Indiana Pacers CEO Donnie Walsh doesn't apologize for his cautious approach to spending as the NBA was preparing to implement its luxury tax this past season.
"The idea that you have to overspend the luxury tax number in order to have a good team is foolish," said Walsh, whose team was near the $52.9 million threshold for the 2002-03 season. "If anything's been proven it's that going out and spending a lot of money doesn't work."
Approved in 1999 as part of the NBA's current labor agreement, the luxury tax was adopted to level the playing field. It is triggered when player salaries and benefits exceed about 61.1 percent of the league's Basketball Related Income, which hadn't happened until this year.
BRI in 2002-03 was about $2.7 billion, with salaries and benefits totaling about $1.74 billion (64.4 percent of BRI).
Fifteen of the NBA's 29 teams surpassed the threshold, meaning they'll pay a dollar-for-dollar tax that amounts to between $170 million and $180 million. The teams that were below the threshold -- including the champion San Antonio Spurs -- will receive a rebate from the league from that pool.
Additionally, by folding in assorted other league revenue streams, the 14 teams under the threshold will split about $290 million.
So, in essence, it's how you spend and not how much you spend that's most important.
Dan Rosenbaum, an economics professor at The University of North Carolina Greensboro who is widely regarded as one of the foremost authorities on the NBA's luxury tax, said Portland, New York, Dallas and Sacramento will pay the bulk. The Trail Blazers, with a payroll that exceeded $100 million but who lost in the first round of the playoffs, will give back more than $47 million.
The Mavericks sold out every game last season in a 2-year-old arena and made the Western Conference finals, the deepest playoff run in franchise history. Yet they'll pay, and dearly, with a payroll slightly above $70 million.
"We will lose however much we pay in luxury taxes, which would be about $20 million," Mavericks owner Mark Cuban told The Dallas Morning News.
"I think it's clear that even the most deep-pocketed owners seem to be reining in the spending relative to previous years," said Rosenbaum, a LaPorte, Ind., native.
With boatloads of money changing hands, why would notorious nonspenders such as Los Angeles Clippers owner Donald Sterling empty their wallets to improve their franchises?
"I don't think anyone loses sleep over having to pay the Spurs," Rosenbaum said of the luxury tax penalties some teams will pay. "I think they lose a lot of sleep over thinking that they're paying Donald Sterling. Essentially, they're sending checks to the league that get turned around to pay Sterling.
"And while I agree that the NBA's system is not totally crazy, I do think it's probably a bit overdone. It creates a lot of perverse economic incentives, especially if people get the idea that they can manipulate situations based on the assumption that there will or will not be a luxury tax."
There are wrinkles, however, that work in the favor of teams such as the Pacers and Spurs. The most notable being the "cliff provision," which was established to protect teams that end up slightly over the tax threshold, keeping them from "falling off a cliff," Rosenbaum said.
The "cliff threshold" is designated at 65 percent of BRI. Teams with payrolls above the tax threshold but below the cliff threshold are penalized less severely than teams above the cliff threshold. For example, when a team is $1.5 million over the threshold, the owners don't have to sweat out the process. Because that penalty will be offset by the funds collected and redistributed to all NBA teams.
The key, Walsh said, is maintaining a competitive team while also keeping payroll close to the projected tax threshold.
"You have to look at the reality of your situation and realize that the (luxury tax) number is not unreasonable," Walsh said. "That's how I've always tried to approach it. If we all knew that we could spend whatever and win a championship, then a lot of guys would do that. But there's no insurance you're going to win that way.
"You've got to be careful not to go over the (tax threshold), because once you're over it, you might get stuck way over it. And that's why I'm always cautious."
<pre class="ip-ubbcode-code-pre"> Over and under
Over
Atlanta
Boston
Dallas
Golden State
Houston
L.A. Lakers
Memphis
Minnesota
New Jersey
New York
Philadelphia
Phoenix
Portland
Sacramento
Toronto
Under
Chicago
Cleveland
Denver
Detroit
Indiana
L.A. Clippers
Miami
Milwaukee
New Orleans
Orlando
San Antonio
Seattle
Utah
Washington
</pre>
http://www.indystar.com/print/articles/7/062679-5647-036.html
"The idea that you have to overspend the luxury tax number in order to have a good team is foolish," said Walsh, whose team was near the $52.9 million threshold for the 2002-03 season. "If anything's been proven it's that going out and spending a lot of money doesn't work."
