Photo image source: Banknote World
The new collective bargaining agreement brought forth a new innovation to level the playing field: the repeater tax. What does it mean for the Thunder?
SB Nation's Tom Ziller writes an important post today at The Hook about one of the NBA collective bargaining agreement's new tools for leveling the playing field. It is called the repeater tax, and the tool is designed to prevent teams from willfully paying the luxury tax year after year. If team chooses to do so, that's fine, but the cost becomes exponentially greater. Let's let Ziller explain:
What is the repeater tax? It's a clause in the new collective bargaining agreement that raises the luxury tax rate for teams that are serial tax payers. It doesn't actually go into effect until 2014-15 as a penalty, but what teams do now affects whether they'll be on the hook then. Basically, if you exceed the tax threshold in three out of the previous four seasons, you're on the hook for the higher tax if you exceed the threshold again. The "clock" began last year. The first year of the repeater tax is in 2014-15. Only teams that have been taxpayers in 2011-12, 2012-13 and 2013-14 will pay it. In 2015-16, teams that have paid the tax in three out of four of those seasons will pay repeater tax. Then 2011-12 falls off. And so it goes.
How bad is the repeater tax? At the first level of luxury tax -- up to $5 million over the threshold -- the base tax will be $1.50 for every dollar over the line. The repeater tax is $2.50 for every dollar over the line. It matches as you rise up the ladder from there -- the repeater tax is always $1 per dollar in exceedance of the threshold more than the base rate. For $20 million over the threshold, that's a $20 million difference based on whether you're a repeater or not.
Here's an example. Let's assume the luxury tax threshold rises to $75 million by 2014-15. Let's say a team like the Lakers has a payroll of $95 million -- $20 million over the threshold. If they were not repeater, their total tax payment would be $45 million, and their total payroll would be $140 million. If they were a repeater, their total tax payment would be $65 million, and their total payroll would be $160 million.
If you would like to see the tax table for how this is calculated, you can visit Larry Coon's invaluable CBA FAQ.
In other words, if a team busts the luxury threshold, that's fine, they pay the penalty. However, if they keep doing it, the cost becomes more and more prohibitive and puts downward pressure on even the wealthiest teams like the Lakers and Knicks who tend to overspend with impunity by virtue of their multiple local media market revenue streams.
A tax like this would obviously be crippling to a team like the Thunder. Where do they stand? Ziller notes:
The Thunder are within a million dollars of the threshold. They will not cross it this season. Keep in that mind as you hear rumors floating around.
The Thunder are sitting in a careful situation currently. They are absorbing the final year of Kevin Martin's nearly $13mm deal, but they have yet to see Serge Ibaka's contract extension kick in, which will involve an immediate jump of $10mm next year. Sitting so precariously to the edge and with the potential of breaking the barrier next year if they decide to re-sign Martin, it becomes all the more important to not break the threshold in any year that they don't have to.
Through this analysis, we can see that there is the primary motive for the repeater tax - to pretent teams from consistently outspending competitors; but there is a secondary motive as well - force teams who are flirting with the threshold to not break it by even a little bit. To do so might have negligible monetary consequences, but the bind that it puts the team in over the next three seasons can greatly handicap their ability to manage their talent base.
Keep all this in mind as we entertain potential Thunder trade scenarios. Sam Presti and company are going to tread carefully, even if it means passing on talent that they could once afford.