuban, or other team so rolling in money you don't care to be able to do luxury tax long-term.

That is why the Nuggets gave Camby away for a cheeseburger--to try and get back under the tax level. This year's luxury tax threshold will be $71.15 million. By dumping Camby, they essentially save the team $20m ($10m in salary, $10m in luxury tax). And now their salary figure stands at $71,255,199. I'm not sure if some of this figure is minimum contracts subsidized by the league or not but in all liklihood the Nuggets will be under the tax figure and also recoup the disbursement.