Approved in 1999 as part of the NBA's current labor agreement, the luxury tax was adopted to level the playing field. It is triggered when player salaries and benefits exceed about 61.1 percent of the league's Basketball Related Income, which hadn't happened until this year.
BRI in 2002-03 was about $2.7 billion, with salaries and benefits totaling about $1.74 billion (64.4 percent of BRI).
Fifteen of the NBA's 29 teams surpassed the threshold, meaning they'll pay a dollar-for-dollar tax that amounts to between $170 million and $180 million. The teams that were below the threshold -- including the champion San Antonio Spurs -- will receive a rebate from the league from that pool.
Additionally, by folding in assorted other league revenue streams, the 14 teams under the threshold will split about $290 million.
So, in essence, it's how you spend and not how much you spend that's most important.
Dan Rosenbaum, an economics professor at The University of North Carolina Greensboro who is widely regarded as one of the foremost authorities on the NBA's luxury tax, said Portland, New York, Dallas and Sacramento will pay the bulk. The Trail Blazers, with a payroll that exceeded $100 million but who lost in the first round of the playoffs, will give back more than $47 million.
The Mavericks sold out every game last season in a 2-year-old arena and made the Western Conference finals, the deepest playoff run in franchise history. Yet they'll pay, and dearly, with a payroll slightly above $70 million.
"We will lose however much we pay in luxury taxes, which would be about $20 million," Mavericks owner Mark Cuban told The Dallas Morning News.
"I think it's clear that even the most deep-pocketed owners seem to be reining in the spending relative to previous years," said Rosenbaum, a LaPorte, Ind., native.
With boatloads of money changing hands, why would notorious nonspenders such as Los Angeles Clippers owner Donald Sterling empty their wallets to improve their franchises?
"I don't think anyone loses sleep over having to pay the Spurs," Rosenbaum said of the luxury tax penalties some teams will pay. "I think they lose a lot of sleep over thinking that they're paying Donald Sterling. Essentially, they're sending checks to the league that get turned around to pay Sterling.
"And while I agree that the NBA's system is not totally crazy, I do think it's probably a bit overdone. It creates a lot of perverse economic incentives, especially if people get the idea that they can manipulate situations based on the assumption that there will or will not be a luxury tax."
There are wrinkles, however, that work in the favor of teams such as the Pacers and Spurs. The most notable being the "cliff provision," which was established to protect teams that end up slightly over the tax threshold, keeping them from "falling off a cliff," Rosenbaum said.
The "cliff threshold" is designated at 65 percent of BRI. Teams with payrolls above the tax threshold but below the cliff threshold are penalized less severely than teams above the cliff threshold. For example, when a team is $1.5 million over the threshold, the owners don't have to sweat out the process. Because that penalty will be offset by the funds collected and redistributed to all NBA teams.
The key, Walsh said, is maintaining a competitive team while also keeping payroll close to the projected tax threshold.
"You have to look at the reality of your situation and realize that the (luxury tax) number is not unreasonable," Walsh said. "That's how I've always tried to approach it. If we all knew that we could spend whatever and win a championship, then a lot of guys would do that. But there's no insurance you're going to win that way.
"You've got to be careful not to go over the (tax threshold), because once you're over it, you might get stuck way over it. And that's why I'm always cautious."
<pre class="ip-ubbcode-code-pre"> Over and under
Over
Atlanta
Boston
Dallas
Golden State
Houston
L.A. Lakers
Memphis
Minnesota
New Jersey
New York
Philadelphia
Phoenix
Portland
Sacramento
Toronto
Under
Chicago
Cleveland
Denver
Detroit
Indiana
L.A. Clippers
Miami
Milwaukee
New Orleans
Orlando
San Antonio
Seattle
Utah
Washington
</pre>
http://www.indystar.com/print/articles/7/062679-5647-036.html
