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Oklahoma City Thunder and the luxury tax: comments by NBA collective bargaining expert Jon Hamm

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Jon Hamm writes at The Oklahoman about fact vs fiction regarding the Thunder


The Oklahoman's Berry Tramel lent his column today to Jon Hamm, who is one of the guys whom CBA expert Larry Coon relies upon to create his CBA FAQ. When it comes to understanding the ins and outs of the business of basketball, there are few people better equipped to break things down.

The entire column is a must-read, even if you aren't all that interested in how the CBA works and impacts the Thunder. The reason why is because Hamm uses the right jump-off point - a critique of Thunder naysayer Bill Simmons.

This is what Simmons said during last week's ESPN broadcast:

"We have never seen a team not pay the tax and win the title. You have to do it. Those are how you get the extra two good guys on your team and what they did with that Harden trade, I think it was the worst trade in this century in basketball because they gave away somebody who was the best 2-guard in the league for a couple spare parts. And not just that, but now if I’m Durant and Westbrook, why am I going to stay here? I have all these other teams who will do anything they can to pay $90 or $100 million dollars. Look at what the Nets are doing. If you’re Durant, you’re going to stay here in this mom and pop organization? I don’t see it. I think he’s going to leave in three years. I do."

There is plenty in that body of commentary to take issue with, but there is also some truth to it as well, which makes it difficult to unravel. The challenge is separating the fact from the opinion in order to better analyze the Thunder's situation. Here is how Hamm responds:

This is probably not the worst thing that Simmons has said about the Thunder since the team moved from Seattle, though the ‘mom and pop organization’ comment ranks up towards the top. The Thunder has a total of $234 million of committed future salary, fourth most in the league, yet they just can’t shake the ‘cheap’ label. A less interested observer might get tricked into thinking the Thunder was being run like the 1990s Clippers.

The general idea of a mom & pop organization is that it is a family owned company that has to scratch tooth and nail in order to make ends' meet, and in the end, they will always be small time. Contrast this with the Nets, who are without a doubt all in for this season. The Nets would be 'big time,' I guess. Unfortunately the numbers don't really back up the assertion, even though OKC remains a small market team. The Thunder are most definitely not a cheap team. Rather, they are committed to exercising good fiscal judgment to give themselves maximum room for high performance.

While Simmons was actually just taking the opportunity to shriek yet again about the James Harden trade, a topic that’s about as fresh as prohibition, he just might have made a point. I’ve kept a spreadsheet of tax payers using data originally provided to me by Larry Coon and supplemented with data from Mark Deeks of Sure enough, teams that win NBA titles tend to be tax payers. Only the 2005-06 Miami Heat have won a title without paying extra for the privilege, which kind of blows a hole in Simmons’ opening statement. Five other non-tax paying teams have made it to the Finals and lost (2006-07 Cavaliers, 2008-09 Magic, 2010-11 Heat, 2011-12 Thunder and the 2012-13 Spurs).

But is it reasonable to think the last three teams on that list were at a disadvantage because they weren’t wild spenders?

This is an exceptional distinction. Put aside the fact that Simmons is wrong about having "never seen a team not pay the tax and win the title." Oversight on one year is not enough to turn me against the idea that it is very difficult to matriculate to the top without spending above and beyond the limits. However, what Hamm draws out is that the runners up over the past four seasons were all under the tax threshold. What is the difference between the winner and the runner up?

But is it reasonable to think the last three teams on that list were at a disadvantage because they weren’t wild spenders? The 2011 Heat were a fine team that got a poor Finals performance from LeBron James. The 2012 Thunder just weren’t ready yet. And if the Spurs hit a free throw or two, not spend an extra dollar or two, they win the Finals last season. I don’t see how the results of those series would have been changed thanks to a few extra dollars spent.

With the exception of possibly the Magic, I don't think that these past few seasons have seen material disparity in available talent between winner and 2nd place. It isn't like the Thunder were missing competitive assets in 2012; they just didn't play very well or allocate them the best way. Last year, the Spurs had the title all but wrapped up in 6, but the Heat made a miraculous comeback and reversed the overall outcome.

Furthermore, you could argue with this information that the tax payer relationship to titles is more of a correlation than a causation. Why? Just take a look at all the tax paying teams who have NOT won the title. The Nets, big spenders they, are one of 4 teams in the East who have a legitimate shot to contend. What if they lose in the Conference semi's? What then? Isn't that a meaningful outcome to the consequence of tax paying, or do we simply not count it when a team goes for broke and fails?

So Simmons has at least a half-point in regards to tax paying teams, but it strikes me more as a coincidence than fact. However, all of the above is based on the previous tax structure. The NBA’s new tax structure kicks in this season, which Larry Coon explains best here.  This more punitive luxury tax is a game-changer when it comes to building a team. It’s not only the extra dollars and cents that teams are concerned about. Tax payers also face restrictions on certain kinds of trades and have weaker salary cap exceptions to use when signing free agents.

This is the area where Simmons seems to either miss the mark or not really understand the true nature of what David Stern was trying to accomplish in the new CBA. Hamm gives him the benefit of the doubt as a talking head, but I do not because his statement on air is wholly consistent with his columns, podcast, and video preview where he had ample opportunity to learn the inner workings.

Breaking through the tax threshold isn't simply about paying some extra money, punitive though it may be. In fact, there is an escalating severity to it, which we call the repeater tax. Teams that do not take this repeater tax seriously when they have the means to do so will find themselves paying crippling penalties down the road. Aside from the monetary considerations, avoidance of the tax threshold is about triggering all sorts of penalties that would greatly restrict the Thunder's ability to be competitive on a year to year basis. To see the additional restrictions, you can go to Coon's tax penalty section HERE.

In the end, Simmons has much to say, some right and some wrong, but it is good that we also have something to say  as well and are armed with the facts to do it. The best way to find the truth is to continue the discussion about how the CBA works and eventually sunlight will bring us the clarity we are looking for.